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Dauphin County General Authority, Owner of the Hyatt Regency at Pittsburgh
International Airport, in Arrears $8.4 million to Taxing Bodies

Fine Print on Tax-Exempt Project Mandates Other Bills be Paid First

By Mark Belko, Pittsburgh Post-GazetteMcClatchy-Tribune Regional News

Aug. 31, 2012--When the Hyatt Regency Hotel opened at Pittsburgh International Airport in 2000, its owner pledged to fork over as much as $767,000 a year in payments to compensate for the loss of property tax revenue on the tax-exempt project.

Twelve years later, the intended recipients -- Allegheny County, Findlay and the West Allegheny School District -- are still waiting to see the first dime of what is now an $8.4 million tab.

The Hyatt's distant owner -- the Dauphin County General Authority, 200 miles away -- has yet to make good on even one of the payments required under the 1998 deal with the then-Allegheny County commissioners to build the hotel.

One big reason lies in the fine print of the agreement itself. It mandates a host of bills that must be paid before the taxing bodies receive a cent.

Those payments include principal and interest installments on the debt; money set aside for furniture and other equipment; hotel operating expenses; and the Dauphin authority's "reasonable" administrative expenses and administrative fee.

There are so many items given priority ahead of the taxes, in fact, that by the time the authority gets around to the point of paying the taxing bodies, "There just isn't any money," said Guy Beneventano, solicitor for the Dauphin authority.

That assertion might now need to stand up to some double-checking. Findlay solicitor Alan Shuckrow said the township and the school district have been talking to Allegheny County about teaming to gather information to determine if money is, or has been, available to make the payments.

"We would want to be in a position to satisfy ourselves whether the payments that have not been made could have been made in whole, or in part, in any particular year," he said.

Likewise, county Controller Chelsa Wagner said her office probably will audit the agreement.

"I think there was a contract signed where the entire purpose was frustrated," she said.

Mr. Beneventano said they and others are welcome to look all they want. He said the Dauphin authority would gladly make the payments if it had the money.

"The audits are all public," he said. "We're not hiding anything. There's no shell game being played here."

The failure of the authority to make the payments in lieu of taxes, he said, is symptomatic of a much larger problem with the hotel project -- too much debt.

Even in the best of times, it was unreasonable, he said, to expect hotel room rates in a market like Pittsburgh to generate enough money to pay off $64.5 million in bonds with interest rates of 6 percent to 6.2 percent.

"The bottom line here is that years ago, the board in office did a series of deals which, in retrospect, don't make a whole lot of financial sense," he said.

In the 1990s, the authority, formed to build a Harrisburg parking garage, "went on a binge." It built the Hyatt and acquired three golf courses and a Harrisburg office building that ended up in receivership before being sold in January, he said.

At the time, the Allegheny County commissioners were looking for a developer to get a long-stalled airport hotel off the ground. Mike Dawida, a former commissioner, said the county turned to the Dauphin authority to do the work because its own authorities had too much money tied up in other projects.

"Our authorities were maxed out and we needed someone else's money, and they were willing to do it," he said.

Mr. Dawida said the county felt it needed the hotel to attract more flights. It wasn't a project that "we had people jumping all over us to do," he said. "Nobody wanted to put up a hotel. They aren't big money makers."

That, he said, may have led the county to agree to terms that put the payments in lieu of taxes behind a long list of other bills. The hotel is tax-exempt because it was built by the Dauphin authority, a quasi-governmental entity.

"Getting the amenity was more important than how much money we were getting out of it," he said. "Frankly, I don't think we thought we would get a lot of money."

That didn't stop the county from making sure that rent payments from the Hyatt would be among the top bill-paying priorities. Last year, the county's airport authority received $483,412 in rent. No rent payments have been missed.

In retrospect, cutting a deal that put the payment in lieu of taxes behind so many other obligations may have been a mistake, said former commissioner Bob Cranmer, who was Mr. Dawida's partner in running the government at the time.

"I think it should have stood alone," he said. "Those payments should not have been contingent upon anything else."

The fact that the Dauphin authority hasn't made a payment doesn't mean the money isn't owed, Mr. Shuckrow argued, adding there's a "significant accrued liability" involved. The amount owed the taxing bodies is estimated at $8.4 million.

But they might not see it any time soon.

Mr. Beneventano said there hasn't been enough money available lately to pay the authority's administrative fee, one of the bills that gets paid before the payment in lieu of taxes. In fact, the authority has had to dip into reserves at least 10 times over the last eight years to make debt payments, according to records.

Contributing to the pain are the hundreds of flights that the Pittsburgh airport has lost in the last decade, Mr. Beneventano said.

"It has hurt the situation. It has been a real challenge for the Hyatt to find customers elsewhere," he said.

While the authority has never defaulted on a payment, the raids on the reserve are a "sign that we are having an increasingly difficult time paying all the bills," he noted.

The hotel itself is well run and occupancy is "very good," Mr. Beneventano said. In April, a consultant reported the hotel earned a gross operating profit of more than $9 million in 2007. It also managed to make money during the worst of the recession, with a gross operating profit of $5.4 million in 2009 and $6.2 million in 2010.

In July, the authority's current board authorized a request for proposals for the Hyatt's "disposition." It is seeking anyone who would be interested in purchasing the authority's ground lease, since the land itself is owned by Allegheny County.

If the authority finds a buyer, in the "best case scenario," it would have enough money to make whole the county, the township and the school district, Mr. Beneventano said. But the priority will be paying off the "millions and millions of dollars" in debt still owed on the property.

"That's not a matter of choice," he said. "We have no discretion."

Mark Belko: mbelko@post-gazette.com or 412-263-1262.

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(c)2012 the Pittsburgh Post-Gazette

Visit the Pittsburgh Post-Gazette at www.post-gazette.com

Distributed by MCT Information Services



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