July 30, 2004- Losses at the state-backed Rocky Gap Lodge and Golf Resort in the Maryland mountains have been mounting at an increasing pace, bringing the total to $25.5 million since 1999.

The resort lost $6.5 million in the fiscal year that ended June 30, 2003, ending the year with a $13 million net deficit. That followed a $5.5 million loss in the 2002 fiscal year and a $3.5 million loss the previous year, according to a recent report by the state Department of Legislative Services. Results for fiscal 2004 are not yet available.

The losses have ballooned even though bondholders have agreed to forego interest payments to give McLean, Va.-based Barcelo Crestline Corp., brought in as manager two years ago, a chance to boost occupancy at the Allegany County resort.

Interest on the current $26.5 million of investor debt, with its interest rate of more than 8 percent, amounts to about $2.2 million a year, according to state officials.

At the same time, the resort's total debt has mushroomed to a total of $48 million as of June 30, 2003 from $42.2 million a year earlier.

But state officials are optimistic that improvements including more meeting space, an updated pool and a new spa will help staunch the red ink at the sprawling resort outside Cumberland.

Its newly enclosed pool opened Memorial Day weekend and the spa opened a few weeks ago. And an additional 5,000-square-feet of meeting space is supposed to open soon.

"Not only is there a significant improvement in their ability to book, they can bring in multiple groups," said Robert C. Brennan, the new executive director of the Maryland Economic Development Corp., the state's quasi-public development agency. "There's going to be a significant pick up in bookings that should translate into an increase in free cash flow."

The state loaned $4 million to the resort to finance the new additions, with the goal of getting Rocky Gap able to operate on its own cash flow, said Brennan, who was formerly assistant secretary for financing programs in the state's Department of Business and Economic Development. In fact, the resort is projected to cover its operating expenses this calendar year for the first time, he said.

But the resort's woes will not be resolved in the near future, he cautioned.

"From a pure business perspective, it will be difficult, with the debt structure, for this to be profitable in the near term," Brennan said. "But in the long term, we should be getting to the point where we can start servicing that debt. And from an economic development standpoint, it's been very profitable."

The additional meeting space is considered vital to growing business.

"This was a very difficult and challenging project," Brennan said. "With a lot of political will, it got done."

Conceived as an economic development engine to bring tourists to an area of high unemployment, the resort received funding in 1996 when MEDCO issued $31.1 million in revenue bonds and the state kicked in $16.4 million. It opened in April 1998.

Rocky Gap has a 220-room hotel, restaurant, conference center and an 18-hole Jack Nicklaus-designed golf course nestled in the mountains of Western Maryland beside Interstate 68. Its main proponent was then-House Speaker Casper R. Taylor Jr., an Allegany County Democrat who saw it as an economic boon for his constituents.

Supporters believed the resort's golf course alone would attract people from around the world. But Rocky Gap has faced several obstacles, including a delay in the opening of the golf course and changes in management companies.

Despite the difficulties, Brennan said the resort, which employs about 300 people during the high season, has paid off in terms of economic development.

"It's exceeded all our expectations," he said.

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