By CARL E. FEATHER - Staff Writer - cfeather@starbeacon.com
This month marks the fifth anniversary of the opening of the Lodge and Conference Center at Geneva-on-the-Lake, an economic lifesaver or a $21 million noose, depending upon whose head is talking.
The lodge is owned by the county, built on state land and operated by the Delaware North Cos. under a 10-year contract. County commissioners Duane Feher, Robert J. Boggs and Deborah Newcomb envisioned the project as an economic development cornerstone that would help Ashtabula County transition from an economy based upon manufacturing to one of tourism. None of those commissioners stuck around to bring the project to maturity, however.
Commissioner Joseph Moroski came aboard in 2002, by which time the county already had committed to the project.
“You have to look at it as sort of a mixed entity,” says Moroski, a Conneaut resident. “On the one hand, when you look at it, there is no question it brings people into Ashtabula County, helps the tourism industry and probably helps some of the wineries.”
On the other hand, there is the issue of the lodge as a business deal.
“What I hear from constituents is that this is an example of a government project that was over price and over budget, yet is underperforming and underdelivering. … The beating I take from constituents about it is that it’s another example of where government gets involved where it doesn’t belong.”Great expectations
For the first 59 months of operation, the county-owned Lodge and Conference Cener at Geneva-on-the-Lake has posted a net loss of $863,451. This figure does not include debt service or the money the county put into the project prior to opening its doors, or the money the Convention Facilities Authority (CFA) has spent on the lodge for amenities. James Hardin, the county’s budget director, said it would be very time-consuming to tally all the expenses associated with the lodge over the past decade. However, based just on the debt servicing cost, that figure is well over $5 million, and the county still owes more than $20 million in lodge debt.
It wasn’t supposed to be this way, however. This economic engine was supposed to have been fueled by taxes collected from the prosperity it generated.
A pro forma spreadsheet prepared in early 2004 projected that by 2007 lodge finances would move from red to black and, by the end of 2009, would have generated $1.4 million for county coffers. Instead, the lodge this year will cost the county’s general fund more than $1 million in debt service on two loans, one of which does not pay down the principal. It has yet to return money to the county’s coffers.
Lodge general manager Jeannette Petrolia said one explanation for the big drop is that the hospitality industry has never recovered from Sept. 11’s devastating impacts.
“The hospitality world imploded,” she said of the terrorist attacks’ effects.
In addition, like all other businesses, rising costs for energy, labor and benefits have whittled away at profits, and on the restaurant side, the cost of meat has increased significantly.
Still, the lodge has performed better than many of its competitors.
“When I look at the numbers today, our margins and percentages are very consistent with the rest of the industry,” Petrolia said. “We run a lean operation.”
Intangible benefits
Spreadsheets give only one picture of the lodge, however. When lodge supporters talk about the benefits of the 109-room facility, they focus instead on the intangible benefits that ripple through the county’s economy, particularly to those who service the tourism trade.
“I believe (the lodge) has significant economic development benefits for the county that are sometimes difficult to quantify for the general public,” says Janet Discher, county administrator.
Mark Winchell, who heads up the county’s convention and visitors bureau, quantifies those benefits as marketing and a boost to ancillary businesses.
Winchell says whenever the lodge places advertisements in media, it promotes the entire county as a destination, not just the lodge.
“It leverages marketing dollars,” Winchell said.
He says the lodge’s presence has been a boon to other businesses that rely upon tourism for their existence: wineries, specialty retailers, restaurants, entertainment, recreational activities and equipment rental shops, among them. His mother, Donniella Winchell, who serves on CFA and heads up the Ohio Wine Producers Association, said Ashtabula County suffered through difficult recessions in the 1970s and ’80s but this time it is faring much better compared to the rest of the nation (Ashtabula County’s unemployment rate was 13.7 percent in April).
“Something is different this time,” said Winchell. “We have diversified from a tourism and agribusiness perspective. We have wineries, we have artisan cheese business in south county, and we get tens of thousands of tourists coming in every month. The lodge has provided an opportunity for us to attract a clientele that has a whole different level of income.”
A study conducted by the Ohio State University Extension Sea Grant Program in 2006 suggested the lodge pumps between $5 and $10 million into the local economy annually. Donniella Winchell says the lodge’s presence has created a synergy that has buoyed both business and revenues for other businesses on The Strip.
“It’s provided tremendous value,” says Kevin Grippi, administrator for Geneva-on-the-Lake. “Merchants comment all the time that since the lodge was built, they’ve seen a different kind of clientele and people from outside the area whom they’d not seen before. It’s been good for business.”
Don Woodward, GOTL business owner, said the biggest challenge at The Strip prior to building the lodge was to meet the requests of tourists who wanted an upscale lodging option. The other unfilled niche was to provide lodging for large groups, like reunions.
“It fills two major niches,” he said.
In addition, the lodge helped GOTL transition from being a summer mecca for blue-collar workers to a viticultural romping ground for more-affluent travelers. Woodward said that’s important because the blue-collar trade has dried up as mills and factories in the Mahoning Valley and Pittsburgh region have gone cold.
“I think it basically saved Geneva-on-the-Lake,” Woodward said.
“I believe the lodge is a tourism engine that is helping drive much of what is going on in this corner of the state,” Donniella Winchell said.
But Moroski says a frequent criticism he hears from constituents is that the economic benefits are concentrated in specific industries and locales while the burden is laid upon every taxpayer’s back.
“For Geneva-on-the-Lake, it does a heck of a lot more than it does for those in Williamsfield,” Moroski said.
Jobs, jobs, jobs
Petrolia sees things differently. She said people who live in Conneaut and Rock Creek work at the lodge and, thereby, enjoy its economic impact. At peak season, the lodge employs 120 persons; about 85 in off season.
“Intangible as its benefits are, so too intangible is what life would be like if we didn’t have it here,” observed Donniella Winchell. “Where would be we be without those 120 jobs?”
Petrolia says about half of the lodge’s employees are paid minimum wage, but a majority of those workers also qualify for gratuities. Some of the jobs are seasonal and/ or part-time, so there are no benefits paid by the employer, Delaware North Cos. In addition, in an effort to cut costs during the recession, lodge management this summer will concentrate on part-time hires, Petrolia told CFA last week.
On average, the lodge’s salaried personnel earn between $35,000 and $40,000 annually. Many of those come into the jobs through Kent State University’s hospitality program, which offers both associate and bachelor degrees through KSU-Ashtabula. Winchell said having the lodge in the county addresses the “brain-drain” issue by giving local hospitality graduates a place to work and make a living wage.
“We’re developing professional positions for their graduates, not hourly positions,” Petrolia said.
Susan Stocker, KSUA dean, said the lodge provides a real-world partner for the university’s program, which is not sited at the lodge, despite popular opinion. The Kent State Center at the lodge is for corporate training, not university education.
“Our county offers a lot of learning opportunities for students in that industry, and the lodge is a central location for those experiences,” Stocker said.
The lodge also pumps money into the economy by contracting with local vendors. In 2007 the lodge spent $235,000 at local businesses, and Petrolia said she’s certain that number will continue to grow. It also offers an outlet for locally produced wines and other goods in the gift shop.
Controversies
Donniella Winchell said that, given all the lodge’s benefits to the county, she’s surprised there is controversy. Yet, from the start, the lodge has suffered a public relations problem with the people who must pay for it.
The controversies started as soon the bill for the lodge groundbreaking ceremony was presented to then-County Auditor Sandra O’Brien. The $48,976 bill, whittled down to $33,000, arrived two years late and included a $5,260 fee for writing speeches given by Newcomb and Delaware North Co.’s president. The fee was removed, but the bill was just the beginning of disputes and bad PR that continue to grab headlines.
In 2005, commissioners and the lodge’s contractor, Marous Brothers, feuded over a $99,511 bill that eventually was whittled down and paid. In December of that year, the county was hit with a tax bill of $176,902 for lodge property taxes, an issue later resolved. Then came problems with the construction itself: winds that blew off trim, heating problems in certain rooms and ceiling defects in the lodge’s indoor-pool area.
The lodge lost $200,000 in 2006, prompting commissioners to put the pressure on Delaware North and Petrolia to cut expenses. In 2007, controversy arose over CFA’s plan to spend $500,000 for an outdoor pool at the lodge, as it rolled $7 million in debt onto the county’s books. More recently, taxpayers questioned CFA’s plan to build a $125,000 outdoor dining area, scheduled to open next month, when it looked as if the county’s precarious financial situation would require laying off road deputies.
Whenever public meetings on county finances are convened, constituents often point to the lodge as an asset that ought to be sold. However, there are several why reasons that can’t be done.
“We don’t own the land; the land belongs to the state,” says Commissioner Peggy Carlo.
Another reason cited from time to time is that the lodge, according to one appraisal, is worth millions less than what is owed on it. Carlo does not feel the property’s debt-to-value ratio will be an issue in the long run.
“The value is there,” she said, although it will take corrections in the world economy before that value becomes obvious.
“This is not an opportune time (to sell), but that doesn’t mean we won’t go back and knock on the door again,” she said.
Paying the bill
Commissioners and other government entities with a stake in the lodge’s success have patched together a system to fund debt payments on the lodge. The result is reminiscent of a young couple who begged and borrowed from family, friends and lenders to buy a first home in excess of their means.
There are two loans, the construction loan, originally $14.2 million, and a loan CFA obtained to furnish the lodge and build the outdoor pool: $7.5 million.
The county makes two payments annually totaling $1,113,252 on the construction loan, which, at that pace, won’t be paid off until 2029. The interest rate on the larger loan is 4.5 percent, and despite more attractive rates available in the market, the county is locked into that rate until at least 2012.
The $7.5 million loan was refinanced last week for another and final year at the very attractive interest rate of 1.75 percent. Next year, commissioners will have to go into the market and find long-term financing for that debt, unless the lodge turns in an absolutely spectacular performance and generates enough money to pay it off.
County Budget Director James Hardin suggests commissioners add that indebtedness to County Fund 301, which is used to retire bond debts. Hardin said doing so would allow the county to use a portion of its inside millage – that provided for by the state constitution without a vote of the taxpayers — to retire CFA’s debt. An obligation that has cost the county $740,000 annually retires this year, and that money could be redirected to the $7.5 million debt, assuming the county’s finances don’t require using that money elsewhere.
County Fund 301 also receives money from other sources and funds earmarked for lodge debt. Those sources are:
n Real-estate transfer tax: In 2001 county commissioners increased the amount of real-estate transfer tax charged from 10 cents per $100 to 30 cents. The increase was allocated to economic development, which was eventually interpreted as the lodge. Overall, the lodge gets one-half of the transfer tax (the tax was recently bumped up to 40 cents per $100, but the lodge account does not receive any of that money).
In 2008, this tax contributed $389,051 to lodge debt. However, with the dive in real-estate sales, in the first three months of 2009, only $49,906 had been raised by this means.
n Sales tax on lodge activity. The county’s share of the sales tax from lodge activity was $14,365 in 2008. The amount collected in the first quarter of 2009 fell by about 25 percent. Overall, the lodge has contributed $201,000 in sales taxes to the county during the past five years, said Petrolia.
nGeneva-on-the-Lake pledge. The village pledged $50,000 annually for the first five years of the lodge’s operation. Village Administrator Kevin Grippi said council has not begun discussions on renewing this agreement. “It’s something that needs to be discussed between council and the commissioners,” he said.
nAshtabula County Convention and Visitors Bureau pledge. Also $50,000 annually, this pledge already has been renewed to 2014.
n The CFA. Funded by a 2-percent bed tax, the Convention Facilities Authority has at its discretion the option of giving the county money to retire lodge debt. In 2008, it gave $150,000 to the cause. The CFA frequently uses its money to fund lodge enhancements, like the outdoor dining area and a portion of the bike trail under construction.
Any shortfall between these sources and debt payments comes from the county’s general fund: about $650,000 this year.
Lodge operations do not contribute to debt retirement. Indeed, when the lodge’s financial performance is discussed, the figures are always given as operating profit, which does not take into account the cost of the facility.
The lodge posted its first “profit,” about $1,341 in 2007. In 2008, it had an operating profit of $165,584. Petrolia says the lodge is on track to generate an operating profit of $178,000, most of which will come from holding the line on payroll and other expenses, not revenue growth.
Off the top
Regardless of whether the lodge makes a profit, Delaware North Cos. receives a management fee.
Originally, the corporation was to receive 1.5 percent of the gross revenues. However, the original 2002 agreement has been modified twice.
The latest agreement, inked in 2006, gives Delaware North a flat $175,000 fixed operating fee plus a 3-percent annual increase in that fee. It also gets 1 percent of the gross revenues, not to exceed 20 percent of the total management fees. In addition, the corporation would receive an additional $50,000 if gross revenues meet or exceed $5.7 million. The lodge fell $900,000 short of that goal in 2008.
None of these provisions is tied to profit performance.
The resolution approving the new management agreement was approved by then-commissioners Boggs and Newcomb; Moroski voted against the agreement. The change in fees was initiated by the commissioners, said Petrolia, and was part of the financing package for the $7.5 million loan.
Petrolia defends the new agreement and said Delaware North actually will make less under it than it would have made under the prior arrangement. She says the fee gives the lodge access to a wealth of corporate resources and experience in legal services, marketing, purchasing and management.
“A property this size typically would not have those kinds of resources,” she said.
Preservation fund
Another 4 percent comes off the top of revenues for the Capital Renewals Reserve, money set aside to preserve the building, furnishings and fixtures. The reserve is required by the Ohio Department of Natural Resources, which wants to ensure the lodge is maintained since it is located on state property.
Per the county’s agreement with the manager, that percentage will climb to 6 percent in 2010, which will impact the lodge’s narrow profit margin by about another $95,000 starting next year, said Petrolia.
She is just starting work on the forecast for 2010 but hopes to make up that additional bite from the revenues through continued control of expenses and growing revenues from new amenities, like the outdoor dining area. At Friday’s CFA meeting, Petrolia told the group that she’d like to propose an outdoor tent and pad as the next project, an amenity that would help the lodge capture more wedding business.
Using money from the Capital Renewals Reserve, the lodge this year is refurbishing its suites available to the public (UH-Geneva Medical Center uses a lodge suite for its sleep disorders program). The $80,000 in renovations, which include larger beds and flat-screen televisions, ought to pay for themselves in the first year, Petrolia said.
In her 12-month forecast, Petrolia expects occupancy to be off by 1,087 rooms, or 4 percent, all because of losses in group business. Revenue will fall 6 percent, primarily in food and beverage expenditures. Guests simply aren’t ordering the more expensive entrees or are choosing to eat away from the lodge. Petrolia said residents can help the lodge succeed by eating at Horizon’s. However, in a county where the the average wage is 31.2 percent below that of the rest of the nation, diners willing to pay $10 for a sandwich or $12 for a salad aren’t plentiful.
“The lodge is not going to do it on its own. The lodge really needs a supportive community,” Petrolia said.
Long stay
While the lodge’s financial performance is of little comfort to taxpayers, from a hospitality business standpoint, Petrolia said it is on track.
“I feel very confident saying we’re pretty much on target with the startup of a business,” she said. “We’re not a hotel in a location people are accustomed to coming to. We were brand new, and our challenge, initially, was to get the word out.”
Petrolia said that that required spending a lot of money on marketing, efforts that are paying off in both new guests discovering Ashtabula County for the first time and repeat visitors.
Indeed, when compared to similar properties in the industry, the lodge is holding its own or performing even better, according to statistics from Smith Travel Research. Revenue per occupied room, a key industry indicator of the property’s growth in business, posted a 4.2 percent increase in April 2009, while at comparable properties, the measure fell by 12.6 percent.
Donniella Winchell points out that in the coldest, darkest days of winter in Ashtabula County, the lodge still managed to attract 5,500 room nights, in addition to the food, beverage and retail dollars associated with those travelers. In the peak season, lodge occupancy approaches 100 percent on Saturday nights and, even in winter months, is 80 percent or higher.
Commissioner Daniel Claypool points out that there are segments of the lodge’s business, like corporate meetings, weddings, banquets and reunions, that largely are hidden from the public view. Corporate use has dropped off with the recession, says Petrolia, and with it food and beverage income, but leisure-travel use remains strong, as do weddings: 60 are booked at the lodge for this year, and most prime weekend dates for 2010 already are taken.
Still, despite the lodge’s strong performance, even in a recession, Claypool says the lodge never will be able to pay for itself when its debt payments are factored into the bottom line. Donniella Winchell and other lodge supporters say this is a long-term investment and it will take time for the full wisdom of its construction to play out.
“I think when people look back on the economic history of the county 20 years from now, somebody will say, ‘Thank goodness someone had the foresight to build the lodge,’” Woodward said.
