HERSHEY, Pa. (AP) — The Hershey School, whose recent land acquisitions include a golf course and a roadside attraction called Pumpkin World, now has designs on acquiring the world's largest chocolate factory for redevelopment into condos, retail stores, a retirement community, and a boutique hotel.
The ambitious project would beautify the bucolic central Pennsylvania town of Hershey but also would divert tens of millions of dollars, perhaps more than $100 million, away from the school's core mission of educating poor U.S. children.
The so-called downtown project has advanced quietly even as the Pennsylvania Attorney General's Office is pursuing an investigation into prior land purchases by the officers responsible for the Hershey School, headed by one of the state's most powerful Republicans, LeRoy S. Zimmerman.
The school is the charitable legacy of candy company founder Milton S. Hershey and his wife, Catherine, who planned for the company's profits to fund the charitable trust for the education and lodging of impoverished children from Pennsylvania and beyond.
Zimmerman, the $500,000-a-year chairman of the Hershey charitable organization, is the leading advocate for the redevelopment project, and a possible land deal was disclosed in a public regulatory filing by the Hershey Co. in March. The charity confirmed its interest Friday. The factory is scheduled to close next year, and production is shifting to newer plants.
No developer has been named, though one of the firms retained to develop a revitalization plan for Hershey in recent years was Delta Development Group Inc., which is partially owned by Zimmerman's son-in-law Anthony Seitz.
The lobbying and government-affairs firm in Mechanicsburg was paid $290,000 in fees by companies controlled by the Hershey charity, according to the charity's 990 IRS tax form last year.
Seitz also briefed high-level managers in the Hershey charity on redevelopment options in a several-hour meeting organized by Zimmerman at the Hershey Lodge in early 2009, according to two people with direct knowledge of the meeting.
Seitz said in an e-mail Friday that Delta Development had not been retained by the charity to provide planning services or a report for any of the "current efforts with regard to downtown parcels, including the Hershey Company property, the post office site, or any other location."
Seitz said the earlier study, financed by Hershey Entertainment & Resort Co. and completed in 2008, "addressed numerous development options for the downtown, including renderings and market data and feasibility analysis, based on prevailing market conditions at the time."
Seitz said that his ownership interest in Delta Development accounted for less than 2 percent of the firm's voting shares and that Delta's services for the charity date back to 1996.
The Hershey charity first responded on the redevelopment plans in a statement to The Inquirer in May and reiterated its position on Friday.
"The Trust Company is carefully assessing whether to move ahead with acquiring any of the assets," spokeswoman Connie McNamara said in the first e-mailed statement. "No decisions have been made, and The Trust Company would only move forward if it were determined that a transaction would support our core mission consistent with Mr. Hershey's Deed of Trust."
The current plan is to convert the factory and other Hershey downtown property into condos, stores, a retirement community, and a hotel, according to people familiar with the plan but not authorized to discuss it.
James Negley, the manager of Derry Township, which includes Hershey, said neither the company nor the charity had come to the township "with a sketch plan or a conceptual plan. . . . I suspect they will do something. . . . Right now, it's all speculation." He added that speculation was that the development could be condos and stores.
The legacy of Milton and Catherine Hershey is the wealthiest school of its kind in the United States, with an endowment larger than those of all but a handful of universities.
Cash dividends flow each year into a trust fund to operate the Hershey School, whose potential beneficiaries are poor U.S. children, with a preference in enrollment granted to those from Pennsylvania.
Critics say a diversion of school assets over many years has prevented the school and its enrollment from expanding, while boosting the economy around Hershey. The board of the trust fund spent about $25 million of school money to buy the Wren Dale golf course and Pumpkin World in the last five years.
These purchases are at the heart of the attorney general's investigation — as it regards their appropriateness and whether they conform to the directives of the Hershey Trust. Zimmerman himself was attorney general in the 1980s, the first person ever elected to the position.
The downtown project, which could potentially transform the town of Hershey, also seems potentially rife with conflicts of interest.
The Hershey empire includes Hershey Co., the candy company; Hershey Entertainment, which includes the amusement park called Hersheypark; and the Hershey School. Each unit has its own board. The Hershey School owns a controlling interest in the for-profit candy company, the entity that is selling the factory and other land. Zimmerman has held board seats in both organizations. The Hershey Co. said in its corporate filing that the two organizations have hired their own appraisers.
Conversion of the properties could be complicated and expensive. Attached to the 2.2-million-square-foot factory are cocoa-bean silos that might have to be razed. A "windowless office building," also part of the factory, may have to be altered to serve another purpose. Pipes insulated with asbestos may have to be remediated, say those who have been inside the building.
According to a source with direct knowledge, the Hershey charitable trust has negotiated to pay about $65 million for those properties and other parcels. The addresses of three properties under consideration are the factory at 19 Chocolate Ave., an office building at 14 E. Chocolate Ave., and a building at 1 Chocolate Ave., the Hershey Co. regulatory filing stated.
In its response Friday, the charity did not comment on a price, and the Hershey Co. did not specify a price in its corporate filing in March. The Hershey Co. said last summer it would close the factory in 2012.
While these plans are advancing, the Hershey School still faces potential ramifications from the earlier land transactions.
As he was successfully campaigning for governor in September, then-Attorney General Tom Corbett — a friend and political ally of Zimmerman's — launched the investigation into the charity.
The investigation initially focused on the purchase of the Wren Dale course for $12 million, a value that was two to three times the charity's own appraisal and that personally benefited the then-CEO of the Hershey candy company, Richard Lenny.
Lenny, no longer the Hershey CEO, was both a member of the charity's trust board and an investor in the golf course. The school says that the golf course serves as "buffer land" for student safety and for future expansion and that Lenny did not tell the charity he was an investor in the golf course.
Richard Schulman, a senior financial investigator with the Attorney General's Office, has been assigned the Hershey case. Others involved in the regulatory oversight of the Hershey charity include Mark Pacella, chief deputy attorney general, and Heather Vance-Rittman, senior deputy attorney general. Corbett's selection to fill his remaining term as attorney general, Linda L. Kelly, was sworn into office in May.
In response to questions on the downtown Hershey project, Attorney General's Office spokesman Nils Frederiksen said Friday: "As a policy, we do not discuss the details of potential investigations."
Information from: The Philadelphia Inquirer, http://www.philly.com
Copyright 2011 The Associated Press.