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Time to reconsider; Erie County IDA should move away from granting tax incentives to hotels

The granting of tax breaks for hotel renovations has rightly been recognized as folly for years. Yet what did the Erie County Industrial Development Agency do just days ago? Provide tax breaks for a hotel renovation, in this case the Millennium Hotel in Cheektowaga, near the Walden Galleria. Maybe, just maybe, that will be the last one for a long time.

A fine hotel room alone does not draw visitors from outside the area. Further, hotel renovations and remodelings are the duty of the hotel operator, not the taxpayers. We suspect that responsible hotel owners who recognize their furnishings need an upgrade would upgrade them anyway, regardless of whether an IDA dangles tax breaks.

But the practice of local IDAs in recent years has been to promote an expansion of the hotel offerings around the area. With so many hotels collecting tax breaks just for the asking, can you blame any operator who comes along and asks?

For a time, County Executive Mark C. Poloncarz, who has a seat on the county IDA because of his office, dragged his feet on the latest hotel request, from the operators of the Millennium. Poloncarz in February urged the other IDA directors to table Millennium's plea. But Poloncarz later folded. He explained that denying the $275,000 in sales tax breaks for the $5.5 million renovation would be viewed as arbitrary -- when considering the IDA's past practice -- and trigger a lawsuit against the agency.

The hotel's general manager, Scott D. Grant, tried to create a compelling argument as to why the Millennium renovation project would in fact benefit the local economy and create jobs. Because it overlooks the Walden Galleria, the hotel draws the Canadian shoppers who are keeping the Galleria's cash registers ringing. Their shopping excursions can involve an overnight stay, and nicer hotel rooms might allow the Millennium to book more nights. "We have people who won't stay with us, quite frankly, because of the product condition," he said.

Further, to maintain an occupancy rate of about 80 percent, the Millennium relies heavily on steeply discounted rates offered through travel sites, such as hotwire.com and priceline.com. That leads to an average nightly charge of $80, about $25 less than similar hotels charge in the market, he said.

With renovations and nicer furnishings, the hotel hopes to reduce its dependence on low-rate travelers and boost its average room rate to around $100, bringing in about $2 million more a year. If the Millennium can in fact restore about 23 jobs, then we can think of worse uses for the $275,000 that government will in effect spend by not collecting it from the Millennium for its renovation project.

Still, the $275,000 sacrificed for the Millennium means local governments will seek it from the larger pool of taxpayers. And in the main, hotel renovations just don't justify this type of approach. Fortunately, this will be the last hotel renovation that the IDA will take up for a while. The directors installed a moratorium on requests until Sept. 1, to allow time to devise and install a new policy that can be embraced by the industrial development agencies serving the suburbs.

For more than a few years, state leaders have been thrashing around on reforms to the way IDAs operate. Local leaders, meanwhile, can and should devise a more rational policy to determine when hotels deserve tax breaks.