The Jacobs family needs your help.
You see, the wealthiest family in the Buffalo Niagara region — and the 193rd richest in the entire country with a net worth of $2.8 billion, according to Forbes magazine – wants to build a signature headquarters on Delaware Avenue for its $2.6 billion hospitality business that would replace its current home office, now located a little more than two blocks away in the Key Center.
The family’s business, Delaware North Cos., says it wants a modern headquarters that will “showcase its global sophistication to its national and international vendors and business partners.” It wants a headquarters where it has room to grow, one that’s energy efficient and environmentally friendly, with floors that are two-thirds bigger than what it now has in the Key Center.
“It has to be an iconic, first-class office building,” said Michael Montante, a vice president at Uniland Development Co., the developer for the $94 million hotel and office complex.
“The Jacobs family wants to keep its world headquarters in downtown Buffalo,” said Dan Zimmer, a Delaware North vice president. “It has grown its business here and feels a sense of loyalty to its hometown.”
But only if the numbers work – and Delaware North and Uniland say the figures don’t add up. Because Delaware North wants a parking ramp to be part of the project – the company would take about half of the 515 spaces – Uniland said the hotel and office complex is looking at about a $10 million financial hole.
That’s where you come in. To make the numbers work, Delaware North and Uniland are looking for tax breaks through the Erie County Industrial Development Agency. Exactly how much of a tax break isn’t clear at this point, but the incentives are certain to run in the millions of dollars. And that will come out of your pocket, because every dollar of taxes that businesses don’t pay because of IDA handouts means that residents and companies that aren’t lucky enough to qualify for corporate welfare have to pay a little more than their fair share to make up the difference.
The portion of the project that would cover the build-out of Delaware North’s $17 million offices would get about $800,000 in sales tax breaks, said Karen Fiala, the IDA’s manager for tax incentives.
But that’s only about a fifth of the overall project, which includes a 119-room hotel that won’t qualify for tax breaks because the Erie County IDA has a policy against giving incentives to hotels. Uniland is looking for tax breaks on the non-hotel portion of the project, and the scope of those incentives will be a hot topic at the IDA’s policy committee meeting on Monday morning.
It’s a hold-your-nose project for a lot of reasons.
For starters, it won’t give much of a boost to the local economy. Delaware North is pledging to create 65 new jobs at its headquarters over the next two years, paying an average of about $70,000. That’s about $4.6 million a year in new payroll for the region.
It’s a project that moves a company from one office to another just a few hundred yards away. If Delaware North were moving its headquarters to Buffalo from outside the region, that would be one thing, because it would vastly increase the size of the local economy. But this is the kind of movement within the region that largely just re-slices the economic pie.
It’s a project that would add more than seven stories of office space to a largely stagnant downtown office market – where the most prominent office building, the former One HSBC Center, is on the verge of being almost entirely vacant. While Delaware North would occupy a little more than half of the 204,000-square-feet of office space in the new building and has eyes on filling even more in the years to come, the project would immediately throw almost 100,000 square feet of new space on the market and put downward pressure on the rents that existing landlords can charge. It would leave a gaping vacancy in the Key Center, where Delaware North now occupies more than 100,000 square feet of space on seven floors.
It’s also a project that is a reflection of the atmosphere of entitlement that has developed around businesses that are making any kind of investment in their local operations. Executives at companies like Delaware North see tax breaks being handed out for just about every significant local business project and figure they might as well get a handout too.
And then there’s the gnawing question that makes this project such an emotional hot button: Does the Jacobs family, with all its wealth, really need handouts from taxpayers?
Ellen T. Kennedy, a retired SUNY Buffalo State professor and civic activist, doesn’t think so. She was the only person to speak at an IDA hearing on the project last week.
“I can’t imagine that they need them,” Kennedy said, even as she praised the Jacobs family for its philanthropy. “Delaware North is extraordinarily successful. So is Uniland.”
And there’s the rub. Businesses don’t get to be as extraordinarily successful as Delaware North and Uniland by settling for anything less than the best deal.
While the company, which has an extensive presence in Boston and other U.S. markets, isn’t making outright threats to move, it’s an unmistakable presence in its application for tax breaks. “Delaware North has multiple options available to locate new jobs and/or relocate existing jobs outside of New York state,” the company said in its filing.
That puts the IDA in a tough spot. Erie County Executive Mark Poloncarz, the most powerful member of the Erie County IDA board, has been pushing the region’s IDAs to be more discriminating in how it hands out tax breaks, going so far as to suggest that one criteria be whether a project would proceed only if incentives were included.
But is it worth drawing a line in the sand with Buffalo’s second-biggest private company, one that employs 350 people at its headquarters with an average salary that tops $97,000?
“A company like this has enormous benefits upon the area,” said Deputy County Executive Richard Tobe.
“It’s not a lot of money, but it’s very high stakes,” he said. If Delaware North were to leave Western New York, “there would be enormous ripples in this community. The consequences would be very high.”
Not the least of which for the politicians who denied tax breaks for a company that ultimately left.
“I think it’s too important a question to gamble on,” Tobe said. “I don’t want to bluff, and I don’t want to call their bluff. How many companies of Delaware North’s size do we have?”
Tobe said it doesn’t matter that the Jacobs family is wealthy and that Delaware North is a huge, successful business.
“The question is, does the deal need the tax breaks for them to make the decision we need them to make?” he said. “Companies look at things individually. They don’t go into these projects to lose money ... even if they’ve got a big bank account.”
The trouble is, most taxpayers don’t have a big bank account either.