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The City Council will hold a special meeting at 7 p.m. Thursday to vote on withdrawing from the Niagara County sales tax distribution system and to finance public improvements related to the proposed $115 million factory outlet mega-mall alone.

If approved, the resolution would direct the mayor to give notice to the state and the county that the city will collect its own 1.5 percent tax on sales generated in the city and no longer receive a share of the 3 percent collected throughout the county.

The move could cost the city up to $2 million in the first year but the city would more than recoup after completion of the mall, proposed by Benderson Niagara Associates, according to Mayor Michael C. O'Laughlin.

The Council had authorized the mayor to "pre-empt" the county regarding sales tax last December, but O'Laughlin had chosen to continue negotiations with the county over sharing the $31 million cost of public improvements B related to the mall development rather than exercise pre-emption.

But, last week, negotiations with the county broke down after the County Legislature adopted a resolution making the county's participation in the project contingent on assurances that the city would not disturb two Armenian churches on Ninth Street, which is part of the 100-acre East Side site where the mall is to be built.

Members of the churches, St. Sarkis Armenian Church and St. Hagop's Armenian Apostolic Church and Community Center, are opposing relocation.

Also on Thursday's agenda will be a resolution pledging a portion of the sales tax revenues to be generated by the mall to repay about $31 million in bonds the city will need to buy East Side properties, relocate residents and businesses and demolish structures to clear the site for the mall. The city must pledge the sales tax revenues to get the state Job Development Authority to guarantee the bonds. The Job Development Authority's guarantee of repayment will make the bonds more attractive to buyers.

The Council also will be asked to authorize O'Laughlin to undertake measures that he determines are necessary to further the development of the mall.

At Monday's regular meeting, the Council called on the mayor to continue negotiations with Benderson, the county and the Armenian churches "in an attempt to reconcile the differences of those parties . . ." The resolution said that the Council recognizes the importance of the two churches and, "if at all possible, seeks to avoid the necessity of acquiring" the properties. But, it said, "the Council also recognizes its responsibilities to the whole city to provide a growing economic base and jobs for its citizens . . ."

While the Council was holding its afternoon committee session, City Administrator Mark R. Palesh, development chief Larry Krizan and James E. Engel, director of economic development, met for two hours with a group of nine Armenians representing the two churches.

After the session, Palesh said nothing had been resolved, but "we're opening up as many doors as we can."

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