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This city has seen enough failed development plans to wallpaper the Niagara Gorge.

No one, however, came so close to reshaping the city as Benderson Development did in its efforts to build a $125 million factory outlet mall in downtown Niagara Falls.

The rejection of the Benderson mall almost a decade ago has been called one of the most shortsighted business decisions ever made in a city that has seen more than its share. And it came at the hands of the people whose lives it promised to help: the voters of Niagara Falls.

Baltimore developer David Cordish, whose company is a partner in Buffalo's Inner Harbor redevelopment plans and operates the Rainbow Centre in downtown Niagara Falls, said the rejection of the Benderson mall stands as the city's worst economic decision in decades.

The project would have meant millions of dollars in tax revenue to the city and thousands of jobs, in addition to spurring "spinoff development of staggering proportions," said Cordish.

"In Benderson you have a national giant, one of the most respected developers in the United States. Turning that down was an act of madness," he added.

To understand what happened to the Benderson Development proposal is to gain a glimpse inside the vortex of politics, suspicion and history that have at times combined to hurt Niagara Falls' chances to grow.

After so many development ideas in Niagara Falls had gone nowhere -- from the 1970s "rotating hotel" to the 1980s Ghermezian mega-mall -- residents were skeptical about the Benderson Development proposal, unveiled in 1989.

As the city's industrial base continued to decline, urban renewal's promise had turned to disappointment for many in Niagara Falls. Much of downtown had been leveled, replaced by a patchwork of buildings and parking garages whose ability to draw tourists had fallen far short of expectations.

By 1990, "developer" was a dirty word to many city taxpayers.

What was then the city's hope for progress, the Niagara Venture splash park, entertainment complex and retail mall, was in disarray. FBI agents were investigating allegations of fraud in the taxpayer-supported project.

Amid the rubble of vacant lots and broken promises, Benderson Development carried on with its plans to build the largest retail project Niagara Falls had ever seen.

Unlike other developers the city courted, Benderson Development was a commercial builder with a lengthy, nationwide track record.

Starting in 1989, the firm worked with city officials on the plan. Company officials, eyeing the torrents of Canadian shoppers flowing over the border to New York stores, said their plan would be the largest factory outlet mall in the nation.

Benderson eventually spent more than $1 million in planning costs and in marketing Niagara Falls around the world. The company lined up anchor stores and outlet mall tenants such as Wal-Mart, Sam's Club, Wegmans and Toys "R" Us. The Marriott hotel chain was considering joining in, as well as Saks Fifth Avenue and Sears.

Calvin Klein and monorails

But the heart of the mall would have been outlets for international designer franchises such as Polo and Calvin Klein. All the tenants of Benderson's existing outlet mall, on Military Road in the Town of Niagara, were to move into downtown Niagara Falls.

An exit off the Robert Moses Parkway and the international bridges would have dropped 15 million shoppers a year into the heart of Niagara Falls, said City Planner Thomas DeSantis. A Japanese group was interested in building a monorail system linking the mall to the park and over the Rainbow Bridge to Canada.

The mall's parking lots, which the city would still own, could then function as off-site parking for the Niagara Reservation.

"You would have seen a scramble to do things on the American side," said DeSantis, noting that it came years before before Ontario announced plans for a casino.

Benderson was to actually build the mall, providing $80 million in private financing. The 111-acre area designated for the project was home to more than 300 families, 40 businesses and several churches. The city was responsible for moving them out, buying the land and clearing it for construction, at a cost of about $40 million.

Mayor Michael O'Laughlin supported the Benderson plan, along with the Niagara Falls business community. The County Legislature voted its approval to allow Niagara Falls to keep its share of hotel, restaurant and utility taxes, to pay for its part of the cost. The State Legislature approved a measure to allow the state comptroller to guarantee city sales tax revenue to back the bonds, a move that would make borrowing cheaper for the city.

After years of work, the city and Benderson had nearly completed the regulatory plans and studies that such a massive project required, said Larry Krizan, former city development director. The environmental impact study for the site had been completed, including additional work to respond to questions raised by critics.

"Site clearance could probably have begun in six months or so," Krizan said. "We were that close."

A 'no mall' campaign

But opposing politicians and groups affected by the project's displacement spoke out against it, saying it couldn't succeed. City Councilman Jacob A. Palillo was the project's most vociferous opponent. He pointed to the Niagara Venture projects and reports that the FBI was investigating them, and told taxpayers they were going to be disappointed again.

After 16 years in office, O'Laughlin, buffeted by an FBI investigation, didn't run in 1991. After the election, O'Laughlin was cleared. But before the polls opened, Palillo frequently linked alleged corruption in City Hall and the city's abysmal development history.

The Benderson proposal was just one more example of the big-time developer out to skin Niagara Falls, Palillo told voters. He would say no to Benderson and the other developers who would take advantage of city taxpayers, he promised.

The firm's head, Nathan Benderson, "was treated like a convict in Niagara Falls," said former City Councilman Tom Sottile.

"Like it was wrong he was coming into this city to make money," Sottile said.

Over and over during the campaign, Palillo insisted that taxpayers would end up paying the city's share of the deal. The scheme to pay its approximately $40 million, based on future tax revenue, was unreliable, Palillo campaigned.

After 20 years of bulldozers, dust and FBI investigations, City Hall had lost the hearts and minds of many citizens. Asked to trust the city fathers once more, with the largest retail project in city history, for most the answer was no.

On Nov. 5, 1991, Palillo beat Anthony Quaranto for mayor, 50 percent to 48 percent. Quaranto, a Democrat, had supported the mall proposal. But in a mayoral race that was called a mall referendum, the majority of voters did not.

Palillo kept his word and killed the mall.

"I was a hard-nosed negotiator on behalf of the city," Palillo said in a recent interview. "The Benderson deal was unconscionable and would have put the city in the hole.

"If I had the Benderson deal to do all over again," said Palillo, "I still wouldn't give the city away."

Many in the city feel differently.

"After that, who could blame the developers for staying away?" said former City Councilman Henry Buchalski. "Of the developers who would be interested, who would want to take the bloodbath that Mr. Benderson took?"

Today, trash collects in vacant lots that would have held shoppers' cars. In the blocks once slated for the largest retail development in city history, residents complain it's easier to buy crack cocaine than a quart of milk.

"It was the right development at the right time at the right place," Benderson Vice President Rex Burgher said recently. "It was extremely unfortunate for the Niagara Falls community that that didn't happen."

The tax question

In hindsight, Palillo's main argument against the project -- that it would require property tax increases -- appears to have been wrong, by a margin of millions of dollars.

The city had worked out two separate ways to pay its share of the mall project, offering taxpayers double protection, said Krizan. The payment would have been about $3 million a year, he said.

First, the city would have applied special taxes it collects on restaurants, hotels and utilities. Though the mall project is dead, the tax stream approved 10 years ago for investment in downtown Niagara Falls still flows -- into the city's general fund, spent on operating costs.

In 1997, the special hotel/restaurant/utility taxes totaled $5.2 million.

In 1998, $4.7 million.

In 1999, it put $4,599,453.32 into the city coffers, about 1 1/2 times what the Benderson project payment would have been.

Second, the state had guaranteed that if the city didn't make its bond payments, the state would step in and pay the rest out of the city's general sales taxes, before they were returned to the city. With all the new stores opening, city sales taxes, the hotel/restaurant/utility taxes and property taxes were expected to increase substantially, Krizan said.

A town wins out

Last year, the Town of Niagara site where Benderson eventually built its factory outlet mall generated $7 million in sales tax. It is less than half the size of the mall proposed for downtown Niagara Falls.

That mall, called Prime Outlets, offers a glimpse of what the Benderson project might have done for Niagara Falls.

The firm overhauled its Military Road site into a smaller version of the upscale factory outlet mall. Its Polo, Tommy Hilfiger, Perry Ellis, Brooks Brothers and Nautica outlets, among scores of others, draw about 12 million upscale shoppers a year.

Since 1992, many of the area's other major retail projects have been built over the city line, in the Town of Niagara. Wal-Mart, an Ames-anchored plaza and a Wegmans-anchored plaza have all opened or expanded in the Military Road area, plus restaurants and other retail stores.

Prime Outlets paid more than $823,000 in property taxes to the town, county and school district last year, said Town of Niagara Supervisor Steve C. Richards. It also provided 1,500 jobs.

Plus an unexpected bonus. Earlier this year, Prime Outlets' owners donated $1 million to the town's community center fund.

Not long afterward, one Town of Niagara official suggested renaming a street after Jake Palillo. To be accurate, he said, you would have to pick a dead end.

News Staff Reporter Bill Michelmore contributed to this report.

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