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The pros and cons of IDA tax breaks

First it was restaurants, then prominent wine stores. Now, we're giving tax breaks to dollar stores.

Isn't that what economic development is all about?

Of course it isn't. Economic development, first and foremost, is about creating new wealth, and that's something that stores and restaurants don't do, especially in a shrinking region like Buffalo Niagara. All they do is just slice up a smaller pie in a different way, stealing customers away from businesses that already are here.

That's why it's troubling when the Erie County Industrial Development Agency last week doled out a limited package of nearly $49,000 in tax breaks for a South Buffalo project that will turn an abandoned Pizza Hut restaurant into a Dollar General store with eight full-time and four part-time employees.

The IDA board, however, wasn't troubled. They approved the tax break for developer David Pawlik without a single "no" vote. Board member Andrew J. Rudnick, the president of the Buffalo Niagara Partnership, voiced concerns about the handout, but abstained from the final vote.

"There's just something wrong about it," Rudnick said. "What concerns me is the legacy of the ECIDA's support is a Dollar General store."

IDAs in Erie County generally don't give tax breaks for retail projects, but they've been doing it with alarming frequency in the past year because of a relatively new policy, called adaptive reuse. That policy allows IDAs to grant incentives for otherwise ineligible projects, provided they reuse long-vacant buildings in targeted areas. Several of the sites that have received tax breaks had environmental problems, which made reusing them even more costly.

Reusing existing buildings is a noble idea. After all, it's better to reuse an existing building than to build a new one. If, for example, a big-box retailer wanted to open a new store in Hamburg, wouldn't it be better if they did it in the old Walmart or Kmart stores that have sat empty for years, rather than build new?

Absolutely.

The other question, though, is whether taxpayers should be footing part of the bill.

The Dollar General site on Seneca Street used to be a laundry, so it had environmental issues. Buffalo Mayor Byron Brown said that makes it a risky project for Pawlik and his company, Creative Structures Services. The site, which already has had almost $1 million in cleanup work, will require another $70,000 in additional remediation, along with three years of testing and monitoring after the construction is finished.

This was Pawlik's second Dollar General project on an environmentally troubled site to receive tax breaks from the IDA this year. In January, the agency approved nearly $60,000 in incentives for a $1.4 million project to demolish a former Noco gas station and build a 10,640-square-foot, single-story Dollar General at 1055 Genesee St. at Fillmore Avenue. The site also had been vacant for several years.

To their credit, the IDA put some sensible limits on its tax breaks for both Dollar General projects, offering only sales and mortgage tax breaks. The projects did not receive any property tax breaks through the IDA, and no adaptive reuse retail project should.

Brown said it's important not to let the concerns over the Dollar General part of the project overshadow the other good that will come from it, namely "the job creation and the cleaning up of a blighted property that has had environmental concerns for some time."

It truly is a paradox, and because of it, the IDA's policy committee is taking another look at its adaptive reuse initiative. After all, what happens the next time, when someone wants to put a store or restaurant in the Pizza Hut in East Aurora that's been vacant for years, or the old Friendly's restaurant in Hamburg that's been boarded up for more than a decade?

The list of restaurant and retail projects receiving incentives already is getting uncomfortably long. The Hamburg Industrial Development Agency, which gave incentives to a children's play center that moved into a long-empty Ames Department Store last year, doled out tax breaks this summer for a new restaurant heading into the mothballed former Bob Evans restaurant on Camp Road.

The Amherst Industrial Development Agency gave tax breaks this spring so the Pizza Plant Italian Pub could move to a new site in an empty Transit Road building after losing its lease in a plaza just up the street. It gave Prime Wines more than $500,000 in incentives this summer to move its popular Premier Liquor store from the Town of Tonawanda to Amherst.

None of those projects generate new wealth for the region, so they fail that test. But they do breathe new life into long-vacant properties, which is a positive.

There's also a third factor at work here: money. The county's IDAs rely on fees from the projects they support to fund their operations. Since the recession hit, the industrial and corporate projects that used to fill the IDA pipeline have largely dried up, so doling out incentives for adaptive reuse projects have become an important source of revenue. The Amherst IDA, for instance, was running a deficit through August, but agency officials said they expected to be back in the black this month, after the fees from the dubious Prime Wines project and one other deal come in.

Maybe there needs to be a tougher standard for adaptive reuse retail projects: The old "but-for" standard, which asks whether the project would be dropped without IDA tax breaks.

Philip C. Ackerman, the IDA's chairman, recognizes that it's a fine line the IDAs are walking.

"We don't want to let the perfect be the enemy of the good," he said. "Or maybe you'd look at it as the enemy of the OK."

email: drobinson@buffnews.com

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