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It's time to realize system of tax breaks has run amok

The heat is on the Buffalo Niagara region's industrial development agencies.

After several years of handing out tax break after tax break to stores, restaurants, hotels and urgent care centers -- all almost exclusively local projects that promised little in the way of job growth or increased wealth for the region -- local IDAs are coming under greater scrutiny from politicians in a position to do something about it.

We're seeing it at the Erie County IDA, where County Executive Mark Poloncarz has made a point of questioning projects of questionable economic impact and succeeded in tabling, at least for a month, a $250,000 sales tax break for the Millennium Hotel in Cheektowaga's $5.5 million renovation project.

We're seeing it in Amherst, where Supervisor Barry Weinstein, who has criticized the Amherst IDA for some of its past tax breaks, appointed himself earlier this year to the agency's board, putting himself in a position where he can back up his talk with action. He already sits on the Erie County IDA board.

"The system just doesn't work," Poloncarz said after last week's Erie County IDA meeting.

No, it doesn't.

Just three days after the dust-up at the Erie County IDA came word that Towne Automotive Group wants to build a stand-alone Mini dealership across the street from its current location, and it thinks it deserves tax breaks from the Clarence IDA to help it foot part of the project's $2.5 million bill.

Ridiculous.

Of course, why wouldn't Towne executives look at what's been happening and figure there's no reason why they shouldn't get taxpayers to help pay for a hefty chunk of their regular business expenses?

After all, should Prime Wines be getting $500,000 in tax breaks from the Amherst IDA so it can move its successful store from Kenmore to Amherst? No.

Should Western New York Immediate Care be getting $450,000 in tax breaks from the Erie County IDA to open an urgent care facility in North Buffalo? No.

Should the owners of the Waterstone Grill restaurant that opened in a closed Bob Evans in Hamburg be getting tax breaks from the Hamburg IDA? No.

Should Paula's Donuts be getting tax breaks from the Clarence IDA so it can add a new store and bakery in Clarence? No.

The list goes on and on, from the $536,000 in tax breaks from the Amherst IDA so Northtown Lexus could move down the road to a new showroom on the site of a closed Chrysler dealership, to the Erie County IDA's $49,000 in tax breaks for a Dollar General store in Buffalo.

"It's a long list, and it shows that the system no longer works," Poloncarz said.

"The hotel project is just one example. Look at Prime Wines in Amherst," Poloncarz said. "That's an example of the system run amok."

The sad reality is that too many IDA tax breaks fail to create jobs and economic growth, said Allison Duwe, executive director of the Coalition for Economic Justice. Instead, all they're doing is shifting business around Erie County -- at the taxpayers' expense.

"They're giveaways that aren't really producing a real return," she said.

IDA officials argue that these projects justify the incentives because they generate additional tax revenue, encourage investment and, in many cases, breathe new life into blighted properties. The Millennium Hotel project, for instance, could add $2 million to the facility's annual revenues. If that happened, it would produce about $275,000 a year in additional sales and bed taxes, more than the $250,000 in one-time tax breaks it is seeking.

"We're getting a very good payback," said Daniel Corwin, the Erie County IDA's vice chairman. "This is an example of an investment that's relatively small, compared with the benefits we're getting from it."

But the bigger question -- one that IDAs are loath to ask -- is whether these strictly local projects would happen even without tax breaks.

Let's look at the 15 projects that received tax breaks last year from the Erie County IDA, which does the best job at tracking its activity.

Those projects involve $866 million in new investment in the region -- a figure that IDA officials cite as proof they are generating new economic activity -- and an estimated 691 new jobs over the next two years. Most of that activity, however, is from the General Motors Corp. project to revamp engine lines at its Town of Tonawanda Powertrain plant. Drop that deal out of the calculations, and the 14 remaining projects involve less than $52 million in new investment and an estimated 161 new jobs.

"They're supposed to create jobs," Poloncarz said. "What they're doing is creating deals, not jobs. They're moving around the pieces on the chess board."

A big reason for that is that the traditional manufacturing and commercial projects that long were the IDAs bread and butter have dried up since the recession. And because the IDAs rely on fees -- typically around 1 percent of the total value of the projects they assist -- the agencies have been forced to look to areas that previously wouldn't have qualified for aid to bring in the fee revenues they need to pay their staff and keep the lights on.

"They're doing things to generate fees," Poloncarz said. "The irony of the situation is that everybody in the industry knows it, but they're just not talking about it."

Most of these questionable projects are getting through because of the adaptive reuse policies that the local IDAs have adopted. The policies are well-meaning, aimed at encouraging the reuse of buildings that have been vacant for three years or longer. Suburban IDAs also have enhancement zones that give them even more wiggle room.

But it's turned out to be a gaping loophole that has opened the door to tax breaks for restaurants, stores, doctors and all these other businesses that, for the most part, serve a purely local clientele and don't bring any new wealth or economic activity into the Buffalo Niagara region. They just carve up the region's economic pie a different way.

Poloncarz last week called for a moratorium on tax breaks for retail and local service industry projects. The idea would be to buy time while changes can be made to tighten up the eligibility guidelines that all six of Erie County's IDAs follow.

That's essential because, without a unified policy, a project that passes muster in one community might not get the green light in another. Cheektowaga Supervisor Mary Holtz said that would put communities like hers, which doesn't have its own IDA, at a competitive disadvantage against towns like Amherst and Hamburg, which have IDAs that have been willing to push the limits of the existing policy.

"We're competing against ourselves in Erie County," said Michael Hoffert, an Erie County IDA board member and the president of the Buffalo AFL-CIO Council. "This is nuts."

It certainly is.

email: drobinson@buffnews.com