Outrages & Insights

IDA continues to obfuscate in wake of One Sunset fiasco

The folks who run the Erie County Industrial Development Agency must still be smarting over the grief they caught for lending Leonard Stokes $50,000 when his One Sunset was in the process of tanking.

A few months ago they made the laughable claim that "due diligence is a way of life" at the IDA. This, from an outfit that didn't even do a basic public records check on Stokes and his restaurant, one that would have screamed "do not lend money to this business!"

Now, earlier this week, the IDA staged a press event in which it trotted out some of the other minority business owners who borrowed money at the same time as Stokes in an effort to make the point that not all the loans went bad. In fact, the IDA says, nine other loans made at the same time are panning out.

Perhaps a bit of perspective is in order, however.

For starters, a report released by the IDA in February showed that nearly half of the money its Regional Development Corp. has lent to minority businesses over the years has not been paid back. As in 43.6 percent. Compared with 12.7 percent for all loans.

In other words, the RDC's track record when it comes to lending to minority business is abysmal.

Don't get me wrong. We need to seed minority-owned businesses. But we also need to be smart about it. And the record strongly suggests the IDA/RDC isn't.

But there's more.

I inquired last month as to the repayment status of the RDC's current loans. The Buffalo Economic Renaissance Corp. routinely makes this information available. But not the RDC/IDA. It responded to my recent Freedom of Information request with a denial.

I called Bob Freeman, executive director of the New York State Committee on Open Government, and he termed the IDA's position "ridiculous." I've filed an appeal.

Think about it -- a public agency is lending money to businesses and claiming that it's none of the public's business whether the money is being repaid, at least not until the loans go officially belly up. Thus, the IDA is less transparent than BERC.

I'm not the only one the IDA is trying to stiff for this information. County Comptroller Mark Poloncarz is having the same problem getting this data.

One final bit of information. The IDA is paying good money for all I reference above.

The press events are being staged managed by the PR firm of Travers Collins & Co. The bad legal advice comes from Harris Beach.

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Enough to warm a cynic's heart

I was initially kind of put off by the prospect of "Extreme Makeover: Home Edition" coming to WNY. I have little use for the vast majority of what's on television, aside from "Hockey Night in Canada" and reruns of "That 70s Show," oh, and "Family Guy."

But I've got to admit I think it's neat what they're doing on the West Side, not just rebuilding one house, but making repairs to others in the neighborhood.

It builds off what the good people at PUSH Buffalo, the Massachusetts Avenue Project and Buffalo ReUse are doing.

I'm off the next couple of days. I'll try and have something fresh by lunch on Thursday.

Redevelopment? Yes. Hotels? No.

Rocco Termini wants to restore the luster to the tarnished gem known as the Lafayette Hotel.

He wants to convert the abandoned AM&A's building into something other than the downtown's largest building code violation.

Good for him.

Maybe.

Maybe?

Yeah, maybe.

Because, as they say, the devil is in the details.

Termini is talking the possibility of hotel rooms being part of the mix.And being part of the developer crowd that can't possibly do a project without a government handout, his hand is no doubt poised to dip into our pocket.

The trouble is that practically every hotel in and around downtown Buffalo was built with public subsidies, and most of them are treading water -- at best.

In a story I did a year ago, I reported:

For nearly 30 years, politicians have poured more than $65 million into downtown Buffalo hotels — an average of more than $50,000 per room. The strategy produced five hotels — and a lot of red ink.

Some of downtown’s largest hotel operators say the last thing they need is more competition, especially subsidized competitors.

But that’s exactly the course City Hall is pursuing.

Indeed, since I wrote that story:

• Embassy Suites opened in the highly subsidized Avant building.
• Mark Croce -- the restaurant and parking lot operator who is pals with Byron Brown and Brian Davis -- has broken ground on a boutique hotel at Franklin and West Huron streets with the help of a $1.35 million grant from the state.
• A group that includes Sam Savarino wants to buy the Statler and restore a portion of the building to hotel space.
• Jim Pitts is still trying to get a hotel built on the waterfront in an Empire Zone .
• There's continuing talk of putting a hotel into Canal Side at the foot of Main Street.

Now, Termini is considering adding yet another hotel or two to the mix.

I think the phrase is "Good money after bad."

I mean, if five subsidized hotels can't make it for lack of demand, how will eight, nine -- do I hear 10! -- fare?

A year ago, Richard Geiger, then president of the Buffalo Niagara Convention & Visitors Bureau, said that more rooms would not help bolster the convention and tourism business.

“Based on current market demand, we have a sufficient number of rooms in the downtown core,” he said.

He's since gotten the boot from Chris Collins, and his successor, Drew Cerza, is singing a somewhat different tune, according to our story the other day.

In the end, Cerza believes that the market will decide how many projects move forward.

I think the market decided a long time ago. The problem is the politicians think they know better. They've been wrong -- tens and tens of millions of dollars wrong. The question is whether they'll keep making the same mistake for the sake of photo ops and rewarding campaign donors. 

Not everyone in local government has such a "subsidize now, ask questions later, if ever." Niagara Falls Mayor Paul Dyster is one of them.

As for Termini, I wish him well with his latest undertakings. But please, remember to put up the safety railings before the fact.

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Some days I think it's hopeless

A read of the morning paper has me thinking today that we should post signs at all access points into Western New York that read "Abandon hope, all ye who enter here."

Consider:

Officials in Orchard Park are balking at plans for an affordable senior housing complex in their town because  -- gasp! -- some of the residents might not be from Orchard Park.

I mean, we can't let the riff-raff in from Hamburg or East Aurora. And perish the thought that some of "those people" might venture out from an inner-ring suburb or -- double gasp!! -- the city.

Town Council Member Nan Ackerman, part of the political crowd that tried to suppress voter turnout in the recent referendum to downsize the board only to complain about low turnout is among the NIMBY crowd. Speaking of the senior complex, she said:

"We were hoping it would be for our own residents and not a lot of other people ... We felt, if we were serving our own people, that was one thing. If we're serving the needs of the greater community, we need to go where those needs are."

Nan, who exactly are "your people"?

Ah, scratch that. I don't think we want to know.

Then we have Erie County Attorney Cheryl Green.

Not content to keep out the U.S. Justice Department as it attempts to scrutinize conditions at the county prison and holding center, she has told the state Commission of Corrections that it can't interview staff or inmates about an escape earlier this month from the holding center unless a county attorney is present or a video camera is rolling.

Speaking from my nearly 30 years of reporting experience, I can tell you that the best way to keep people quiet is by insisting that their boss be entitled to know every word they say. 

Then again, that's probably the point in this matter.

This latest stunt by the Collins administration is part of its MO of ignoring any power or authority that it does not control itself. Be it the county comptroller, the County Legislature, the control board, the Justice Department or the Department of Corrections, Chris Collins and Co. appear to see no authority that it feels obligated to recognize or respect.

Finally, we have yet another mindless pronouncement from one of the guys entrusted to make wise use of public dollars to develop the inner-harbor.

A while back, Jordan Levy, chairman of the Erie Canal Harbor Development Corp., was quoted as justifying the project and its huge public subsidies on the grounds "if you built it, they will come."

Never mind that the development history of this community runs contrary to that. Witness the parking lots that surround HSBC Arena and whatever they're calling Pilot Field.

Now we have Tom Dee, president of the development corporation, declaring: "If you're for Buffalo, you're for this project.

Donn Esmonde takes it from here:

Not really.

There are people who are heart and soul behind Buffalo who have reservations about this project, for good reasons.

We are trying to create a retail-heavy district where none exists. A few blocks away, Main Street is an ode to empty storefronts. Bass Pro ups the long-term ante by requiring four new, nearby parking ramps. It is not clear how much money Bass Pro is putting on the table, or how many millions of taxpayer dollars are needed to bring it. Bass Pro has a heady track record for luring customers. But the more stores it builds … and it has two within a two-hour drive … the less of an attraction each one becomes.

I haven't formed an opinion about the merits of the Bass Pro project. But I've got to cringe when someone in a position of authority wraps himself in the flag, so to speak, and pulls out a set of pompoms when perhaps a calculator might be more in order.

As Donn put it:

There are arguments to be made for and against this thing. But reservations about Bass Pro equals anti-Buffalo? Sorry, that does not play in a town riddled with self-inflicted wounds.

 Indeed. The City of No Illusions needs leaders, not cheerleaders.

 

 

Of subsidies and suds

I read the Sunday paper and here's my takeaway:

Nothing to brag about: I'm pretty sure the Erie County Industrial Development Agency thinks it's a good thing that 71 percent of the companies it has subsidized have added jobs, or at least not shed them. But my math tells me 29 percent have downsized since accepting tax breaks and other goodies from the IDA.

Which begs the question: why is the public helping to subsidize companies that shed jobs, that don't deliver as promised?

Highly subsidized high tech: Some folks say Buffalo Niagara is gaining a toehold as a hub for digital data storage. You know, Yahoo! and the like. It's cutting edge and the jobs tend to pay well.

But -- and you know there's a 'but' coming -- this is a good thing if and when it's not subsidized out the, well, yazoo, by government.

Keep in mind that data centers are energy hogs that don't produce many jobs. When all the cheap hydropower and tax breaks are added up, the public is providing Yahoo! a subsidy of about $1 million per job over the coming 15 years.

Sorry, but that's not a good ROI.

Simple solution: The Buffalo Bills are OK with what goes on the parking lots before games. Well, they have half a point. I mean, these days, it's not as ugly as what goes on during the game on the field.

But, having read the story and lived the experience, the answer is simple -- have the police enforce the open container law.

According to opencontainerlaws.com:

Did you know in most states it’s even illegal to have an open container of alcohol in public?

There is no federal law on the restriction of open containers, but the states are free to legislate the issue. In some cases the state leaves it entirely up to the local level. As a result, from coast to coast, state to state, and even town to town, the United States has quite varied open container laws.

Every state has an outright ban on open containers except for Georgia, Louisiana, Missouri, Montana, Nevada, and Pennsylvania.

Yeah, some people in Bills nation would hoot and holler if the law was actually enforced, and it might cut down on attendance, at least in the short run, until word gets out Ralph Wilson Stadium is a place you could actually take your family for a game.

But, really, if your business model depends on droves of customers showing up blasted, you've got problems. And let's face it, the Bills have problems.

Hard choices ahead on hydropower

We are approaching the moment of truth regarding cheap hydropower, the most potent economic development tool Western New York has at its disposal.

With the announcement that the New York Power Authority has awarded 18.7 megawatts of discounted hydropower to Steel Development, the region's inventory of unallocated power is 29 megawatts, down from a high of about 160 MW four years ago. That's out of a pool of 695 megawatts of so-called replacement and expansion power, WNY's share of the low-cost power produced at the Niagara Power Project in Lewiston.

At the same time, the folks at the Buffalo Niagara Partnership gave some interesting testimony last week to a group of state legislative leaders in town to hold public hearings on the nine economic development programs offered by the Power Authority.

Let me quote from the testimony:

The Buffalo Niagara Enterprise has made great strides working with solar panel and wind turbine manufacturers who have expressed interest in our region because of our proximity to both customers and supply chain, in addition to low cost hydropower. 

Currently, the BNE has nine active projects -- good projects, with real interest in our region, that come from the renewable energy industry, other advanced manufacturing sectors and that include brownfield cleanups and strong job creation as part of their plans.  Together these projects represent potential private sector investments of up to $4.7 billion here, and creation of nearly 5,500 new jobs. 

To land these projects, we (as a region) currently have approximately 40 MW of Expansion and Replacement power available…while the projects would likely require total allocations closer to 200 MW.

Indeed, Niagara Falls Mayor Paul Dyster told me the other day that he feels the region is putting itself on the map as a potential home to clean-tech industry and stands a decent shot at developing an industrial cluster -- if we play our cards right.

I don't expect that all seven of the projects mentioned by the Partnership will actually happen. Two or three, maybe.

The investment for, say, three projects, would approach 100 megawatts, with a payoff of something like 2,000 jobs, if the Partnership's numbers are in the ballpark.

Problem is, we don't have 100 megawatts to invest. Nope, we're down to 29, and that number is likely to drop further as NYPA finds additional customers before any of the big clean-tech projects advance sufficiently to obtain power allocations.

But, alas, there is a potential solution.

Long-term contracts for the major replacement and expansion power customers come due in several years and the authority is preparing for negotiations. The battle lines are being formed.

On one side are those who want to continue to treat long-term customers as though their allocations are a birthright, regardless of the bang for the buck.

On the other side are those who say we need to make the best and highest use of the power, and if that means some existing customers lose out, well, so be it, provided there is a net gain in jobs.

(News business columnist David Robinson had an interesting take in Sunday's paper.)

The reality is that a continuation of the status quo favoring legacy industries is going to limit the region's ability to attract new economy enterprises.

That's not an opinion, that's the reality.

Which means hard choices are on the horizon.

(As an aside, I've costed out the Steel Development deal, and it's on the pricey side, although less so than  Yahoo! at $810,000 per job over 15 years.

The Steel Development deal works out to a discount worth $32,325 per job per year over 10 years. The average annual cost per job for power allocated since 2006 is $11,833, so you can see the state is paying a premium for the 200 jobs that Steel Development would bring to the region.

The deal fares better, but not great, using a second measurement that considers how much investment projects generate per kilowatt of discounted power. Steel Development's $200 million investment works out to $10,695 per KW, vs. $11,451 for other projects awarded power since 2006.

In short, this is a generous deal.)

 

Smart study on dumb use of discounted power

In 2001 the New York Power Authority paid consultants to tell them what they didn't want to hear -- that the entrenched Replacement and Expansion Power program providing cheap hydropower to some 100 industries in Western New York wasn't working very well. Among other things, the report the team of mostly UB professors produced determined that 85 percent of the hydropower could be put to more effective use.

Then, in the waning days of George Pataki's days as governor, a blue ribbon panel charged with studying the state's nine discounted power programs, including the aforementioned Replacement and Expansion Power, said an overhaul was in order from Long Island all the way to Niagara Falls.

In 2007, The Buffalo News published an investigation I wrote that can be summed up with this line lifted from the main story: "The region is home to cheap power, high rates and huge corporate subsidies to a select few."

And the beat goes on.

Today, the Citizens Budget Commission releases a well-researched study of the state's nine discount power programs.

Its conclusion: Throw the circuit break on them and start over.

The programs, set up by legislation and managed by the Power Authority, all leave a lot to be desired, the study said. They don't align with the state's energy and economic development objectives and are tough to quantify and qualify because NYPA shields cost information from the public.

That's the bad news.

The worse news: The hydropower programs - Replacement and Expansion Power in our backyard and Preservation Power in Massena, which amounts to a huge handout to Alcoa -- are the least-efficient programs of all.

Consider these numbers from the Budget Commission's study, lifted from my story today:

Discounts for other discount programs offered by the state range from $247 to $630 per job per year. For the hydro programs, the cost ranges from $5,836 to $7,883 annually per job.

A look at the major recipients of low-cost hydropower customers in Erie and Niagara counties further drove home the point.

Statewide, the authority allocated on average 4.4 kilowatts of power for every job created or preserved. But the allocation for Olin Corp. in Niagara Falls works out to 497 kilowatts per job. The allocation is 244 per kilowatt per job for BOC Gases in Buffalo and 202 for Occidental Chemical in Niagara Falls.

Ah yes, good old Olin and Occidental. As I reported in my 2007 investigation:

Olin gets a $24 million annual subsidy -- an estimated $150,359 per job. Occidental gets a $28.7 million subsidy -- calculated at $111,144 per job.

Occidental's employment has dropped over the past three decades to about 200 today, but the pay is pretty good, in the $40,000 to $60,000 range.

Candace Jaunzemis, Occidental's plant manager, noted the facility's current payroll, including benefits, is about $20 million a year.

The value of its discounted power is some $29 million.

Therein lies the problem.

You'd think the state lawmakers whose legislation allows for this would be shamed into action. But it hasn't happened.

Not when George Maziarz - who is now incessantly yapping about NYPA's shortcomings, real and imagined - was a power on the Senate Energy Committee back when the Republicans were in change.

And not ever when Robin Schimminger sat, and continues to sit, as chairman of the Assembly's Committee on Economic Development, Job Creation, Commerce and Industry.

Most of the legislation governing the nine power programs is coming up on expiration, as are most of the authority's contracts with replacement and Expansion Power customers. Thus, an opportunity presents itself.

Rest assured, the Olins and Occidentals of the world are lobbying behind the scenes for a continuation of the status quo. There is no organized voice for change, but a few brave folks like Niagara Falls Mayor Paul Dyster are saying something has to give. So maybe there's hope.

After all, Gov. Paterson's folks reacted to the upcoming expiration of the legislation authorizing Empire Zones by proposing that the program be chucked.

I know this is short notice, but five Senate and Assembly committee chairmen. including the heads of both Energy Committees, are holding a hearing at 3 p.m. today at the offices of the Buffalo-Niagara Partnership, 665 Main Street, to take public comment on the future of the state's power programs.

On Wednesday, they'll do it all again at Niagara Falls City Hall at 10 a.m. The meeting notice for this hearing says the testimony is by invitation only, so you might want to get on the stick if you want to be heard.

Due diligence, ECIDA style

The folks at the Erie County Industrial Development Agency who lent One Sunset $50,000 a year ago when the joint was tanking must have taken exception to Mayor Byron Brown saying Thursday that the IDA, along with his development agency, should have done a better job of vetting the restaurant's loan applications.

I say this because on Friday the IDA put its public relations firm to work -- on the public's dime, of course  -- to issue a release that declared, among other things that "due diligence is a way of life for us."

I called Al Culliton, the IDA's chief financial officer, into whose mouth the flak placed the words, to ask him exactly that "due diligence" was involved. I knew from previous interviews Pat Lakamp and I had done with Culliton and other officials at the IDA that the agency did not break a sweat in scrutinizing One Sunset before cutting a check to restaurant owner Leonard Stokes.

But hey, sometimes you gotta ask the question more than once.

Culliton's response, in shorthand: The IDA obtained a personal credit history on Stokes, but not a corporate credit check of the business because the search came back empty.

The IDA also reviewed the restaurant's business plan, one which Michelle Barron helped to write and which included a bogus claim by Stokes that he was a manager at a restaurant in Cincinnati when, in fact, he was kitchen help.

Culliton also said they interviewed Stokes, but the IDA official hung up on me before I could ask whether they asked Leonard about the financial health of the restaurant. Stokes told us back in May that by the time he applied to the IDA for money, the restaurant was *"majorly in the hole" and that the loan represented One Sunset's  "last stand."

Now here's the thing. If Culliton had told someone in his shop to do what Lakamp and I did in the course of reporting our initial story on One Sunset and simply checked public records and talked to people in government, the IDA would have learned that One Sunset was in the process of leaving behind a long, ugly paper trail that would have sent up warning flares.

Lawsuits, liens, judgments, unpaid taxes -- stuff like that.

But no, we learned in our interviews with IDA officials back in May that the deliberations involved city officials, including Michelle Barron, saying the restaurant was a good investment and chatter among committee members about how nice it was to have an upscale restaurant oriented towards black professionals and, oh, the paper's restaurant critic give it a nice review.

Culliton, got hot and bothered when I asked him if the credit report they ran on Stokes' personal finances turned up evidence that he was late on his child support payments.

"That's an inappropriate question," he said.

Well, actually, Al, it's not.

It turns out just a few months after you cut Stokes a check, the state suspended his driver's license for being behind in his child support payments. (He later had it restored).

Knowing that might have set off a warning flare, consideering that the only credit report you had was on Stokes, rather than his business.

You see, sometimes you have to ask the impolite questions because sometimes you wind up learning things that stop you from lending money to a business on the brink of failure.

One Sunset is one mushrooming scandal

Michelle Barron is out of City Hall, the FBI is all over it, and the district attorney may be on the way in.

Folks, if the city's funding and management of One Sunset wasn't already a scandal, it is now.

The latest details are here and here.

The key findings of an investigation Pat Lakamp and I published three months ago were confirmed in an audit released Wednesday by City Comptroller Andrew SanFilippo,

In a nutshell: the city's main economic development agency lent money to Leonard Stokes (left) when it shouldn't have; Barron helped manage the joint; and the venture was "doomed to failure," in the words of the report.

The audit said $90,000 of the $160,000 in public financing is unaccounted for and nearly $39,000 in inventory and furniture is MIA.

"There was an ongoing infusion of public money," said SanFilippo. "Frankly, none of these loans should have been approved."

I'll give SanFilippo and City Auditor Darryl McPherson Dayrll McPherson credit: They did a thorough job and dug up improprieties beyond what Pat and I uncovered. (Of course, he had powers at their disposal we didn't.)

For example, the audit report noted that Stokes' signature appeared to be forged on several documents, including a liquor license. The handwriting on that application looked like Barron's, the audit said.

Then there were questionable payments, including $500 to Barron and $230 to an account controlled by Barron and her mother.

Stokes refused to provide documents to back up his claim that he invested $79,000 in the business.

Moreover, the report said, Stokes at one point had decided to stop seeking city financing only to be talked out of that decision by - get this - BERC officials.

The audit also found Barron's shenanigans extended beyond steering money to the business and helping to manage it. Once she knew people were on to her, the audit said Barron went into the city's e-mail system and tried to delete incriminating e-mails. But the horse was out of the barn -- we had obtained copies of many of the e-mails, which made their way into our story.

Barron was fired Wednesday from her job as BERC's vice president for neighborhood development for what Dennis Penman, the agency's new president, termed "significant violations of personnel policies"

The comptroller wants to meet with Erie County District Attorney Frank A. Sedita Jr., who already is investigating the financial dealing of Ellicott Common Council Member Brian Davis, including a check he bounced to cover one month's rent at One Sunset.

And the FBI yesterday issued subpoenas for a wide range of records related to the restaurant deal.

Folks, there's blood in the water.

There are lots of questions to be answered in the months ahead, including the degree to which Mayor Bryon Brown was involved. The audit didn't find any smoking guns, but it's still early in the game.

Let me start by posing one simple question that you readers can help answer.

What kind of "gate" should we call this?  

More on tax breaks for rich condo buyers

When you add it all up, the Avant, and to  much lesser lesser degree, Waterfront Place, got built with the help of about $47 million in state grants and tax breaks.

One can make an argument about the value of bringing the abandoned Dulski Bulding back to life as Avant. The same argument can -- and will -- be made about the Statler Towers now that it has been purchased by a group with plans for a $100 million renovation.

Here's the "but."

Economic development efforts by government ought to be first and foremost about creating jobs, and not just any old job. They ought to be about (1)  creating jobs that pay a living wage that you can support a family on for lesser skilled and educated people and (2) creating good paying jobs, i.e., for the better skilled and educated, that promote the growth of a middle class.

But neither Avant nor Waterfront Place does that -- at least not in a cost-efficient way.

According to the applications each project filed with Empire State Development Corp.:

-- Waterfront Place will create four permanent jobs. ESD has calculated the developer's tax savings under the Empire Zone program at $1.9 million, which works out to $475,000 per job. Add the $5.3 million in property tax abatements that I calculated for my story that ran Sunday and you're talking $1.8 million per job.

-- Avant will create 42 permanent jobs, primarily at the hotel. (Actual  employment at the hotel is 112, although many of those jobs are part-time. No one from the hotel called me back Monday to provide details). The project has received $20 million in state grants and tax breaks, which works out to about $475,000 per job. There's another $20 million the project will achieve in property tax savings. Add it all up and you're talking about $950,000 per job.

Keep in mind that the benchmark used by the federal government for some of its major economic development programs is $35,000 per job.

Now I realize that no one based the decisions to publicly assist Avant and Waterfront Place on the cost per job. Nor should it be the only consideration.

But geez.

Now there are other benefits to the two developments. But I go back to my original point.

At the end of the day, economic development in the third-poorest city in the nation, in one of the most economically sluggish regions in the nation, needs to be first and foremost about helping companies provide people with jobs on which they can support a family.

And in this town, project after project fails to meet that standard. In fact, in some instances, that standard isn't even part of the mix.