The state is throwing a lasso around its out-of-control industrial development agencies.
After more than four years of doling out inexcusable tax breaks to car dealers, restaurants and wine shops, the new state budget effectively ties the hands of IDAs and prevents them from doling out incentives to retail projects except in a few well-defined circumstances.
The result? Handouts for businesses like Prime Wines, Northtowns Lexus and Paula’s Doughnuts should pretty much be a thing of the past.
And that’s a very good thing.
Those projects had no business getting taxpayer support because they did nothing to promote the Buffalo Niagara region’s overall growth and economic prosperity. They simply allowed a handful of lucky business owners to pay less taxes than their less fortunate competitors while they opened new stores that they almost certainly would have opened anyway.
That’s not what economic development is about. Economic development is about helping businesses expand in a way that will create new wealth – primarily through new jobs and investment – that will expand the Buffalo Niagara economy and make it more vibrant.
Retail projects, while they might involve an investment to build a new store, don’t do that. In a region like ours, where the population is shrinking, any doughnut that Paula’s Doughnuts sells means one fewer doughnut that Tim Hortons sells. Any Lexus that Northtowns Lexus sells, means one less car buyer for the other local car dealers, from West-Herr to Transitowne.
That’s not wealth creation. That’s carving up the same pie in a different way. And it’s why IDAs, especially the suburban ones in Erie County, were catching so much heat because of their willingness to squander taxpayer resources on projects that did so little to bolster the local economy.
“Retail has always been the poster child for criticism,” said Erie County Executive Mark Poloncarz. “This really limits the ability of IDAs to provide incentives to retail projects.”
But the new rules still allow tax breaks for retailers in certain circumstances: if they are part of a “tourism destination” project; if they are located in an economically distressed area, like most of the City of Buffalo; or if they would provide goods or services that aren’t readily available here.
Those are acceptable exceptions, although they still would leave the door open for projects like the ones the Erie County IDA has supported in the past by providing tax breaks to a pair of Dollar General store developments in the city.
Where the merits of tax breaks for retail projects gets murkier is when the stores are part of a project that would take a long-vacant building, or one that’s in bad shape, and renovate it.
James J. Allen, the executive director of the Amherst IDA, said those redevelopment projects are a vital part of his agency’s mission, because they help combat the blight that vacant buildings cause in a neighborhood.
He worries that the new restrictions on retail projects will make it harder for developers to justify projects that would fix up empty or under-used buildings.
“I can live with some restrictions on what we can do with redevelopment,” Allen said. “But if the interpretation is that you can’t do redevelopment, then we’ve got to find a way around that.”
Of course, it was the banner of redevelopment that the IDAs often waved when they were approving tax breaks for projects like the Waterstone Grill restaurant in Hamburg, which opened in a empty Bob Evans, or the Just Play children’s play center in Hamburg, which opened in a long-vacant former Ames store.
Is it better to provide sales and mortgage tax breaks to put those buildings, which had sat empty for years, back to good use, even if it’s retail? Or should development officials simply wait to see if the free market would provide the needed spark for those projects anyway?
“Adaptive reuse is what IDAs are strongest at,” said Clarence Supervisor David C. Hartzell, who also is chairman of the town’s IDA. He’d like to see another exemption added to the retail rules that would permit tax breaks on projects involving buildings that have been vacant for more than 10 years.
Beyond the new restrictions on retail projects, the new rules are a big improvement on what Gov. Andrew Cuomo originally proposed in his budget plan.
Cuomo also sought to limit state sales tax breaks to projects in just seven targeted industries, which would have vastly curtailed redevelopment projects across the region.
“It could have been worse,” said Michael Bartlett, the executive director of the Hamburg Industrial Development Agency. “We just can’t go out and offer incentives to retail projects.”
And that’s a big step in the right direction.