Tax breaks given by the Niagara County Industrial Development Agency are worth an estimated $2.2 million in city tax revenue next year.
Think that doesn't affect you?
That's $98 the average homeowner would not pay in city taxes if those same commercial properties paid full taxes next year. City school district and county taxpayers also will have to pony up more, too.
So is it worth the price?
That's the question at the heart of a debate that has simmered between city officials and members of the IDA since the county agency granted an unprecedented five-year, tax-free deal to a downtown hotel.
On one hand, Mayor Paul A. Dyster argues the tax breaks might not be worth their cost in some cases. He believes that giving away future tax revenue -- sometimes a decade or more ahead -- should be a "last resort" used in collaboration with other economic development incentives, and he wants the county to work with the city to determine what level of incentives are needed for each project.
"You're putting the burden on the other payers," Dyster said. "The non-homestead and homestead payers have to make up the difference of whatever it is you're not collecting from someone else."
IDA Chairman Henry M. Sloma counters there is a "fundamental misunderstanding" with that view.
The agency's task, Sloma said, is not to determine whether a developer needs an incentive to build a project, but to provide incentives where development has lapsed.
Sloma compares its mission with the recent federal "cash for clunkers" program in which the government gave rebates to new car buyers who traded in their gas guzzlers.
"It had nothing to do with whether or not you needed the incentive to buy a new car," Sloma said. "It had to do with providing some kind of incentive for you to go buy the new car."
Sloma said the "clunker" program is an "absolute parallel" to pockets of the county -- including Niagara Falls -- where the agency is trying to encourage development when there is "apparent distress and absolute reluctance to develop."
"This is kind of a kick start to make them get started," Sloma said.
Sloma also calls the argument that others pay more because of IDA tax breaks false.
He points to a Holiday Inn Express on Niagara Falls Boulevard that opened last year with the help of tax breaks from the IDA. City, school and county taxes on the vacant land before the hotel was built were about $4,500 a year, Sloma said. Taxes at the end of the property's 10-year deal with the IDA are estimated to be as much as $290,000, he said.
That's revenue that may never flow to the municipalities if the hotel wasn't built, Sloma argues. On top of that, he said, the hotel created new jobs.
"This is like a no-cash deal," Sloma said. "There's no cash in my deal. The deal is you've got an empty lot. Next year, you're going to get more for it. I didn't give them a cent. They're giving us more money."
In Sloma's view, the tax breaks don't cost other taxpayers money; they're actually pumping new tax revenue into the system.
The debate is a little like the chicken or the egg. Do the tax incentives entice developers to build or improve hotels? Or is the hotel project viable before the incentive is thrown into the deal?
The way the IDA typically offers property tax breaks is through payment-in-lieu-of-taxes, or PILOT, plans that offer steep discounts on county, school and city taxes in the first year of a development and then gradually increase payments until the property owners pay the full tax amount. The plans can last 10 or more years.
Three hotels in Niagara Falls have received PILOT plans in recent years and three more are in line to receive tax breaks.
What has rankled city leaders -- and led to three public meetings in which Dyster or city Economic Development Director Peter Kay have raised their concerns to IDA members -- have been two recent deals for hotel projects that have come before the county agency.
In one, the IDA approved a 20-year PILOT for the shuttered Fallside Hotel and Conference Center on Buffalo Avenue. No property taxes would be paid during the first five years of the plan, which has yet to be finalized, as long as the developer meets certain benchmarks. Property taxes would then be phased in during the next 15 years.
The hotel has been vacant since early this year and an attorney for its new owners has said it will take considerable time, money and construction to reopen.
The PILOT was given in conjunction with another property, the Inn on the River at 7001 Buffalo Ave., that closed last year after a fire.
The new owner of both hotels, a Canadian company run by hotelier Faisal Merani, also is in line to receive a $650,000 grant from the city to help develop the Inn on the River. A city economic development agency will vote on the proposal Monday. The money will come from casino revenue set aside for hotel development.
Kay said an analysis of the project done by the city showed the grant was "justified in order to make the project happen and in order to secure three stars for the hotel."
But ideally, Kay and Dyster contend, the decision over what grants or loans the city provides with its casino revenue should be made in conjunction with the IDA's decision to grant tax breaks.
"There are some people that thought that we were saying that we didn't want there to be such a thing as an IDA PILOT," Dyster said. "That's not the case. What we're looking for is some greater coordination to be certain that we're using the most cost-effective incentives."
Such coordination also would prevent the city from "over-incentivizing" some projects, and leaving less casino revenue to provide to other proposals that might be equally worthy, the mayor said.
Because the city has other economic development tools, including casino revenue, Dyster said the decision to give up future tax revenue on some projects should be looked at extensively.
He and Kay have been talking individually with IDA members to make their case and plan to take up Sloma on an invitation to go before the agency's board to discuss their concerns.
Dyster said often city leaders don't know what their budgetary conditions will be say 10, 15 years into the future when the IDA PILOTs are still in effect.
"If you give away the tax revenues to build a bunch of multistory hotels, and I don't have any money to pay a fireman to go up and fight a fire at the top floor, for example, that doesn't make sense," Dyster said.
By contrast, he argued, casino revenue can be used as a one-time incentive with "no future implications."
"I, for one, do not understand giving taxpayers' money away," Sloma said of the casino revenue. "Go pave the roads. Create a better city. Then we'll get more natural investment."
Holes in the tax base
Tax breaks granted by the Niagara County Industrial Development Agency are worth an estimated $2.2 million in city property taxes next year in Niagara Falls. City of Niagara Falls leaders have raised questions about the wisdom of those breaks, including these three:
>Holiday Inn Express
10111 Niagara Falls Blvd., new build, $45,058
10-year tax break on $6 million project
9100 Niagara Falls Blvd., new build, $35,099
10-year tax break on $3.68 million project
114 Buffalo Ave., renovation, $45,05810-year tax break on $500,000 worth of future renovations