State audit cites Niagara Falls' lack of development oversight
NIAGARA FALLS — Lax oversight and poorly written development agreements have left the city with few options in dealing with the empty Rainbow Centre mall and dozens of acres of vacant properties near the Seneca Niagara Casino.
That was the assessment of State Comptroller Thomas P. DiNapoli on Wednesday after his staff completed a four-month audit of two key development agreements that once held great hope for the beleaguered city.
“Perhaps there was too fast a desire to sign the agreements without really looking at the fine print and detail,” DiNapoli said. “On something like economic development, you can’t just do it on a hope and good faith. You really do need to specify more clearly what the benchmarks are.”
The audit concluded that a 75- year lease for the Rainbow Centre mall with a subsidiary of Cordish Co. in Baltimore and a $110 million development agreement with the private firm Niagara Falls Redevelopment “offered little protection” to the city, or “consequences” if the developers failed to live up to their promises.
And it faulted city leaders during the last two mayoral administrations for failing to properly oversee compliance with the contracts.
The two developers hold key properties within easy walking distance of the American Falls that combined are about the size of the Walden Galleria in Cheektowaga. Similar-sized patches on the Canadian side of the Falls bustle with restaurants, hotels and tourist shops.
DiNapoli called the options left for dealing with the two city contracts “limited” but provided a road map for city officials to follow as they cobble together future development deals.
His recommendations included:
• Assign the city’s director of planning and economic development to monitor the progress of projects and to be the city’s liaison with developers.
• Use development agreements to advance the city’s goals and protect its interests.
• Retain title to land and buildings so the city can exercise control over development.
• Use contract provisions requiring liquidated damages, performance bonds or letters of credit, and reserve the city’s right to buy back properties.
Mayor Paul A. Dyster, who took office in January 2008, said the city has already implemented some of DiNapoli’s recommendations.
Dyster and the City Council last September hired a director of economic development, Peter Kay, and last year appointed a new corporation counsel, Craig Johnson, who has put together a package of protective measures for future development deals.
Dyster said the city has suffered in the past from negotiating in desperation with outsiders who thought that they could reap “windfall profits” from Niagara Falls.
“We should have the confidence to be able to stand on equal footing with any developer that comes in the door at City Hall,” Dyster said. “And we should not have a sense of desperation in government that we have to give away the birthrights of the people of the City of Niagara Falls, somehow, in order to make ourselves look good politically in the short term.”
The two contracts reviewed by DiNapoli’s office date back to 1981 and 1997 but are still widely seen today as having a stranglehold on key downtown properties.
As a result of the city’s failures, the audit found, the projects “fell far short of the city’s initial goals and expectations.”
The city’s agreement with Niagara Falls Redevelopment, first signed in 1997 and renegotiated in 2003, called for $110 million worth of new development projects on land east of where the Seneca Niagara Casino& Hotel now sits.
The company, controlled by New York City billionaire Howard P. Milstein, has assembled about 70 acres of developable land but has built only a foundation.
DiNapoli’s office found that the city failed to designate one person on an ongoing basis to monitor contractual obligations and had “very little control or recourse” if the developer failed to complete the projects.
DiNapoli’s findings echoed a report by The Buffalo News earlier this month that found the city’s contract with Niagara Falls Redevelopment was “weak” and that actions the city took, or failed to take, have made it more difficult to enforce.
Among the basic steps the city failed to take, the audit said, was to send an inspector to NFR’s property to determine whether the foundation was structurally sound.
In 2007, former Mayor Vince Anello declared that the Niagara Falls Redevelopment agreement had expired, but never took legal action. Dyster on Wednesday declined to say whether he believes the company is out of compliance, citing “complex legal issues involved.”
The second agreement reviewed by DiNapoli’s office was a 75-year lease for the Rainbow Centre mall with a subsidiary of Cordish Co. in Baltimore. The city and Cordish first struck a deal in 1981 to develop the mall, which closed in 2000 and sits virtually empty.
Auditors faulted the city for failing to include contractual remedies if Cordish failed to rent retail space or to live up to performance standards based on “occupancy rates, sales revenues or some other measure of retail activity.”
They also noted that the city has spent about $34,000 to maintain the parking garage and mall between 2004 and 2008 but has not undertaken a $3 million renovation of the building recommended by an engineer in 2003.
DiNapoli called the poor agreements and the lax oversight unusual.
“Everything kind of just languished,” DiNapoli said. “I certainly don’t think that’s typical, and certainly would not be what a successful economic development strategy would be for any community.”
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