State lawmakers plan to introduce legislation this spring that would close a loophole that allows industrial development agencies to grant tax breaks to restaurants and other retail businesses — thanks in part to what they perceive as abuses in Niagara County.
The state banned tax breaks for retail projects, including restaurants, a decade ago. But they left in exceptions for tourism projects and retail establishments in so-called “distressed areas” with high poverty and high unemployment.
The new proposed legislation is sponsored by Sen. Sean Ryan, the newly-appointed chairman of the Commerce, Economic Development, and Small Business Committee, and Assemblyman Jonathan Rivera. It would require IDAs to get a third-party consultant to confirm that a retail project in a distressed area would alleviate poverty and unemployment and that a tourism project would actually bring in tourists.
Some IDAs, Ryan said, “[are] just trying to get around the law.”
“So now we’re going to have to put another provision in place that says you have to prove this economic development plan will actually assist the distressed area,” he said.
Additional legislation introduced by Ryan seeks to prohibit IDA property tax breaks that affect school budgets. The largest portion of IDA subsidies come in the form of property tax breaks, and school taxes make up the biggest percentage of property taxes.
The proposed legislation involving retail in distressed areas comes on the heels of a report last week by Investigative Post. We reported the Niagara County IDA had granted provisional approval earlier this month to a fast food franchisee who plans to open an A&W and Moe’s Southwest Grill in downtown Niagara Falls. The franchisee, Muhammad Shoaib, is seeking $172,000 in sales and property tax breaks.
But in an interview with Investigative Post two weeks ago, Shoaib said he didn’t need the tax breaks. Subsidies from IDAs must pass what’s called a “but for” test, meaning a project isn’t financially viable “but for” the tax breaks.
“This is a little help, but we are able to do it without it as well,” he told Investigative Post.
Shoaib’s admission would mean his projects don’t pass that test. Shoaib, however, said in an application that his projects weren’t financially viable without the IDA’s help.
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Still, the Niagara County IDA on Jan. 11 OK’ed $29,600 in tax breaks for the Moe’s and granted provisional approval for $142,100 in subsidies for the A&W. A public hearing on the A&W subsidies is scheduled for Jan. 30 and a final vote is expected at the IDA’s February meeting.
Mark Gabriele, an attorney for the IDA, said the subsidies were allowed because the restaurants would be in a distressed area. He said the projects could also be justified under the tourism exemption.
But Ryan, citing Shoaib’s comments to Investigative Post, said he took issue with the subsidies for fast food restaurants, and urged the IDA to vote them down.
“The legislation would say you cannot give money to places like A&W root beer under the idea they’re a tourist draw unless you get a third-party verifier to say, ‘Yes, they will bring people into the area,’ ” he said. “And guess what? No third-party verifier is going to say an A&W root beer is a regional and tourist destination.”
The third-party verifier, Ryan said, would be a consulting firm. IDAs already use such firms to evaluate potential projects.
“It doesn’t take an expert to look at this as bad, wasteful spending, bad economic development,” said Ryan, who represents parts of Buffalo and the Northtowns. “We don’t need IDAs giving taxpayer dollars away to chains.”
Shoaib, reached Friday by Investigative Post, declined an interview request.
Susan Langdon, the executive director of the Niagara County IDA, slammed Ryan and Rivera and their proposed legislation.
“This is an outrageous characterization of New York State law by two lawmakers who should know better,” she said in a statement. “The alleged loophole is actually a section of law that specifically allows retail projects in areas that are distressed and/or tourism areas.”
“NCIDA is following the statute,” she added.
Standing near the counter of Frankie’s Donuts and Pizza in Niagara Falls, Ryan and Rivera said the Niagara County IDA exemplified bad economic development. They said that if any restaurants deserved tax subsidies, it was longtime, local eateries like Frankie’s.
“I’d much rather see an investment into this building than a giveaway to a faceless corporation that will never keep resources and assets here and will only employ people at the least wage they can give them,” said Rivera, who represents parts of Buffalo and Hamburg.
April Hernandez, the daughter of donut shop owner Frankie, said the way tax breaks are doled out isn’t fair. She noted the family has long wanted to open a second location, but can’t afford to do so.
“My parents have been busting their butts for 40 years paying all these taxes and it’s really not fair,” she said. “The people who are already here, they should be helping us as well because we’ve been here, we’ve been putting money into the city.”
Ryan noted that other IDAs, including Lancaster, have granted subsidies to projects that seemed to violate the ban on retail projects.
“We have to now further tighten that loophole. Most IDAs are complying with that but there’s a few bad actors, and the Niagara IDA is one of the bad actors,” he said. “Niagara County has been successful in daring us to close the loophole. We’re going to close the loophole now.”
Ryan said he expects movement on his bills in the spring, after the state adopts its annual budget.
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