Editors note: A version of the following story published this past weekend in the Rochester Democrat & Chronicle, Albany Times Union, Binghamton Press & Sun-Bulletin, and Poughkeepsie Journal. The accompanying video was co-produced with WGRZ. Editorials calling for greater transparency in the program were subsequently published by the Democrat & Chronicle and Times Union.
The Buffalo Billion program championed by Gov. Andrew Cuomo is a bold and costly experiment in economic development that is beset by secrecy and politics, and banking on a company with a history of losing money.
The program — hailed in Buffalo but resented across much of the rest of New York — has been promoted as both a catalyst for rejuvenating the western New York economy and a model for other upstate regions.
But the management of the Buffalo Billion by the Cuomo administration has raised eyebrows — and concerns — in some quarters.
- One of Cuomo’s largest campaign contributors from the Buffalo area has been awarded contracts to develop two of the three facilities that will house companies recruited to set up shop in Buffalo. The state’s original solicitation for a developer to build a massive solar panel manufacturing plant included a requirement that might have limited the pool of respondents to just one firm, LPCiminelli, whose owner has contributed $96,500 to Cuomo’s campaign during his two races for governor. The state later relaxed the requirement, but awarded the contract to Louis Ciminelli’s firm anyway.
- The state development corporation managing the Buffalo Billion has taken up to a year to release public records that, among other things, detail how Ciminelli and other developers were selected. Documents detailing how much developers are getting paid have been redacted to remove payment figures. One of Cuomo’s lieutenants went so far as to liken a reporter’s efforts to obtain records under the state Freedom of Information Law to terrorism.
- The state is making its biggest investment — $750 million — to build a solar panel manufacturing plant for SolarCity despite the company’s mounting financial losses and legal problems. The company lost a record $375 million last year and is the subject of a federal investigation considering its receipt of stimulus funds.
“This program involves very big risk, very little accountability, and very large amounts of tax dollars. It’s a cockamamie way of doing the public’s business,” said John Kaehny, executive director of Reinvent Albany, a watchdog group.
These troubles notwithstanding, Cuomo has generated a lot of enthusiasm and positive press coverage for the program in the Buffalo area. The SolarCity complex now being constructed in Buffalo promises to employ up to 3,000 people when suppliers and support services are included.
It hasn’t hurt that the rollout of the initiative has coincided with a modest, if uneven improvement in the Buffalo-area economy that Cuomo has proclaimed “a national success story.”
Data tell another story: Job growth in Erie and Niagara counties last year lagged behind the nation and rest of the state, the downtown office vacancy rate rose last year and poverty in the city of Buffalo — like its sister city Rochester — is climbing and ranks among the worst in the United States.
“There’s been no sea change in our regional economy. I don’t know that we’re much better off than we’ve been, other than construction,” said James Allen, executive director of the Amherst Industrial Development Agency, one of the region’s largest prominent economic development officials.
Others see signs of progress.
“We’re growing more slowly than the rest of the nation, but we’re growing,” said George Palumbo, professor of economics and finance at Canisius College. “It’s a significant departure from what we had been doing before.”
Region was lagging
The Buffalo Billion is Cuomo’s attempt to jump-start a regional economy that hasn’t fully recovered from a shock wave of plant closings and resulting job losses in the 1980s.
Cuomo proposed what’s become known as the Buffalo Billion during his 2012 State of the State address. The initiative borrows from the model used to develop a nanotechnology sector in Albany. New York is paying to build and equip facilities for companies that will function as anchor tenants and attract other companies in their sector.
The governor not only bought into the model but charged its architect, Alain Kaloyeros, with carrying out the program in Buffalo. Kaloyeros is the founding president and chief executive officer of the SUNY Polytechnic Institute in Albany and credited with helping to develop the Capital Region into a nanotechnology powerhouse by attracting some 300 companies and 3,000 jobs to its nano-tech hub.
While most of the attention in Buffalo has focused on three big-ticket projects, the program is sprinkling dollars throughout Erie and Niagara counties on more than 15 initiatives. State funds are being invested to help Niagara Falls’ tourism sector, attract startup companies to the region and help manufacturers adapt to changing markets.
Most of the attention — and funding — has gone to three projects aimed at seeding clusters in technology, clean energy and pharmaceutical drugs. And it is these projects in which Cuomo and Kaloyeros have employed tactics that have raised the specter of favoritism and secrecy.
Donors awarded contracts
In December 2012, Cuomo announced the first of the projects, a $50 million state investment to build and equip a pharmaceutical drug research facility to attract Albany Molecular Research Inc. to the Buffalo Niagara Medical Campus. AMRI has committed to bringing 75 jobs to the facility, with other companies expected to add an additional 175.
After considering several other sites, the Fort Schuyler Management Corp., a 501 c-3 nonprofit corporation created by the State University of New York Research Foundation that is charged with managing the development of Buffalo Billion facilities, settled on space atop a six-story medical building that was under construction at the edge of the city’s downtown medical campus.
Fort Schuyler contracted with LPCiminelli to add a seventh floor to the building. LPCiminelli was presumably selected because it was already the general contractor for the project.
How did the selection process play out, and how much was LPCiminelli paid to do the work? Kaloyeros and other Fort Schuyler officials have repeatedly declined to answer questions or release documents to Investigative Post that speak to the selection process. The amount of money Ciminelli is getting paid was redacted from documents posted on Fort Schuyler’s website.
Kaloyeros and Fort Schuyler were also slow to release documents requested under the FOI Law about the selection process used to hire LPCiminelli to develop the SolarCity plant near the Buffalo waterfront.
That job was not competitively bid. Rather, Fort Schuyler issued a request for proposals from developers in October 2013. The original solicitation limited the pool of potential respondents to developers based in the Buffalo area with “over 50 years of proven experience and successful track record in the construction and operation of mixed-use facilities and buildings.”
Only one company appeared to meet that requirement — LPCiminelli.
Fort Schuyler officials changed the requirement to 15 years after being challenged by other developers and questioned by Investigative Post. A spokesman termed the original requirement a “clerical error.”
Fort Schuyler officials awarded the work to build the sprawling 1.2 million-square-foot plant to LPCiminelli in February 2014.
After declining for months to answer questions or provide documents to Investigative Post requested under the state Freedom of Information Law, officials from Fort Schuyler released a report last December that cast the selection process in a favorable light. The report said LPCiminelli was selected because of its “greater experience with public-private partnerships, legal team presented in its proposal, existing employee resources, and construction bonding capacity.”
No one has suggested that LPCiminelli is not qualified to do the work; it is the largest construction management firm in the region. Rather, questions have arisen about the process used to select the firm for two of the program’s three projects.
Lack of transparency
Attorneys for Fort Schuyler maintain that the corporation is exempt from the FOI Law because of its nonprofit status.
Kaloyeros, in an email in November sent to an Investigative Post reporter, offered a second reason for his refusal to provide documents or answer questions, declaring he does not “respond to perceived threats and terrorism.”
“In my opinion, it is cut and dried,” said Robert Freeman, the committee’s executive director. “It is, in essence, a governmental agency, that it is required to comply with FOIL.”
Investigative Post subsequently filed an Article 78 petition on May 19 in state Supreme Court seeking a declaration that Fort Schuyler is subject to the FOI Law and release the balance of the unreleased documents. The suit was filed with the financial support of the Gannett Co. and WGRZ, Investigative Post’s television partner.
Fort Schuyler started posting records on its website in December. Some 39 documents, some of them redacted, were posted as of Friday. Documents include several that were the subject of Investigative Post’s court action; the records appear to have been posted after the lawsuit was filed.
Investigative Post has filed three FOI requests with ESD since February that seek documents that include, among other items, developer contracts and invoices. ESD to date has released only a small portion of the requested documents. Some of the requested documents have recently been posted to Fort Schuyler’s website, although key information, such as payments to developers, has been redacted.
State officials were also unwilling to grant interviews for this story. ESD President Howard Zemsky, a champion of the Buffalo Billion program, has declined interview requests since Investigative Post filed its first FOI request with his agency. Meanwhile, a Kaloyeros spokesman didn’t respond to emails and phone calls seeking comment. Several phone calls to Cuomo’s press office seeking comment also have not been returned.
Investigative Post is not the only organization that ESD has been slow to respond to. The Empire State Chapter of the Association of Builders and Contractors, which represents some 400 non-union contractors statewide, has not received documents related to the SolarCity project that it requested in early April.
“It’s unfortunate we have to jump through all these hoops and wait all this time just to get basic information,” said association President Brian Sampson, who decried what he said was the state’s “delaying tactics.”
Program to accommodate IBM
The third major development contract awarded for Buffalo Billion work involves renovations to a downtown office tower to accommodate IBM and 500 jobs that would create a technology hub. McGuire Development got that work, which includes building renovations and equipment purchases totaling $55 million in state assistance. Work is scheduled to start this summer or fall. IBM expects to phase in jobs over the next five years and attract other technology firms.
Unlike LPCiminelli, McGuire wasn’t a big-time Cuomo contributor at the time the company was awarded the contract, having donated only $2,000 to the governor’s campaign four years ago. But last May, three months after being awarded the Buffalo Billion work, McGuire wrote the Cuomo campaign a check for $25,000.
The state is helping IBM set up shop in Buffalo as the company continues to scale back its operation downstate.
IBM’s employment in Dutchess and Ulster counties peaked at 31,000 jobs in the 1980s. Big Blue has ceased operations in Ulster County and had about 6,000 workers in Dutchess County in 2014. Most of the downsizing occurred in the early 1990s, but smaller waves have occurred more recently.
SolarCity’s shaky foundation
Investment in Buffalo Billion projects is dwarfed by the $750 million in cash, tax credits and other assistance Cuomo is putting into a solar panel manufacturing plant being built near the Buffalo waterfront.
The plant will be the largest solar panel manufacturing facility in the nation, making Buffalo a player in the emerging clean energy sector. The facility will be operated by SolarCity, whose chairman is noted entrepreneur Elon Musk of Tesla, SpaceX and PayPal fame.
The state investment includes $350 million in cash and $400 million in loans, technically not Buffalo Billion funds, that New York will cover through grants if SolarCity meets its employment goals. In addition, the company won’t pay state corporate taxes because the state Legislature, at Cuomo’s behest last year, eliminated corporate taxes on manufacturers. A state entity will also own the plant, meaning SolarCity will not pay property taxes.
SolarCity is obligated to create 1,460 jobs at the facility and work with the state to help build a supply chain that will employ 1,440. The company has hired a handful of employees and expects to have 200 on hand by the end of the year. Manufacturing operations will be phased in over the course of 2016.
SolarCity, based in California, is the nation’s largest installers of rooftop solar energy systems. Despite its rapid growth, Wall Street analysts differ on SolarCity’s long-term prospects because the company has reported ever-increasing losses since going public five years ago, including a record $375 million deficit last year. SolarCity reported a loss of $147 million for the first quarter of this year, nearly double that of the same period in 2014.
Its stock value, meanwhile, has dropped by 32 percent from its peak price of nearly $85 a share posted in February 2014.
The company faces an uncertain future by its own admission in filings with the Securities and Exchange Commission.
“It is difficult to evaluate our business and prospects due to our limited operating history,” SolarCity states in its most-recent quarterly filing of May 6.
Elsewhere in the report, the company acknowledges: “We have incurred losses and may be unable to achieve or sustain profitability in the future.”
Nevertheless, Jonathan Bass, a company spokesman told Investigative Post last fall that SolarCity is “in an extremely strong financial position.”
Peter Cutler, a spokesman for Empire State Development Corp., added: “We are confident that SolarCity will deliver on its agreement with the state and we have negotiated financial penalties if they fail to do so.”
The company is dealing with legal, as well as financial issues. SolarCity is among three large solar system installers under investigation by the U.S. Treasury since 2012 on suspicion they overstated the reported value of their systems to inflate reimbursements they received in stimulus funds. SolarCity reportedly obtained $325 million from the federal government.
SolarCity insists it has followed all applicable laws and regulations, declaring after the investigation opened that “we are absolutely certain that we have followed the … program’s rules and guidance.”