Hotel discounts that cost taxpayers

Reporting, analysis and commentary
by Jim Heaney, editor of Investigative Post

It seems local IDAs still haven’t come across a hotel subsidy deal they don’t like.

The Amherst IDA in January approved $1.9 million in tax breaks for a hotel and retail shops on Main Street in Williamsville that Carl Paladino plans to develop on the former site of Stereo Advantage.

On Monday, the Erie County Industrial Development Agency voted to grant $275,000 in tax breaks to  the Millennium Hotel adjacent to Walden Galleria in Cheektowaga.

Benderson Development recently announced plans for a hotel in the former Donovan state office building it is redeveloping at Canalside. They’ll no doubt be asking for help, as well.

A group headed by Mark Hamister is advancing plans for a hotel in the Tishman Building on Lafayette Square, and I assume they’ll also seek assistance. Given that most of their competitors have already cashed in, who could blame them?

The problem is, these hotel deals don’t generate new business activity once the construction crews are done. The hotel business doesn’t attract new visitors, and thus new money into the economy, which is supposed to be the point of economic development assistance.

No one comes to Buffalo because someone built a new hotel.  Instead, hotels, much like stores  and restaurants, compete for a static customer base. If someone books a room in Hotel X, it means they don’t book a room in Hotel Y.

That’s why many subsidy programs won’t give money for retail projects. But hotels have been treated differently.

I did an investigation for The Buffalo News in 2008 that documented the failure of this approach.

For nearly 30 years, politicians have poured more than $65 million into downtown Buffalo hotels — an average of more than $50,000 per room. The strategy produced five hotels — and a lot of red ink.

 Some of downtown’s largest hotel operators say the last thing they need is more competition, especially subsidized competitors.

 But that’s exactly the course City Hall is pursuing.

I quoted David Hart, the longest-tenured hotel operator in downtown, as asking:

 “Isn’t it time for the subsidies to stop? Should we be subsidizing a market that hasn’t seen real growth?”

City Hall’s answer was “no.” As was the ECIDA and Empire State Development.

Between them, they poured about $20 million of subsidies into the remaking of the former Dulski federal office building on Delaware Avenue into offices, condos and an Embassy Suites Hotel. Another $20 million or so in savings are coming via property tax savings.

It’s not unusual for a new county executive to talk about the need for IDA reform, much as Mark Poloncarz has, and then eventually get with the program. They eventually adopt the thinking that permeates economic development circles in Western New York.

It goes something like “hang on to what we have” and “I’m not going to risk being accused of doing something that costs jobs.”

Poloncarz, who pushed for a tabling the Millennium deal last month, relented this week. But, to his credit, the ECIDA placed a moratorium on further hotel deals until it studies the issue.

In addition, the county executive has gotten behind a proposal of Assemblyman Sean Ryan that would limit town IDAs to offering tax breaks only within their own towns. That would provide only a fraction of the countywide tax relief they’re now empowered to provide.

Then again, Sam Hoyt pushed for IDA reform for years in the Assembly and got nowhere. Ryan’s bill is narrower in scope and perhaps has a better chance of passing. It’s more likely to gain traction in the Assembly than the Senate, where Republicans have not looked kindly on IDA reform.

Which puts the ball back in the hands of local IDAs. It doesn’t require a state law to stop handing out subsidies that don’t generate economic growth. But it might require a county executive willing to make a stand where his predecessors haven’t.