Generating business growth in downtown Niagara Falls has proven to be a challenge for years.
A state agency charged with job creation has adopted a unique approach, even by Western New York standards.
The state-run USA Niagara Development Corp. gave Buffalo-based T.M. Montante Development four properties valued at nearly $1 million in the city’s Third Street business district.
Now, as the company plans to renovate and reopen two Third Street buildings— one as a small event center and the other as a brewery and restaurant— state and county economic development officials are preparing to sweeten the pot with $1.7 million in tax breaks, credits and grants.
What do taxpayers get in exchange for the $2.65 million subsidy package?
Montante has committed to creating 14 full-time jobs, mostly in food service and event center management, at a total public cost of $189,785 per job.
Given the potential rate of return on such a costly public investment, State Sen. Sean Ryan said the Third Street plan sounds like another example of “bad economic development.”
“We’re not investing in the high-tech corridor,” said Ryan, a Democrat from Buffalo. “This isn’t a business that could turn into the next Dell computers. This is a restaurant and event center, which is a place where we have them all over Erie and Niagara County.”
Representatives from the Niagara County Industrial Development Agency say the projects are less about the jobs being created and more about generating activity in a “highly distressed” part of Niagara Falls.
“Look at the area,” said Jerry Wolfgang, a member of the board for the Niagara County IDA. “It hasn’t been growing. It hasn’t been successful over the years attracting businesses and the buildings have been empty, so there’s no question it is distressed. We are trying to assist that area of Niagara Falls to develop further.”
State economic development guidelines frown on subsidies for retail projects, in part because most of the jobs they create are low wage. However, IDAs can still grant subsidies for retail projects in areas deemed “highly distressed.”
According to the Niagara County IDA, the Third Street business district meets the definition. The neighborhood where Montante is planning its projects has a poverty rate of 46 percent— more than double the state’s 20 percent threshold. In addition, the unemployment rate in the area is 14.6 percent – nearly double the state average.
“It’s a shame that the City of Niagara Falls has to come to that, but it is reality,” Wolfgang said.
Plan and incentives
Montante got involved on Third Street when the state-run USA Niagara Development Corp.— which oversees redevelopment projects in downtown Niagara Falls— designated the company as a “preferred developer” last year.
In March, the state transferred four Third Street properties to Montante. The two vacant lots and two empty buildings were acquired in 2019 as part of a larger package of 32 parcels purchased with $15 million in Buffalo Billion II money from Lewiston businessman Joseph “Smokin’ Joe” Anderson. Records show the state paid Anderson $956,000 for the Third Street parcels.
The centerpiece of Montante’s $3.4 million redevelopment effort focuses on a former Niagara Mohawk building located at 500 Third St. The developer plans to create 6,800 square feet of conference and event space on the first floor and 4,300 square feet of office space on the second floor.
At 512 Third Street, an adjacent parcel where Anderson once operated a nightclub called Icehouse, Montante plans to open a brewery and restaurant.
The state also gave Montante a parking lot at 503 Main St., which company officials say will be used for customers of the event center and brewery.
Company officials have said the final property— a vacant lot at 518 Third St.— will not be part of the current redevelopment effort.
To advance the renovation projects, Montante is seeking public support from a variety of sources, including:
- $788,000 in state and federal tax credits.
- $457,000 in mortgage, sales and property tax abatements under a proposed 10-year agreement with the Niagara County IDA.
- $456,000 in grants from the Cataract Tourism Fund, a state-sponsored tourism development program administered by the Niagara County IDA.
Christian Campos, president of T.M. Montante, said the incentives are necessary to make the renovation projects worthwhile, in part because of the challenging business climate in the Falls.
With uncertainties surrounding rental rates in the area, Campos said the incentives increase the potential for the deal to be profitable.
“We’re investing because we feel there’s an opportunity there,” he said. “That doesn’t mean there’s not a big challenge.”
Campos said the projects will enhance the 500 block of Third Street, an area that is less than a mile from Niagara Falls State Park, a site visited by millions of tourists each year.
“It certainly creates the opportunity to better serve what has traditionally been an underserved tourism community in Niagara Falls,” he said.
‘Highly distressed’ area
In 2013, state lawmakers adopted a tighter set of standards intended to discourage local economic development agencies from granting tax breaks for retail projects, including bars and restaurants.
That same year, a performance report issued by the New York State Comptroller found that retail projects “generally do not increase the level of jobs available in a region or economic activity” and that “project-related gains often come at the expense of other retail enterprises in the area.”
In addition, the comptroller’s office noted that jobs tied to retail tend to pay significantly less than manufacturing or professional positions.
Still, IDAs are allowed to grant tax breaks to retail projects under a limited set of exceptions, including one allowing subsidies in areas deemed highly distressed. IDAs can also grant tax breaks for retail projects in “tourism destinations” where they are more likely to attract visitors from outside the community.
Given their location, the Niagara County IDA says Montante’s projects are eligible for $457,000 in property, sales and mortgage tax breaks. The IDA’s board is scheduled for a vote on the tax abatements on July 14.
Niagara County IDA Board Chairman Mark Onesi said he’s inclined to support incentives for both projects because they are located in a distressed area of a city in need of more things for visitors to see and do. He believes activating two empty buildings will benefit struggling downtown Niagara Falls.
“How about looking at where it’s at and how about bringing people in and maybe they will stay a little longer?” he said. “Those are all factors for growth in an area, whether it’s Niagara Falls or any place else.”
Ryan, the state senator from Buffalo, said lawmakers imposed limits on the use of subsidies for retail projects for good reason. He said such projects generally do not grow the local economy and often represent “unfair competition” for the owners of stores, bars and restaurants.
“Nobody’s traveling from Cleveland to go to a brew pub in Niagara County so it’s not growing the pie,” he said. “It’s just making it so the tourists dollars or the residents recreational dollars are spent on this business as opposed to this business.”
Officials from USA Niagara and Empire State Development, its parent organization, refused to answer questions from Investigative Post about the Montante projects.
Shawn Weber, the longtime owner of Wine on Third, a bar and restaurant located directly across the street from the buildings Montante plans to renovate, has a “more-the-merrier” approach to development along the strip.
“You need critical mass,” he said.
Weber said he doesn’t oppose the incentives because— after 14 years in business— he knows how hard it can be to earn a return on private investment in downtown Niagara Falls.
“In an ideal world there are no such things as subsidies,” Weber said. “In the real world we’re living in now, that’s how you make these things work. What can you get for rent? What’s it going to cost to build it? Whatever that gap is, it’s got to be made up somewhere.
“The cost in New York state is so expensive,” Weber added. “When you are getting these subsidies, you are just getting back to even.”
Tom Speaker, an analyst with Reinvent Albany, a nonprofit group that tracks economic development programs in New York state, said subsidies that exceed $60,000 per job benefit the developer more than the community.
“Our view is that retail projects are generally not the best recipients for tax incentives because they don’t really end up incentivizing job creation,” he said.
“This just isn’t a public benefit. This is a private game and this should stay where it belongs – in the private sector.”