When state and county officials agreed nearly a decade ago to give the Buffalo Sabres and the Pegula family $57 million in tax breaks for downtown’s Harborcenter, the money came with a promise.
In its application for public assistance, a subsidiary of Pegula Sports and Entertainment promised 205 full-time and 160 part-time jobs. In a subsequent press release, the Sabres upped the ante to 350 full-time positions.
Those jobs were supposed to be in exchange for $37 million in tax breaks from the Erie County Industrial Development Agency and $20 million from the state to remediate the brownfield the complex would sit on.
The project, however, has hit its jobs target in only one out of eight years it’s been open. The pandemic partly explains the lower-than-projected numbers for 2020 and a portion of 2021.
Now, a review of the project by an economic development expert — and additional reporting by Investigative Post — has shown the Harborcenter jobs are largely low-paying, part-time, and held by non-city residents.
Not only has LECOM Harborcenter, as it’s now known, failed to meet its job goals most years, full-time employment as of 2021 — the last year for which data is available — is only half of what Pegula Sports originally promised.
The failure to deliver promised jobs is notable given that the Sabres are expected to ask for another round of subsidies, this time to renovate KeyBank Center.
According to an economic analysis done by Russell Weaver, director of research for Cornell University’s Industrial Labor Relations Buffalo Co-Lab, 24 percent of the Harborcenter jobs pay less than $15,000 per year, 51 percent pay between $15,000 and $40,000 and 21 percent pay above $40,000.
“Basically, four out of every five jobs pay below $40,000 per year. So, you’re getting a lot of low-wage jobs, basically, for that $57 million,” Weaver said.
His analysis concluded that those jobs — most of which are at the Harborcenter’s restaurants and hotel — weren’t worth the tax breaks.
“What is clear is that $57 million in public money bought mostly low-wage, precarious jobs at businesses whose annual sales tax contributions to the region are likely far less than what the region could have had in property tax revenues were it not for abatements,” Weaver wrote in a report he shared with Investigative Post.
Spokespeople for Pegula Sports and the Sabres did not respond to requests for comment. Nor did Cliff Benson, the Sabres’ former chief development officer, who described himself as the president of Harborcenter LLC in 2013 when the Sabres were seeking tax subsidies.
Weaver also found most of the jobs at the Harborcenter aren’t going to Buffalo residents. Rather, U.S. Census data showed 61 percent of the jobs are held by people living outside the city.
He said subsidies for projects like Harborcenter point to bigger issues with tax incentive programs.
“I’ll say this as a lover of hockey: Anything that’s trying to create a culture of hockey I’m all for,” he said. “But I’m also all for letting private developers fund 100 percent of that, rather than leveraging public assets that could be used to deliver better public services to people in need in the city.”
Concept behind the project
For more than a century — from 1820 to 1980 — the site where the Harborcenter now sits was home to heavy industry: a brass foundry, an oil refinery and a machine shop.
Then, for decades, the Webster block — bounded by Main, East, Washington and Perry Streets — was just a parking lot. The City of Buffalo took ownership of the site in 2001.
Enter the Pegulas, who, in 2011, purchased the Sabres. Shortly after that, the Pegulas decided the Sabres needed a new practice rink, and the Harborcenter project was born. Mayor Byron Brown, in his 2012 State of the City address, made the redevelopment of the Webster block a priority.
In August 2012, the Pegulas won a bid from the city to redevelop the block. In their winning plan, the Pegulas proposed spending $172 million to buy the former Webster Block and build a pair of ice rinks, a hotel, a restaurant, stores and a parking garage. The project broke ground in April 2013.
Put all together, the Harborcenter was meant to serve as a sports tourism attraction, “part of the spectacle economy,” as Weaver described it. Hockey tournaments, for example, would attract teams from outside the region, which would stay in local hotels, eat in nearby restaurants and play their games at Harborcenter. The idea was that the project would generate substantial sales tax revenue for the city and county.
At the time, state Sen. Sean Ryan said he viewed the Harborcenter as a “complementary project to the arena” and was happy the Erie County IDA secured a deal with the Sabres to have union construction crews build it.
“And at that time, there weren’t that many large construction projects going on,” Ryan said. “So we were happy to be able to put the number of people to work on that.”
To build that project, which cost around the same amount the Pegulas spent on purchasing the Sabres, the natural gas billionaires sought tax breaks. The Pegulas asked for and received a $28 million property tax break, $7.5 million in sales tax savings and a $1.2 million mortgage tax exemption.
In addition, Harborcenter was granted $20 million in tax credits from the state because the Webster block had been designated as a “brownfield” site in need of remediation.
In total, that equaled $57 million in savings for the Pegulas.
But have the jobs they promised materialized?
IDA now has stricter requirements
John Cappellino, president and CEO of the Erie County IDA, said in an email that the agency is in a tough spot. For one, he said, the IDA did not have a policy in place to recapture subsidies from companies that didn’t meet their promises prior to 2014. The Harborcenter tax breaks were granted in 2013.
Additionally, Cappellino said, when the IDA put its “claw back” policy in place in 2014, it included a stricter requirement that companies receiving subsidies tell the IDA exactly how many jobs a project would create, rather than just a projection.
That means that now, if a company doesn’t meet a job promise, the IDA can take back a portion of subsidies it gave out, Cappellino said.
That rule change was important, said Ryan, who is critical of IDAs and the subsidies they give.
“Under the old rules, people routinely puffed up job numbers. And, you know, there was never any recourse for that,” he said. “But under the new rules, if you puff up the job numbers, and you don’t meet them, you have to give the money back.”
He added: “We definitely have seen promises come down significantly, once the promises became enforceable.”