A fast-food franchise developer is looking to bring an A&W and Moe’s Southwest Grill to downtown Niagara Falls — and is seeking $172,000 in tax breaks to do it.
IDA subsidies are available only to projects that would not be economically feasible otherwise. But the developer told Investigative Post he doesn’t need the tax breaks from the Niagara County Industrial Development Agency to proceed.
“This is a little help, but we are able to do it without it as well,” said Muhammad Shoaib, the franchisee and developer.
The subsidies he’s seeking have also drawn criticism.
“Business subsidies are bad, but subsidies for restaurants are even worse,” said Elizabeth Marcello, a senior research analyst at the good government group Reinvent Albany.
Shoaib, a franchisee who owns several Papa John’s and Church’s Texas Chicken restaurants in Canada and Western New York, is seeking tax breaks to build the A&W and Moe’s on Rainbow Boulevard, near the heart of downtown Niagara Falls.
IDA tax breaks, in order to be legal, must pass a “but for” test, meaning that “but for” the subsidies, the project wouldn’t be feasible. Despite his comments to Investigative Post, Shoaib indicated on his application for the subsidies that his projects weren’t feasible without the IDA’s assistance.
IDAs are generally not allowed to grant tax breaks to retail projects, including restaurants. That’s because retail projects generally don’t create new wealth, but rather simply redistribute spending, and usually don’t create good-paying jobs that economic development officials typically look for.
Mark Gabriele, the IDA’s in-house attorney, said the agency is justified in granting the subsidies because the restaurants would be located in a so-called “distressed area.” Such areas are defined as having high poverty and unemployment rates, and state law allows subsidies for projects of all types in those locations.
The IDA noted that the area where Shoaib wants to open his restaurants has a poverty rate of 45 percent and an unemployment rate of 8.8 percent. State law defines an area as distressed if it has a poverty rate of 20 percent or more.
Shoaib said he’s planning the two restaurants because downtown Niagara Falls has limited dining options.
IDA directors agreed.
“I like your idea because when a family comes with kids and things like that, rather than going to a higher-class situation which kids don’t like, the lighter refreshments are good and you’re very limited in downtown Niagara Falls,” IDA board member Clifford Scott told Shoaib last week.
The board asked Shoaib no tough questions about his project when he appeared before them on Jan. 11. Instead, they asked questions like: “What about the root beer? Is it coming, too?”
For the A&W, at 303 Rainbow Boulevard, Shoaib is seeking a $112,100 property tax break over five years, as well as $30,000 in sales tax exemptions. Without the property tax break, Shoaib would pay just under $204,000 over the five decades. The building, which Shoaib owns, is currently a closed-down souvenir shop. The IDA board is expected to vote on his subsidy package next month.
The Moe’s at 333 Rainbow Boulevard has already been approved for a sales tax exemption of $29,600. The restaurant will be located inside a Wingate hotel where Shoaib said he’s leasing space for at least 20 years.
Shoaib said the two restaurants will employ 20 full-timers and 21 part-timers. Managers will make at least $50,000 annually. Hourly employees will be paid over $15 an hour, he said.
“We want to give a decent living to someone so they can be focused on what they are doing.”
Economic development watchdogs criticized the proposed subsidies.
State Sen. Sean Ryan, the newly-appointed chairman of the Senate’s Committee on Commerce, Economic Development and Small Business, said the Niagara IDA was exploiting a loophole that the Legislature tried to close a decade ago.
“It looks like the Niagara IDA is just seeking a loophole to give away more taxpayer dollars,” Ryan said.
Pat Garofalo, a policy director for the anti-monopoly advocacy group American Economic Liberties Project, said “but for” tests “just don’t work.”
“They’re just too easy to game,” he said.
Marcello, of Reinvent Albany, said restaurants receiving subsidies enjoy an unfair competitive advantage over those who don’t.
“At some point we have to ask: who is actually going to pay taxes?” Marcello said. “It certainly seems like any business that wants subsidies can squeeze them out of the Niagara IDA.”
Ryan said using the “distressed area” loophole for the subsidies is unlikely to eliminate poverty in Niagara Falls.
“Certainly an A&W root beer and a Moe’s is not going to serve to alleviate the persistent poverty problem in Niagara Falls,” he said.
Ryan also contended that subsidizing the two fast food restaurants would ultimately increase taxes for other restaurants and businesses that didn’t receive subsidies.
Residents’ and businesses’ tax bills, he said, “will be just a little bit higher because Moe’s and A&W won’t be paying.”