Sabres score big subsidies at HarborCenter

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The Buffalo Sabres like to point out that HarborCenter, which opens later this week, is privately financed to the tune of $172.2 million.

Left unsaid is that the complex is also publicly subsidized, enjoying an estimated $57 million in local and state tax breaks.

That makes HarborCenter one of the most heavily subsidized downtown development projects in recent history.

The project – which includes two ice rinks, a hotel, two restaurants, shops and a parking ramp – is projected to employ the equivalent of around 425 full-time workers.

The $57 million in tax breaks works out to about $134,000 per job – a comparatively rich subsidy, especially considering that many of those will be low-wage jobs.

“It’s outrageous that we would spend this much money for a parking ramp, a couple of ice rinks – that people will have to pay to go to – and then stores and a hotel,” said Ellen Kennedy, a member of the Coalition for Economic Justice, an association of local labor and community groups.

“There is no need to put public money into this.”

Greg LeRoy, executive director of Good Jobs First, a national subsidy research organization, added: “I think $134,000 is a rich price and I doubt the taxpayers will ever break even on deals at that cost – especially deals in the retail or low-wage service sectors.”

The Sabres have been praised for their commitment to paying a “living wage” to some of their employees at HarborCenter, but an examination of the project agreement shows that other employers at the complex are exempt from that requirement. Those exempt employers, including a hotel, shops and donut shop, are projected to account for the majority of the workforce at HarborCenter.

Team officials refused to discuss the project’s financing, including the subsidies. But a spokesperson characterized the project as an unselfish investment in the community.

“The Pegulas have made an investment with their heart,” said HarborCenter spokesperson Don Heins. “Rather than deploying their investment in a way that would optimize their financial return, they’ve made an investment in the community that is designed to help establish Buffalo as a world class hockey destination.”

Erie County Executive Mark Poloncarz, who last year expressed reservations about granting the project tax breaks before throwing his support behind it, declined an interview request. But in a prepared statement he praised the project, saying that HarborCenter will bring “significant new tourist revenues to Buffalo and Erie County”, as well as creating jobs which “might not have come to Erie County without incentives from governmental partners such as New York State and the Erie County IDA.”

Andy Reynolds, spokesperson for the Coalition for Economic Justice, said taxpayers have been short changed.

“There’s some good with the deal and a lot bad,” he said. “The Sabres are the clear winners in this deal and the public is left holding the short end of the stick.”

Relatively large subsidy

HarborCenter is built on 1.7 acres of what had been a city-owned parking lot across the street from First Niagara Center, home of the Buffalo Sabres. The Sabres won a competition in 2012 for the right to develop the site.

The complex will open in phases, starting later this week with the two ice rinks and Tim Hortons donut and coffee shop. A sports bar and 750-space parking ramp will open this fall and a 205-room Marriott Hotel next summer.

HarborCenter will be home to three collegiate and junior hockey teams, including Canisius College, youth and adult hockey programs, and weekend tournaments. The complex is projected to attract a half million visitors annually.

The Sabres have been granted two subsidies worth $57 million to help offset the cost of the $172 million project.

The larger of the two subsidies, worth $36.7 million, comes from the Erie County Industrial Development Agency.

Estimated savings include:

• $28 million in property taxes over 10 years.
• $7.5 million in sales tax on construction materials and equipment.
• $1.2 million in mortgage recording taxes.

The $36.7 million package is considerably larger those those granted by the ECIDA for other major downtown projects the past decade.

The next largest package involves the $10.8 million awarded last year to Uniland Development to build a new corporate headquarters building for Delaware North Companies.

Four other projects benefitted from tax breaks worth between $4 million to $5 million. They include the conversion of the Dulski Building into condos, offices and hotel space at the renamed Avant; the construction of headquarters for HealthNow and Catholic Health Systems; and the development of the Conventus building on the Buffalo Niagara Medical Campus.

Most of these projects received additional subsidies, lead by Avant, which received $19.8 million in state assistance and $12 million in government loans in addition to ECIDA benefits.

HarborCenter’s tax breaks might look generous compared to other IDA projects, but that’s only because the project’s cost is higher, said ECIDA Executive Vice President John Cappellino. The more a company spends, the more it can receive in tax breaks. But ECIDA incentives as a percentage of investment are the same for every project, he said.

There was considerable debate when the Sabres applied for ECIDA benefits as to whether the project was eligible. The agency doesn’t typically provide tax breaks to restaurant and retail operations, but the ECIDA decided that HarborCenter qualified because it was a “major regional destination attraction” that would draw tourists to the city.

That designation doesn’t pass muster with critics.

“There is no need to put public money into this,” said Kennedy, a member of the Coalition for Economic Justice’s subsidy action committee.

“This has really moved so far away from the original intent of IDA subsidies. Building hotels and retail stores that pay minimum wage does nothing to improve the economy,” she said.

HarborCenter is also receiving state assistance in the form of almost $20 million in brownfield tax credits, according to an estimate Cliff Benson, the Sabres’ chief development officer, provided the ECIDA in 2013.

Brownfield tax credits are designed to encourage development of environmentally contaminated sites by helping to offset the costs of remediation. The Sabres have spent around $8 million to clean up the site, which had been contaminated by previous industrial uses, including underground storage tanks for petroleum, a team spokesman said.

Applications for brownfield tax credits are routed through the state Department of Environmental Conservation. Officials there refused to answer questions or release documents related to the project that Investigative Post requested under the Freedom of Information Law over a month ago.

High cost per job

The county and state tax breaks work out to $134,000 per job. That’s one of the highest per job subsidies granted to any project in Western New York in recent history.

The government does not maintain comprehensive data that allows for a wholesale comparison with other projects, although over the past decade only a handful have exceeded the $100,000 per job threshold locally.

The state comptroller has calculated the cost per job of projects financed by industrial development agencies across New York. The average cost in 2012 was $2,588 in subsidies per new job created. By contrast, the ECIDA’s portion of the subsidy package awarded to HarborCenter works out to $86,353 per job.

That’s too generous a subsidy, especially because many employees will work at low-wage jobs said LeRoy of Good Jobs First.

“The quality of the jobs generated – restaurants and hotels especially – they’re not good jobs, they don’t generate a lot of strong ripple effects,” he said.

Projects that involve retail and leisure elements tend to redistribute money within the local economy rather than adding to it, LeRoy said.

“We don’t have more money to go shopping because we have more places to shop. We don’t have more money to go to sporting events because we have more sporting events to choose from.”

Low-wage jobs also tend to leave workers relying on government assistance to make ends meet, which adds a hidden cost to the taxpayer, LeRoy said. Moreover, tourism is particularly vulnerable to economic downturn, he said. In a recession, such spending is one of the first things people tend to cut back on.

Living wages – for a few

The Sabres agreed on various conditions with the city when they were chosen to develop the site. They promised to hire local construction workers and seek city residents for jobs once construction was completed.

They also agreed to pay a living wage – currently set by the city at $12.66 an hour for workers without health insurance – to full-time, year-round employees of the ice rink and parking ramp.

But those add up to 13 workers, or just six percent of projected full-time employees, according to projections submitted by HarborCenter to the ECIDA in early 2013. The Sabres refused to update those projections for this story.

The balance of the HarborCenter workforce, mostly employed in service positions, one-third of them part time, do not have to be paid the city’s $12.66 living wage.

Their earnings are likely to be closer to the regional average, which is much lower. In the Buffalo-Niagara metropolitan area the hourly median wage is $9.11 for a housekeeper, $8.92 for waitresses, and $8.81 for cashiers, according to the U.S. Bureau of Labor Statistics.

“We believe that a job should keep you out of poverty. And unfortunately these public subsidies are creating largely poverty-level jobs that will keep workers in poverty,” said Reynolds of the Coalition for Economic Justice.

That goes against the basic purpose of economic development subsidies, LeRoy said.

“Making sure people have a good paycheck should be the only thing we worry about with economic development.”