Apr 26
2023
Big subsidies for factory rehab in Tonawanda
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A century ago, tusks from thousands of elephants from Africa — dug up from graveyards or collected by hunters — made their way to a Town of Tonawanda factory complex where the Wood & Brooks Company used them to make piano keys.
Closed by the 1970s, the factory complex on Kenmore Avenue today is “substantially vacant” according to a developer who wants to rehabilitate two of the property’s dozen buildings into business incubator space and 55 apartments. The developer, Michael Wopperer, has estimated the project will cost $23 million. He hopes to complete the redevelopment by the fall of 2024.
The project comes with a steep cost for taxpayers: $17 million in subsidies. They include brownfield cleanup tax credits, state and federal historic tax credits, and property and sales tax breaks.
Total savings amount to 51 percent of development costs.
In exchange, Wopperer plans to create one full-time and two part-time jobs.
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Wopperer, in an interview with Investigative Post, said his plans include market rate apartments and incubation space for construction contractors looking to start or expand their businesses, in partnership with Construction Exchange WNY. Ten percent of the apartments, five or six, will be “affordable” for residents earning 80 percent or less of the area median income or less. The rest, studio, and one- and two-bedroom units, will rent between $1,100 and $1,800 a month.
He contended that projects like his aren’t doable without the incentives. Without the assistance, the relics of Western New York’s industrial past will continue to blight.
“Am I supposed to come up with $23 million and never make my way out of it?” Wopperer asked. “You have to incentivize someone who’s going to come in and do something with them. If you want to keep people from demolishing them there has to be some incentive.”
Some experts, though, questioned the need for such large subsidies for rehabilitation projects like Wopperer’s. While local leaders may point to such projects as signs of Western New York’s comeback, Jason Knight, an associate professor at SUNY Buffalo State, argued the subsidies raise questions about who is benefiting.
“It’s not really a resurgence of people, or a resurgence of us as a society, it’s really a resurgence in investment in buildings for the developer class, and that [raises] the question of, ‘Where’s the benefit of these subsidies going to come from?’” Knight said.
“If we’re subsidizing largely market rate apartments in old historic buildings, that benefits a very small slice of the overall population,” he added.
The incentives and subsidies Wopperer is seeking, all of which are in process, include:
- An estimated $8.6 million in brownfield cleanup and historic building tax credits from the state and federal governments.
- An estimated $7.3 million in property tax breaks over 12 years from the Town of Tonawanda.
- $1.2 million in sales and mortgage recording tax breaks from the Erie County Industrial Development Agency.
The IDA on Wednesday voted unanimously to approve the sales and mortgage tax breaks. Tonawanda Supervisor Joseph Emminger, prior to the vote, urged the board to approve the tax incentive package, arguing it would help revitalize a run-down part of town.
“That area of our town needs a little boost and we think this will help give a more positive aspect for that area,” Emminger said.
Brenda McDuffie, chair of the IDA’s board of directors, refused an interview request following the meeting. IDA Executive Director John Cappellino, though, defended the subsidy package, arguing that it’s costly for a developer to renovate old, historic structures and that current economic conditions, including high interest rates, are driving those costs higher.
“The redevelopment of older buildings, particularly like this, for residential [use] is very costly particularly when you’re dealing with a facility that was a former manufacturing facility,” he said. “Right now, financing costs, interest rates are really causing increased costs for projects so I think as developers … any incentive they can do does help them on their pro-forma.”
The Tonawanda Town Board could vote on the property tax breaks for the project sometime this summer.
Experts criticize stacking subsidies
The project involves a six-story building that dates to 1901 and one adjacent single-story auxiliary structure.
Christiana Limniatis, a historic preservationist with Preservation Buffalo Niagara, was critical of the multitude of subsidies. Limniatis said she understood seeking state and federal historic building tax credits for the project. Those credits, she said, are tied to higher building standards and can result in better-quality preservation efforts.
She also understands seeking brownfield cleanup credits, which can net a developer credits worth up to three times the cost of the actual cleanup. While those subsidies can be generous, Limniatis said they help solve a problem — contaminated land — that others created and failed to fix.
But the property tax break from Tonawanda, as well as sales and mortgage tax breaks from the IDA, she said, are just “rewards to developers.”
“All levels of government could be doing things to make funding available to help people keep their buildings together and do more proactive work, instead of having to wait until it’s so bad and requires a massive rehabilitation project that is only possible through the support of those incentive programs,” Limniatis said.
Knight said he felt similarly. In a region like Western New York, which is full of abandoned buildings, “some level of subsidy” is often needed for rehabilitation projects. But, he said, developers and government agencies never reveal to the public whether the subsidies are actually needed.
“We never asked the developer who’s asking for the money to prove it, right?” Knight said. “So it’s really, really hard, I think, for the average person, myself included, to really understand that the need actually, truly exists, or if it’s just a shell game, where developers are asking for these subsidies because they know they can get them.”
Knight also noted that the state and federal subsidies — the brownfield cleanup and historic building credits — have less of a negative impact on taxpayers than local incentives, in part because the cost of those tax breaks are shared by a larger population.
That means the property tax break Wopperer is seeking could hit Tonawanda taxpayers the hardest.
Under a state program referred to as 485-a, a developer can receive steep discounts on their property taxes for 12 years if they convert a commercial property into a mixed-use development that includes housing. Wopperer’s project would qualify.
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The discount works like this: After a rehabilitation is complete, the developer only owes taxes on the value of the property prior to the renovations. The developer receives a 100 percent discount on the new taxes for eight years, and then begins paying an increasing portion of the new taxes in years nine to 12. By year 13, the developer is paying the full taxes on the renovated property.
According to Ryan McCarthy, an attorney with Hopkins Sorgi & McCarthy who’s representing the developer, Wopperer currently pays $90,177 a year in property taxes. After rehabilitation is complete, Wopperer would owe an estimated $834,855 per year. With the 485-a discount, he’ll pay the current yearly taxes, saving an estimated $7.3 million over 12 years.
That’s money that won’t go into town coffers or the Ken-Ton School District budget.
Wopperer described the property tax break as “a critical piece” of the project.
While generally critical of how governments dole out subsidies, Knight said they can play a useful role in getting developers to invest in the city rather than option for cheaper-to-build projects in suburban or rural areas.
“If you take all this stuff away,” he said, “if you turn the faucet off, all of that development that’s been happening in the city … developers will just go back out to the suburbs.”
