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Delaware North's Endless Subsidies

The proposed new headquarters for Delaware North at Chippewa Street and Delaware Avenue, to be built by Uniland Development.

Investigative Post

The company owned by billionaire Jeremy Jacobs Sr. is wrapping up a 15-year subsidy deal and looking for another 10 years of tax breaks to build new headquarters. The cost to the public treasury of these two deals could top $15 million. When is enough enough?

Those upset by the prospect of Delaware North Companies receiving public subsidies to move into new office space are 13 years and some $4 million too late.

The company, owned by Buffalo’s wealthiest family, has been receiving public assistance since it moved into its present headquarters at Key Center in 2000. Sales and property tax breaks, some of which continue until its office lease expires in 2015, total an estimated $4.1 million.

That’s not counting the $11.6 million low-interest line of credit Delaware North obtained from the city when it moved into its new quarters for a spell, until federal officials objected because the money was supposed to be used to combat poverty and blight.

Delaware North is now seeking an even richer subsidy package to move its offices two blocks west to the corner of Delaware Avenue and Chippewa Street. It is seeking up to $4.8 million in direct tax credits and abatements over 10 years.

Uniland Development, which would build Delaware North’s new headquarters, is seeking up to $10.6 million in tax breaks from the Erie County Industrial Development Agency and further tax credits, whose value has not been determined, from the state. These tax savings would benefit Delaware North because they would allow Uniland to charge a lower rent.

Delaware North reports annual revenues of more than $2.6 billion and Jeremy Jacobs Sr., its chairman and chief executive officer, has a net worth of $2.8 billion, making him the region’s wealthiest person.

Assemblyman Sean Ryan is leading the charge against tax breaks for the project, arguing, among other things, that another round of incentives would amount to double-dipping.

“When is enough enough? It should have been when the original tax abatement ran out,” Ryan said.

“Essentially, we made our investment in this company 15 years ago. We made our deal. You can’t be coming back to the table for seconds.”

Deputy Erie County Executive Richard Tobe, who is negotiating the deal for the ECIDA, justified another round of assistance in part because of a concern that Delaware North might bolt town if subsidies aren’t provided. Tobe said at least 20 states and cities have approached the company about relocating.

“I took the company at its word that it would not leave immediately, but that it would affect their decisions on where to grow and how to grow, and over the long term it [no subsidies] could be a serious issue,” he said.

Delaware North received public subsidies to move into the Key Center's south tower beginning in 2000.

Subsidies since 2000 at present HQ

Delaware North has long been a presence on Main Street in downtown Buffalo. It began looking for office space in the 1990s, when its headquarters was at the corner of Main and Court streets. The company found suitable space three blocks north on Main Street.

The south tower at Key Center at Fountain Plaza, constructed in part with $4.5 million in federal assistance, had stood for several years as a vacant shell before Delaware North struck a deal to occupy its top eight and a half floors beginning in 2000. The company and its landlord struck a deal with the ECIDA, and Delaware North received certification to receive benefits under the state’s Empire Zone program.

The tax breaks began immediately and continue to this day.

Initially, the company received a sales tax waiver saving it about $500,000 involving the purchase of equipment and construction materials.

State records show that between 2001 and 2007, sales tax waivers under the Empire Zone program saved the company an additional $1.39 million.

Property tax abatements will save Delaware North about $2.25 million through its 15-year lease, which expires in 2015. Property tax abatements for the building were due to expire in 2008, but Delaware North obtained an additional seven years of tax breaks from the ECIDA for the portion of the building it occupies. Meanwhile, the rent paid by other tenants in the building were based on the property being taxed at 100 percent of its assessed value.

Delaware North enjoyed one other incentive, public records show. The City of Buffalo provided the company with an $11.6 million line of credit about the time it moved in 2000. The four percent interest rate was a little less than half the commercial lending rate at the time.

The loan involved the use of federal block grant funds awarded the city to combat poverty and blight. Federal officials objected to the loan as an inappropriate use of anti-poverty funds and it was subsequently recalled.

Delaware North officials refused to discuss the details of its subsidy deals at Key Center.

“We are focused on moving forward with our new global headquarters at 250 Delaware Ave. and prefer not to discuss our 13-year-old lease at Key Center and other aspects of our move there in 2000,” Glen White, corporate communications manager for Delaware North, wrote in an email to Investigative Post.

Ryan, the Buffalo Democrat who represents portions of Buffalo, Lackawanna, and the Southtowns, said the incentives provided Delaware North at Key Center “should be the end of the story…I don’t think a company should be eligible for repeated exemptions.”

But Delaware North and its development partners are in the process of securing an even richer set of subsidies for its proposed headquarters at 250 Delaware Avenue.

Push for a variety of subsidies

Delaware North executives maintain that the company has outgrown its quarters at Key Center and that no office space in the region can accommodate its needs, which include not only offices, but a hotel and restaurant to train employees. That’s despite some two million square feet of vacant office space downtown, more than half of it classified as A space.

Uniland has proposed a 12-story office tower with an estimated price tag of $75 million. Uniland and Delaware North officials have tried to portray the subsidy package they are seeking as the “standard benefit programs available to other companies,” according to Dan Zimmer, vice president of finance for Delaware North.

While the incentive package being sought from the ECIDA has been awarded to many other projects, Uniland and Delaware North’s original proposal to the agency asked for much more than the norm. What’s more, the two companies have pursued other government incentives, leaving no stone unturned.

The project’s original subsidy package claimed the building site was a brownfield because one corner of the property used to house a gas station with underground fuel tanks, On that basis, Uniland and Delaware North sought state tax credits that would have seen the state pay 100 percent of the project’s property taxes for 10 years. Those property tax savings would have been used to build a private parking ramp for use by building tenants.

Such an arrangement—the use of public funds to pay for private infrastructure improvements—has only been used once before in Buffalo.

The state nixed the brownfield tax credit scheme when it was challenged by developer Carl Paladino. But Uniland is still seeking more modest brownfield tax credits that could be worth several million dollars.

Uniland also applied to the Western New York Regional Economic Development Council and the Western New York Power Proceeds Allocation Board for $3 million grants. Both requests were turned down because the project did not score well on the criteria the state uses to measure the economic impact of economic development projects.

Uniland has since submitted a revised proposal to the ECIDA for the building, while Delaware North proceeded with applications to the agency and state for other benefits.

The ECIDA recently approved a sales tax waiver will save Delaware North $807,000 in sales taxes for the the purchase of equipment and construction materials that would be used to finish its new office space. The company also has applied to the Empire State Development Corporation seeking business tax credits for the 65 jobs it has pledged to create at its new quarters.

A source familiar with the proposal said the tax credits could save the company up to $4 million over 10 years. That works out to as much as $61,500 per job, a relatively costly subsidy compared to most job creation incentives offered companies.

The ECIDA has not acted on Uniland’s application for subsidies related to the construction of the office building. Estimated savings include $1.8 million in sales tax, $400,000 in mortgage tax, and $5.4 million to 8.4 million in property taxes, depending on whether the project receives abatements for seven or 10 years.

The tax savings Uniland is seeking amount to $7.4 million to $10.4 million, plus an undetermined amount in brownfield tax credits. The reduced taxes are expected to be reflected in the rent of Delaware North, which is projected to occupy about half of the building’s office space.

Delaware North maintains the retention of 350 jobs paying an average of $97,000 annually, and the addition of 65 more jobs at an average of $70,000, justify the taxpayer assistance. And Uniland officials have said taxpayer assistance is required because the project is not otherwise economically feasible.

Subsidies seen as evidence of flawed system

Tobe said Delaware North’s current subsidies at Key Center should not count against the company. Rather, what’s relevant is whether the company will live up to its next round of commitments.

“If a company is going to come here and say they’re going to create new jobs and grow, and we conclude it’s necessary to get them to stay here or to come here and the benefit is an inducement to do so, we think it’s a good bargain for the community,” Tobe said.

But Ryan contends tax breaks should be pegged—and limited to—job creation.

“We want to promote job growth, we don’t want to promote speculative building, and we don’t want to further deteriorate the downtown commercial market by creating one more subsidized skyscraper. It does not work in a city that has a 25 percent [office] vacancy rate,” he said.

He and Jennifer Diagostino, executive director of the Coalition for Economic Justice, said the routine issuance of subsidies for developers undermines the region’s ability to build a tax base.

“We shouldn’t be just giving out the ‘standard subsidy package,’” she said.

Added Ryan: “The system is out of whack. How we do our IDA inducements in New York State, it’s a broken system.”

Jim Heaney is founder and editor of Investigative Post, a nonprofit investigative reporting center focused on issues of importance to Buffalo and Western New York. Visit daily for investigations, analyses, blog posts, and the latest from Tom Toles.

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