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2002-04-04
Buffalo, NY. City Welfare Saves A Dying Kmart.

Would you lift a finger to save a dying Kmart? Consider the $2.5 million in subsidies the city of Buffalo, New York came up with to save a Kmart which was heading for the glue factory. City officials spread the subsidies on thick enougfh to convince the company not to shut its doors. According to the Buffalo News, the Kmart was bleeding at the rate of half a million dollars a year. Such "rescue" deals seem to put the Buff in Buffalo. Another mall (developed by Benderson) with a Target, near the Kmart, was given tax abatements and other goodies costing taxpayers $8 million over 15 years. Local stores in town have the double irony of not only getting no such subsidies, but also of watching their tax dollars go to competitors like Kmart and Target. Some communities, sensitive to the politics of granting tax abatements to retail projects which kill off other local retailers, have banned the use of tax incremental financing for retail uses. But not in Buffalo. "This is what it takes to make these deals happen," Alan DeLisle, president of the Buffalo Economic Renaissance Corp, told the Buffalo News. "You subsidize one firm and you hurt another - that's very dangerous," argued George M. Palumbo, chairman of the Department of Economics and Finance at Canisius College. "You don't know how many businesses you drive out and how many jobs you lose because the firms without abatements are paying somebody else's taxes. The money has to come from someone," The Kmart subsidy came after the company announced its hit list of 284 stores, including the one on Broadway in Buffalo. While most of these ill-fated Kmart stores are being torn down or simply left empy, Buffalo appears to be the only city in the nation that raised money to bail out the Michigan retailer. The Kmart store is only 11 years old. It was a welfare child of the city, built on land the city bought, cleared and gave to Kmart. The Erie County Industrial Development Agency owned the building, so no state sales tax was paid on construction materials, and no mortgage recording tax was paid. Property taxes were also rolled back for 20 years, with as much as 90% of the taxes forgiven in some years. Now, under the new Kmart bailout, the store will pay no property taxes for the next five years, and over 20 years taxpayers will lose out on nearly $3 million in property taxes -- a sum enough to make other local businesses drool. All the corporate welfare combined comes to nearly $3.8 milliion. This for a store that reportedly has been losing money and laying off workers for at least the past five years. According to the Buffalo News, an area bank chipped in a major incentive by cutting the rent by two-thirds, and giving the developer six months of free rent. The city was so anxious to shower the store with other people's money, that they gave Kmart a $200,000 low interest loan that changes over to a grant if the store hangs around another five years. Kmart's flat response: "The incentives make it feasible for us to continue to operate the store," said a company spokesman. County Legislator Dale Larsen was one of two lawmakers who voted against county help to Kmart. "I had problems using taxpayers' money for a bankrupt corporation," he said. "You may set up an unfair advantage, and what do you have at the end? You gain one store and lose another. It's not a huge economic boost to the region." State law prohibits agencies like the Erie County Industrial Development Agency from getting involved with retail projects unless they are in "distressed areas," which means most of Buffalo.

What you can do: Critics of these government give-aways say that more retail doesn't build the economy, because most of what companies like Kmart and Target sell is not produced locally, or even in the United States, meaning they provide few benefits to the local community. The jobs are mostly part time and usually pay low wages, retail "associates" don't make enough money to provide major buying power for the local economy for big ticket purchases like houses or cars. Big box stores don't bring "new dollars'" into the economy or create additional jobs. They just redistribute them. "From a purely economic standpoint, retailing doesn't create new wealth," one observer told the News. For more examples of bail outs and deal sweeteners, search this database by the word "welfare".










 
 
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