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June 24, 2009

DiNapoli: Audit Provides Guidance to City of Niagara Falls to Help Improve Performance in Future Economic
Development Endeavors

An audit of economic development agreements between the City of Niagara Falls and two developers will help officials protect city interests in future development projects, said State Comptroller Thomas P. DiNapoli. DiNapoli, who released the audit at a press conference in Niagara Falls today, said two major projects faltered because the city did not adequately monitor development contracts, and those contracts did not give the city significant recourse when project goals were not met. The audit cites a downtown retail mall that has been vacant for nine years and another project that, after 11 years, yielded no more than a rudimentary building foundation.

“Redeveloping cities across New York has more than its share of challenges,” said DiNapoli. “We shouldn’t add to that degree of difficulty by entering into contracts that don’t penalize poor performance. Local officials have to be sure they are protecting taxpayer investments and providing assurances that the public will benefit from the projects in question. Mayor Paul Dyster is moving to make sure that the city uses past lessons to plan future progress. This audit is a great starting point toward improving the Niagara Falls’ economy.”

Mayor Dyster joined DiNapoli at the press conference.

“The City of Niagara Falls thanks Comptroller DiNapoli’s office for auditing these two significant contracts. I believe the audit goes a long way toward addressing the questions and concerns that have lingered for a number of years with regard to the two agreements,” said Mayor Dyster. “The Comptroller’s audit provides a guideline for going forward not only in direct regard to these two particular documents but it gives overall guidance for future economic development efforts in our city.”

Auditors examined economic development agreements Niagara Falls entered into with two developers: Rainbow Square Limited Partnership (RSLP), regarding the empty mall and Niagara Falls Redevelopment (NFR), regarding the development of approximately 140 acres. The mall is part of a 75-year lease the city signed in 1981, and the second project, which began in 1997, called for an investment by the developer of at least $110 million.

Undermining the city’s efforts was the lack of an economic development director responsible for monitoring projects within the city. Auditors found that the city’s contract with the developer for the shopping mall did not have adequate provisions to protect the city’s interests in case the developer failed to rent retail space or achieve minimum acceptable performance standards, such as occupancy rates, sales revenues or some other measure of retail activity. In addition, RSLP’s rental and/or lease payments to the city were not based on the mall’s performance.

DiNapoli’s auditors found that although the agreement for the 140 acres within the East Falls Street Redevelopment Area agreement contained some benchmarks, such as timeframes for minimum investment requirements, no city official was appointed to monitor whether the contract’s provisions were being met. Also, in 2003 the city amended the agreement with NFR, allowing the company to purchase private property directly from owners, giving the city very little control or recourse should the developer fail to meet benchmarks or complete the project. The city would have had greater leverage over the developer if all the land had been acquired through the city or the Urban Renewal Agency.

The city approved one NFR site plan in 2005 and the company reportedly completed the construction of a foundation that year. However, auditors found no documentation of the inspection and acceptance of the foundation by the city’s building inspector. Despite an apparently agreed-upon April 2007 completion date, construction never progressed beyond the foundation – a foundation that city officials could not confirm was sound enough to support a building structure.

DiNapoli recommended that city officials:

  • designate the Director of Planning and Economic Development to be responsible for monitoring the progress of economic development projects; manage the city’s economic development goals and objectives and be the liaison between the city and developers;
  • ensure that the city’s development agreements advance the city’s goals and objectives and protect its interests;
  • consider retaining title to land and structures if they desire to exercise control over development, and include provisions requiring liquidated damages, performance bonds or letters of credit, and/or reserve the city’s right to buy back land at a set purchase price if the developer does not complete the project in an appropriate manner; and
  • be flexible in adapting to economic and financial changes to further the city’s vision for economic development in blighted areas.

City officials generally agreed with DiNapoli’s findings, and indicated they have already hired a Director of Planning and Economic Development, and a new Corporation Counsel to ensure all other recommendations are carried out.

Click here for a copy of the audit.


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