Section 108: Enough to Drive Taxpayers Section 8

In the fall of 2002, outgoing Representative John LaFalce requested a report from HUD on the way that aid money coming into Western New York was being disbursed. In an Alt Press article about the Masiello administration’s myriad problems administering HUD from 2002, the red flag over Section 108 was raised:

“…A concern raised in the study showed problems with debt servicing. Section 108 loans are commonly used to provide loans to a third party to fund eligible Community Development Block Grant activities, but in Buffalo, there have been unusual problems with this program as well. The report stated, ‘The city allocated $17.807 million for repayment of Section 108 loans over the last five years. This represents 16.5 percent of its total CDBG funds, a level more than five times the national average.’

“Not surprisingly, a breakdown of these repayments shows that almost ten million dollars of that repayment was for economic development projects. Yet administration officials said that expenditures for the purpose of addressing ‘slum and blight’ would be included under the category of economic development.

“So, even though the study pointed out certain areas that were way off the charts, there were plenty of excuses as to why these apparent problems were not the problems that they appeared to be.” Debt Service: The Gift That Keeps Taking

When government gets involved in economic development, decisions on funding are not made from a business investor’s point of view. They are made from a public policy standpoint. The public policy of city government in Buffalo has long been based on the precepts of Tammany Hall. Political patronage is the prime directive; debt service is a tertiary consideration, at best.

So the legacy of political gifts became a ball and chain for future administrations. This legacy of the mayor and his cronies is one that will keep giving, or rather taking from taxpayers, for a long time to come.

Not long after the LaFalce report came out, Washington took control of the HOME HUD program away from the mayor. People familiar with HUD locally, who discussed delinquent Section 108 loans with us, said that this was a serious problem as well. A FOIA request that Alt Press filed was returned, showing a partial list of only good, current loans, despite the fact that we asked to see all of the loans.

That’s probably because words such as “delinquent,” “foreclosure,” and “bad” were not used, especially with friends of Tony. Unfortunately, we haven’t been able to determine the status of many of these loans. We have been able to obtain a partial list of bad debt from last year through other sources, however. We’d like to share a few of the highlights and lowlights from this list, as the Masiello era begins to recede in the rear view mirror, along with the Super Zoo, the “Deathstar” Convention Center, and, of course, the Buffalo Byte Belt.

The Former Pillars Hotel - Med Inn Centers of America LLC

Alt Press has documented the problems at Roswell Park Cancer Institute that culminated in the collapse of half of all research programs at that facility. We showed how political patronage shaped the direction under two successive directors with strong Republican roots. A decision was made to start marketing cancer treatment at Roswell to wealthy out-of-towners. Experimental treatments long provided to the public at nominal cost by the government-funded institution were now available only to those who could pay. To the brain trust at Roswell, it made sense to ask the cash-strapped city to use precious federal aid money to build a hotel for families of cancer patients (or customers, in MBA-speak) on the campus of Roswell. Was there a big enough market in cancer patients to justify this investment? In hindsight, it was not. Of course, little market research was done in advance, and the hotel funding was obviously predicated on a best-case scenario.

Several years after the hotel was completed, the BERC was stuck with a bad loan of $9.5 million. Even while Med Inn should have been considered in default of its BERC loan, the BERC gave the group an additional three hundred and fifty thousand dollars for the purpose of “corporate rebranding.” It’s now a Doubletree operating under the Hilton Hotel chain, but the debt and the debt servicing, remains. The BERC should have foreclosed, but they apparently didn’t want to be in the hotel business. Why be in the hotel business when you can be in the “throw good money after bad” business?

In all likelihood, the mayor was only trying to support his friend, Gov. George Pataki, with this deal. Will this loss ever be leveraged into state money for Buffalo? Not if the governor’s recent budget vetoes are any indication.

Harry’s Harbour Place

Harry Williams is a longtime supporter of the mayor. His restaurant, Harry’s Harbour Place, generated $600,000 in bad debt on a section 108 loan. Harry’s Harbour Place is a lovely waterfront eatery, but this sweetheart deal doesn’t exactly have a mouth-watering flavor for taxpayers.

Market Arcade Restaurant Development Inc.

Entertainment and retail businesses are very risky, and that’s why the industrial development agencies have traditionally banned investment in these types of businesses. Of course, the BERC was not subject to this sort of discipline. Market Arcade Restaurant Development, Inc., generated $1.7 million in bad debt. The company belonging to Tony Masiello’s friend, Jim Cosentino, developed the Radisson Hotel downtown. But then, this company ran into difficulty. Tony did his part by not foreclosing on his friend, at the city’s expense!

Theatre Place Associates

Theatre Place is the Main Street building that houses the venerated Tralfamadore Café, which, until recently, was operated by noted jazz musician, Bobby Militello. Last year, Bill Huntress’s Acquest Development bought out the building from Theatre Place. Theatre Place Associates original principals included Masiello’s chief of police and boyhood chum, Rocco Diina. The city wound up eating two million dollars of Theatre Place’s bad debt. This wasn’t section 108, but it was typical of Masiello’s “economic development” philosophy.

“Charge Offs”

One practice at the BERC was simply to “charge off” bad debts without ever making a serious effort to collect the debt. The mayor employed this trick with a $10,000 gift to the Burton sisters whose film, “Manna From Heaven” was supported by local elites. One source involved with the film told Alt that this interest was in reaction to Vincent Gallo’s controversial film, “Buffalo 66,” which depicts Buffalo and its residents in a decidedly harsh light.

T.G.I Friday’s

Why a corporate chain, such as T.G.I Friday’s, would need half a million dollars in government funds to locate in downtown Buffalo is anyone’s guess. Maybe they noticed the vacant storefronts that used to house Burger King and McDonald’s. At any rate, they were in arrears for that amount of money. We couldn’t get ahold of anyone at corporate headquarters who could shed some light about the status of this debt, so we can’t say if it was or will ever be repaid. Why would the company bother paying it back? It’s not exactly like they’re under any pressure from anyone.

Crying Over Spilt Beer? Determined to provide tourists with a comfy brewpub in the center of the theatre district, Masiello & Co. recruited Empire Brewing to move into the vacated space. Although the structure of the loan was not as loose this time, when it came time to collect, M&T Bank was first in line. At last count, the city was still nursing a hangover of a half million dollars in bad debt.

Ellicott Mall

Millions of dollars were spent on rehabbing public housing complexes in Buffalo. The Buffalo Municipal Housing Authority, long a political patronage haven, was deeply involved. Almost three million dollars of Section 108 debt was run up with two separate private partnerships. These partnerships present an opaque face to taxpayers. This seems to be just another story of an unaccountable public authority soaking up money. The best that can be said is that the project to rehab these structures was the closest thing to a legitimate use of HUD funds as one could expect in Buffalo.

Office of Strategic Planning

The Office of Strategic Planning must now address much of this mess. Timothy Wanamaker, an outsider, was brought in to try to change the direction and philosophy of economic development in Buffalo. Wanamaker was out of town and unavailable for comment on this story at press time. We look forward to addressing these issues with him in the future. By John McMahon

Perhaps the most lasting legacy of the Masiello administration will be debts incurred by an entity called the Buffalo Economic Renaissance Corp. During the last decade, Tony Masiello used the BERC as a pass through for federal aid money that the Department of Housing and Urban Development provided to the city. As we know from the Adelphia saga, economic development in Buffalo is “risky business.”