Tuesday, March 18, 2014

New York State's $704 Million Mall

Once upon a time, there was a mighty Empire.

And in a rural part of that Empire, where the hills are green, the lakes are a deep blue, and the citizens are industrious, there was a vibrant mid-sized city.  The city had been built by entrepreneurs, manufacturers, merchants, and educators, along the banks of a well-traveled man-made waterway linking the Great Lakes with the Hudson River.

Tens of thousands of people were employed in a variety of ventures, from making Carrier air conditioners to parts for Chrysler automobiles, and designing sophisticated radar systems.  The dental chair was invented there, along with the traffic signal, the serrated knife, synthetic penicillin, and the drive-in bank.  Several prestigious universities, including a world-class institution named after it, were established there, producing graduates like entertainer Dick Clark, sportscaster Bob Costas, actors Peter Falk and Suzanne Pleshette, and NFL quarterback Donovan McNabb.

But then the mighty Empire, having become accustomed to success and wealth, assumed that its citizens would pay a premium to continue living within its borders.  This Empire also assumed that the large corporations that had been birthed, nurtured, and celebrated within its borders would gladly assume more and more tax burdens, governmental regulations, and other onerous costs of doing business.  After all, social experimenters down in the Empire's biggest city, at its far southern tip, were allowing over a million people to accumulate on welfare roles funded partly by everybody else in the Empire.  And those costs were adding up.

Back upstate, residents in the Empire's smaller cities and towns - where much of the Empire's manufacturing had taken place - began to suspect that a lot of their ever-increasing taxes were being spent down at the Empire's southern tip.  Companies, too, began to wonder if the cost of doing business in the Empire might be getting a bit too costly.  But the Empire's political leaders were paying no mind to the rabble.  They took for granted that taxpayers would let them get away with just about anything.

Somewhere along the way, that old canal, through which the Empire's many goods used to be shipped, became obsolete, as rail service, Interstates, and then airports became far more convenient.  By then, that vibrant, mid-sized city, surrounded by green hills and blue lakes, had seen those greens and blues become far less vibrant, as pollution from generations of rampant industrialization - byproducts from all of the frenzied manufacturing - had been dumped indiscriminately into its ecosystem.  The county's largest lake, for example, had become a big, fetid, smelly mess; awash in a stew of cancer-causing chemicals.

Dixie Stampede

It was about that time when somebody even further south of the Empire, in what used to be called Dixie, discovered that all of those air conditioners being built in the Empire's cavernous factories along the disused canal made living and working in warmer climates newly bearable.  Dixie's cost of living was far less than it was in the Empire, and Dixie was desperate for employers and jobs.  There was a lot of cheap land to construct ever-modern facilities to replace the Empire's aging relics, and few unions to inflate manufacturing costs.  It didn't take long for employers back up in the Empire to calculate the opportunities in Dixie as being too valuable to pass up.

So they began to leave the Empire.  At first, the exodus was a trickle, but by the 1970's and 1980's, it was a full-blown torrent of employers and their employees, heading for the Empire's rusting exits.  And suddenly, that mid-sized city along the now-overgrown canal was barely even mid-sized.  Empty, dilapidated buildings appeared throughout its core.  Abandoned factories began caving in on themselves - one even collapsed partly onto a freeway.  Weeds grew along sidewalks that no longer saw foot traffic, and in paved lots where shoppers and workers used to park their cars.  Windowless houses sagged under every winter's bitter snowfall, and once-grand churches sat as silent sentinels over neighborhoods where crime, instead of a sense of community, was thriving.

Eventually, New York State's decay could not be written off by elected officials as anecdotal complaints by disgruntled voters.  Urged by their remaining constituents, New York's politicians began to wonder if their policies could be a major reason for why so many employers and their employees were leaving.  But instead of admitting their faults, and cutting their wasteful habits, they began to devise intricate new laws and incentives to try and staunch the exodus, preserve what economic vitality remained in the Empire, and jump-start some new ideas to at least create the impression that the Empire wasn't really dying.

And it didn't take long for one particularly clever developer in Syracuse, that hard-hit industrial city on the historic Erie Canal, to figure out that he could make a lot of money by exploiting some of these new laws.  But he needed an alibi; or at least, that's how his growing list of detractors now sees it.  He knew that his beleaguered hometown of Syracuse needed something flashy to reinvigorate it, and about the only thing he knew how to do was build shopping malls.

Hey - it could be the perfect cover!  How about a new (drumroll, please) mall?

You'll Always Know Your Pal

Robert Congel
Meanwhile, did Syracuse need another shopping mall?  No, it didn't.  The ones it already had were dead or dying.  But like a lot of things in New York State's new reality, economic rationale didn't matter as much as government incentives.  The question wasn't whether a new mall could survive in Syracuse, but how taxpayer dollars could be used to make a developer like Robert Congel look like his hometown's savior.

Never mind that shopping malls would soon become anachronistic, or that the Internet would eventually render brick-and-mortar shopping unnecessary.  This was long before corporate America allowed technology to upset the status quo.  For all the future-visioning and trend forecasting good businessmen are supposed to do, Congel can be excused for hatching his grandiose scheme before any American real estate developer really understood that the writing for such projects was on the proverbial wall.  At the time, Congel simply wanted to build something that would outclass anything in the Central New York market, to entice shoppers from not only the Syracuse area, but even Canada, where taxes were more punitive than New York's.

At least, that was how he sold his idea for Carousel Center Mall to the various agencies in the city, the county, the state, and even the federal government.  He needed all the financial help he could get for making a destination project work in a place like Syracuse.

Congel found a location along an Interstate highway with lakefront acreage on Syracuse's carcinogenic cesspool.  By that time, the corporation that had been most responsible for illegally dumping its toxic effluence into Onondaga Lake had been dragged into court by the state, which was intent on suing for payment of the lake's clean-up.  Congel was after millions of taxpayer-funded brownfield cleanup dollars, which were supposed to be used to repurpose land that had been previously contaminated by industrial activity.  Clean it up, build a new environmentally-sensitive project, and get reimbursed by the government for part of the cost.

At this point, everything seemed to be falling into place for Congel.  After all, he was doing nothing illegal, or even immoral.  It was all above-board, it was benefiting the people of Syracuse, and he happened to be making a handsome profit off of it.  Nothing wrong with that.  Granted, a shopping mall isn't exactly the best type of economic redevelopment.  Retail jobs aren't a good replacement for manufacturing jobs, of which the city had lost the most, or even white-collar jobs.  But by this point, beggars couldn't be choosers, and it was hard to turn down a bauble that could become a new tourist attraction for the city.

Congel went out and found a real, antique carousel, fixed it up, and built a wing of his new mall around it.  He put a banquet hall atop his mall, and anchored some high-dollar stores at his mall's entrances.  Sure, only about a dozen people in Syracuse could seriously afford to shop in those stores, but Congel was after Canadian tourist money, not meager Syracuse dollars.  His strategy paid off, and before too long, Carousel Center was a hit.

Destiny's Chill

He could have checked his ego and retired comfortably at that point.  But Congel wanted more.  After a few years of pointing with pride at what he'd given Syracuse, on a lakeside field that used to be contaminated with a potpourri of lethal chemicals, he stunned Central New York with audacious plans for an even grander vision:  a dazzling "DestiNY," with the "NY" in caps, for "New York."  DestiNY would be a $20 billion behemoth of green glass towers, an indoor amusement park, a replica of Venice, and a plethora of other attractions that would make Disneyland look like McPlayPlace.

One of the official concept drawings for DestiNY...
It was absurd.  It was so over-the-top, people thought he was joking.  DestiNY would not only be out of place for Syracuse, but it would be out of place anyplace in Central New York, and even New York City.  Yet Congel knew he could sell politicians on his fantasy, and he did.

"Wait a minute!" you may be saying.  Why did politicians need to be sold on his fantasy?  Because Congel knew that his idea was preposterous.  It wasn't economically viable.  One of his former employees would later admit to a reporter that executives at Congel's development company would sit around all day, trying to out-do each other with wildly impossible ideas to include for the project.  Their aim?  To bid up the project, and push up its pricetag, so that they could go not just to Wall Street investors and banks for funding, but to government agencies, looking for taxpayer-funded incentives.  And not just brownfield incentives, but tens of millions of dollars in all sorts of other environmental give-backs for things like solar energy, water conservation, harnessing the wind, and on and on and on.  Plus tax-free bonds, and other taxpayer-funded perks.

...and another
When Congel got his governmental package together, he proudly credited Hillary Clinton, then a senator for New York, with greasing his dealmaking.  He wasn't just a mall developer anymore.  He was a master exploiter.  And it was all legal.

Today, however, Carousel Center still is just a mall.  There are no soaring green towers with wind farms on top of them.  There is no indoor golf course, or anything else from the original plans.  He did get to construct an expansion for his now-dated mall, but Congel ended up in a lawsuit with his banks over its financing.  And that expansion?  Picture a generic - albeit spacious - pile of concrete and steel shaped in what looks like a warehouse with big skylights.  But it was enough for him to re-name the whole mall Destiny anyway, except without the "NY" in caps.  He's struggled to fill what additional space he's constructed, and even then, his only tenants are some kiddie diversions, a few restaurants, and assorted outlet stores.  Customers still flock there from as far away as Canada, but it's not out of loyalty to Congel.  His albatross has ended up cannibalizing shoppers from what few other malls were left in Central New York.  Two of them are on life support as you read this.

Nevertheless, for whatever damage Congel has inflicted upon the overall retail industry in Central New York, as well as upon his personal reputation, Destiny is currently America's sixth-largest mall, and expects to attract nearly 30 million visitors this year.  But has it been worth it for taxpayers?  As it stands, Destiny benefits from one of the most lucrative portfolios of taxpayer-funded incentives and subsidies in American history.  All $703.6 million of it, over the course of the next 30 years.  For a mall.

But wait!  There's more...

Certainly by now, you'd think Congel would be licking his wounds, yet content that, with Destiny's size and foot traffic, plus his taxpayer subsidies and tweaked financing, he could still face a pretty comfortable retirement.  But no, Congel has decided to ask for still more taxpayer benefits to construct a 17-story, 255-room, $75 million hotel across the street from his rechristened Destiny.  Even though the current occupancy rate of Central New York's existing hotels hovers around 65%.

And Congel wants a property tax exemption for twenty years, worth about $20 million.  He might also apply for more of that brownfield reimbursement from taxpayers, in the amount of $7.5 million.

Not only that, but due to some of the complex contracts Congel got New York State to agree with, he gets a $10 million property tax refund from state taxpayers every year on the mall building itself, even though he currently does not pay any property taxes on it.  And it's all still legal.

Indeed, the Empire has no clothes.

Even though Congel's Destiny has plenty.  For a price.

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