(*Not all businesses used their entire award. This list may be missing some awards, as we didn’t have full information about the project’s location.)
During her State of the City speech in April 2017, Mayor Lovely Warren praised the renovation of the Hyatt Regency, saying, “The makeover of the Hyatt will bring the first Starbucks to Downtown Rochester. And by year’s end, we will welcome Morton’s National Steakhouse. Now that’s progress!”
What Warren didn’t say is taxpayers shelled out secret payments to developers, Robert C. Morgan and David Christa.
In March of 2017, the city signed off on a 3-year, $1 million loan with a 1 percent interest rate and unusually favorable repayment terms. In addition, after twelve months of the restaurants being opened, the city will convert $100,000 of the funds to grant money that doesn’t have to be paid back. Some of the funds – $30,000 – went directly to Starbucks for a licensing fee. The entire project cost $3.5 million.
The developer promised the project will create 77 jobs, with at least 25 of the positions held by city residents. In order to get the grant portion, at least 58 jobs must have been created. There’s no clawback provision if the jobs don’t materialize or get cut in the future.
City Council did not vote on this loan and grant to Morgan and Christa. There was no public hearing. Rochester for All discovered the transaction by viewing the city checkbook registry.
City Council does vote every year on authorizing the mayor to disburse Community Development Block Grant funds for business programs. CDBG funds can be used for a wide array of programs that provide economic opportunity and assist low to moderate income residents. In 2016-2017 fiscal year, the funds totaled $1.67 million. As part of this vote, City Council gives its stamp of approval to the annual Consolidated Community Development Plan. This plan outlines broad goals and typically does not mention specific businesses receiving funds. The 2016-17 plan made no mention of the Hyatt project.
If you want to know who’s getting CDBG funds, you have to get out a magnifying glass. The list is buried in the city’s annual 100-plus page report to the Department of Housing and Urban Development. The reports are available on the city website, but only through the website search tool or Google. The reports are also on file for the public to view at the Central Library and City Hall.
Because the program is largely administered out of public view, there’s potential for cronyism. Indeed, we found big awards to politically connected firms. Here are other examples.
- $400,000 “pre-development grant” to Wegmans in 2013 to pay for soft costs associated with the construction of the new East Ave. Wegmans.
- $100,000 grant to Buckingham Properties to rehab a Lyell Ave. plaza in 2014. The total cost of the project was $400,000.
- Morgan and Christa also received a $75,000 grant in 2015 to help pay for the new rooftop bar and event space at the upscale Strathallan Hotel.
- We are waiting for open records requests on details for $750,000 that went to DHD Venture’s Hilton Garden Inn project downtown in 2013.
One month before the Strathallan grant was awarded, Morgan and Christa, through 550 East Ave LLC, gave Warren’s political action committee $7,500. One month before the Hyatt money was awarded, Morgan and his wife donated a combined $5,000 to Warren’s campaign fund. Morgan and Christa are among Warren’s top 10 political donors.
By awarding large grants to retail establishments, especially higher-end ones, the city is picking winners and losers. What’s more, these aren’t job creation tools. Area residents don’t have more money to spend when a new shop opens. Wealth is merely being shifted from some businesses to other businesses.
The Cub Room received a $25,000 loan and $25,000 grant in 2015, but a similar restaurant that opened a mile away at about the same time got nothing.
Hart’s Grocers received $75,000. Abundance received $300,000 in grants and loans. Both are small companies providing a service that doesn’t exist in their respective neighborhoods. Meantime, Wegmans, a multi-billion-dollar company, got $400,000 to build a store in a neighborhood that has other options. Is this fair or a good use of our money?
Most businesses that are part of the program receive grants of $8,000 or less.
Some businesses received awards and moved out of the city within a couple years, including Emancipated Electrolysis, Echotone Music, Fracassi Lashes and JF Jones Jewelers. These companies each received less than $8,000 in grants.
Some business closed after receiving city funds. Hunt’s Hardware received $40,000 and closed a couple years later. Among the businesses receiving smaller grants that later closed are Nathan’s Soup, Cheese Masters and Chickenhead.
A map of businesses that have received funds over the last five years shows geographic disparities, with the east side and downtown getting the most attention.
HUD has signed off the city’s use of CDBG funds. However, the city has a finite amount of money for economic development and enormous discretion to say yes or no to applications. A transparent process would make it more likely businesses and neighborhoods receive equal treatment.
We know what can happen when there’s a transparent process. Last fall, City Council denied a $1.5 million loan to Morgan for a downtown apartment complex. There were concerns about the need for incentives and the FBI’s investigation of Morgan.
There will be differing opinions on whether these entities should have received tax dollars for their projects. But the time to have that debate was before the CDBG funds were awarded. Now, it’s too late.
- City Council should sign off on CDBG awards of more than $10,000.
- All grants and loans should be easily accessible on the city website.
- The city should review whether CDBG funds should be used on upscale retail and whether projects would take place without the funds.
Read: Lyell Ave. Plaza Grant
About this project
The City of Rochester has a budget of $526 million. Much of that spending takes place out of the public view. There are no line items in the annual budget book for expenditures such as catered lunches or baseball tickets. City Council doesn’t vote on all business grants and loans.
A good way to examine spending – which adds up quickly — is to obtain the city checkbook registry. Through open records requests, we analyzed the city’s checkbook registries for the final years of the Robert Duffy and Tom Richards administrations, as well as all four years of Lovely Warren’s first term.
This process took months, as the registries contain a combined total of nearly a million checks. We flagged about 150 expenditures and filed open record requests for further information, such as invoices, receipts and contracts.
Citizens have a right to know how their tax dollars are spent. They have a right to expect prudent use of tax dollars. They have a right to demand the highest ethical standards. Transparency is the best means to accomplish these goals.
City Checkbook: Food, Swag and Gifts
City Checkbook: Political Spending