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Memo to: Onondaga County Legislators
From: Senator John A. DeFrancisco
Dated: January 2, 2001

Some Questions and Answers About The Carousel Mall Deal

 

1. I've seen Pyramid Mall commercials stating that the proposed P.I.L.O.T. Agreement is at no cost to taxpayers. Is this true?

It's absolutely false. Pyramid has invested tens of thousands of dollars to produce and air commercials which have stated, without qualification, that the P.I.L.O.T. agreement is at no cost to taxpayers. About eleven years ago, the City Council approved a P.I.L.O.T to help Pyramid build the existing mall. That agreement was to expire in fifteen years at which time Pyramid would pay property taxes on the value of its mall, just like everyone else in the community pays property taxes on their real estate. It has been estimated by the City Assessor that the property would bring in $10.5 million in property taxes each year if the existing P.I.L.O.T was allowed to expire. If the proposed P.I.L.O.T. is approved Pyramid would not have to pay $10.5 million in annual property taxes for a period of thirty years. This diversion of property taxes is at a substantial cost to taxpayers to the tune of, conservatively, $315 million over 30 years. These are real dollars that the City and County would realize if the proposed deal were to be rejected.

For Pyramid to boldly say that this P.I.L.O.T agreement does not call for any taxpayers' support is outrageous. And if the proposal doesn't call for taxpayer support, why is Pyramid going to the City Council and the County Legislature to have a special deal struck for them? Pyramid's misrepresentations in their commercials should insult the intelligence of this legislative body like they insult the intelligence of the public in general.

 

2. Pyramid says that its property is not of sufficient value to generate $10.5 million a year in property taxes, so aren't the City Assessor's numbers exaggerated?

First, John Gamage is by anyone's standards an outstanding public official who has had the courage to come forward and provide these numbers when they do not help Mayor Bernardi's argument in favor of the mall deal. How can Pyramid question, in good faith, Mr. Gamage's estimated assessment when Pyramid itself provided an appraisal of the fair market value of the existing mall to the City of Syracuse in 1995? (Attachment 1). If the market value submitted to the City by Pyramid was used to arrive at an assessment of the mall, the assessment would result in property taxes greater than $10.5 million per year. By ignoring its own appraisal is Pyramid saying the appraisal that it submitted to the City five years ago was inaccurate? Is Pyramid saying that the mall value has gone down since 1995, while at the same time touting record sales at the mall this year? Or is Pyramid simply creating numbers to fit the purpose for which it is using the numbers?

Also, two years ago Pyramid put its malls up for sale. In doing so, it prepared a prospectus that outlined the profitability of the Carousel Mall. One of the documents in that prospectus is a chart (Attachment 2) showing that Pyramid is making money on the existing P.I.L.O.T agreement. As you can see by a review of the chart, Pyramid receives from its tenants two to three million dollars more every year as tax payments than it pays the City of Syracuse under the existing P.I.L.O.T. agreement. Bruce Kenan has told a reporter he cannot confirm or deny those numbers (Attachment 3). Why not?

If Pyramid were to challenge its assessment, this information would be extremely compelling evidence to confirm the estimated assessment of the City Assessor.

 

3. That may be true, but wasn't there an independent Deloitte and Touche report which shows that this P.I.L.O.T. Agreement is a good deal for the City and County?

No, the Deloitte and Touche report said no such thing. On the contrary, what it said was that, according to the numbers submitted by Pyramid upon which Deloitte and Touche relied, Pyramid could not do its expansion without the public support that the P.I.L.O.T. would provide. The report concludes that without the P.I.L.O.T., Pyramid would only be able to make 2.5% on its investment, but with the P.I.L.O.T., Pyramid would be able to make 7.7% on its investment. Assuming this is true, what developer in his or her right mind would undertake an expansion to make a 7% profit, when far safer investments would yield the same return? Pyramid would have you believe that it is doing this for the good of the community. Let's not forget that two years ago Pyramid had the same mall up for sale. Was the motive at that time the good of the community? Moreover, any project would benefit from public support. The mere fact that this development needs public support does not mean the deal is a good one for the City and County.

Many of you have already received reports from Syracuse University Professor Dana Radcliffe which analyze the Deloitte & Touche report (Attachment 4). Simply put, his reports are insightful and his logic is compelling.

 

4. Are you saying that Deloitte & Touche, an independent national accounting firm, has not prepared an accurate report?

No. Conclusions reached by any analysis are going to be only as good as the facts upon which the work is based. I ask you to count the number of times in the report that it states "according to Pyramid," "it is reported that," or words to that effect. I counted 132. As importantly, look at the disclaimers in the report (Attachment 5). Let me give you just a couple that make my point: "With respect to our report, we would also note that (1) the sufficiency of those procedures is solely the responsibility of SIDA and that we make no representation regarding the sufficiency of those procedures for your purpose (2) the procedures do not constitute an audit (or examination) in accordance with professional standards and had we been engaged to perform additional procedures or an audit (or examination) in accordance with professional standards, matters might have come to our attention that would have been reported; and (3) our report is restricted in that it may be used or relied upon only by SIDA, the Syracuse Common Council and Onondaga County Legislature;" and "In addition, we make no representations regarding questions of legal interpretation or provide any assurance as to any matters relating to Pyramid's solvency, any pending legal matters impacting business operations and/or any individuals at Pyramid, adequacy of capital or ability to pay its bills, debts and, further, that the procedures should not be taken to supplant the additional inquiries and procedures that SIDA should undertake in its consideration of the proposed financing for the expansion."

I ask you how reliable do you expect numbers to be that are produced by a developer who denies the accuracy of its own real estate appraisal, who can't confirm or deny whether it is taking two to three million dollars more in tax payments from tenants than it pays on the existing P.I.L.O.T., and who produces and airs commercials misrepresenting to the public that the proposed P.I.L.O.T. is at no cost to the taxpayers?

 

5. But shouldn't we support the deal since it is going to put the County of Onondaga on the national map as a major tourist attraction with biggest mall in the United States?

That's what Pyramid says, but the deal does not require Pyramid to build the biggest mall in America. It is only required, under the present deal, to build Phase 1 which is 800,000 square feet. The existing mall is twice the size of the proposed Phase 1 expansion. In short, Pyramid is not obligated to build the entire mall. It's been a wonderful marketing technique to get the community to support the deal, but it is not the deal.

Moreover, a tourism attraction is not a tourism attraction if it doesn't have any tenants that will attract tourism. To date, there have been published reports about possible tenants. However, not one tenant that would attract tourists has signed a letter of intent or lease for Pyramid. Can you name any tourism-generating tenant that has committed to the expansion?

 

6. But didn't the City Council insist upon a penalty of $1.5 million per year if Pyramid doesn't expand beyond Phase 1?

The City Council increased the P.I.L.O.T. payments due on Phase 1 if no further Phases are built. However, the fact of the matter is that under the current P.I.L.O.T., Pyramid is paying approximately $5 million per year to the City (even though, as stated above, it is currently collecting about $7-8 million a year from its tenants). Even with the so-called penalty, if Pyramid does not build past Phase 1, it will be paying less than what it is required to pay under the existing P.I.L.O.T. And the $5 million per year it is now paying under the existing P.I.L.O.T. is less than one-half of what it would pay if the existing P.I.L.O.T. expired and Pyramid had to pay property taxes like everyone else in this community. This is far from a penalty. In fact, it is a great benefit to Pyramid. Simply by marketing three phases and holding out hope that Phases 2 and 3 might be built, Pyramid will have lowered its existing P.I.L.O.T payment and avoided paying property taxes. In effect, Pyramid would also be making even more money off of the tenants' taxes than the two to three million dollars a year it is making now.

 

7. But isn't it good public policy to provide incentives for businesses to develop in our community?

Yes, it is good public policy so long as that policy is fair and applies equally to all developers. If this special treatment is given to Pyramid while other developers have had to, in the past, and will have to in the future, pay for their own infrastructure and their fair share of taxes, what effect is this going to have on future development? And every past P.I.L.O.T. has been a P.I.L.O.T. on the vacant land upon which the development was built. I know of no P.I.L.O.T. agreements that would include not only the land upon which the expansion is to be built, but also the existing development - except Pyramid's current proposal. The approval of the current proposal would set a bad public policy.

 

8. That's all well and good, but what about the sales taxes that we're going to realize?

What sales taxes? On the entire mall? On Phase 1? With or without the clothing sales tax exemption? The only sales taxes revenues that you should consider are those likely to be generated by what Pyramid is obligated to build. All that Pyramid is obligated to complete is Phase 1. And, isn't it likely that the County is going to pass a sales tax exemption for clothing? What effect will that have on estimated sales taxes, even if you believe the ERA report? And should the County Legislature hesitate to provide a sales tax exemption on clothing in order to make this deal more attractive? Once again that is not good public policy.

 

9. Is it wise to provide a 70/30 percent sales tax distribution between the County and the City for new sales generated by an expanded mall?

Such a distribution would also make bad public policy. If you're going to have this special arrangement for the Pyramid deal, aren't you setting a precedent for doing it for other developments? And what kind of public policy is it that changes sales tax distributions depending upon the project? If a town has an expansion of a development, should it get a higher percentage of the increases in sales taxes that are realized? How do you administer such a program? The mere fact that there are so many special provisions that have to be crafted to make this P.I.L.O.T. agreement happen is reason enough to reject it.

 

10. But aren't there other advantages to accepting this P.I.L.O.T. such as the promise from Pyramid to allocate $5 million to the Inner Harbor redevelopment over the next thirty years?

I was on the City Council eleven years ago when Pyramid made a promise it would put $30 million of the existing P.I.L.O.T. into the Inner Harbor. Have you seen it yet? In fact, by cutting the existing P.I.L.O.T. agreement four years short, the City is losing $23 million that it could have used to develop the Inner Harbor, or provide more funds for the schools, or provide tax relief. So, what Pyramid touts as a benefit -- $5 million into the Inner Harbor over a 30 year period -- is actually $25 million LESS than what they promised to do under the existing P.I.L.O.T.

 

11. Are there other issues that we should consider?

No doubt you have identified many more issues that must be explored. Are the construction estimates provided by Pyramid reasonable? Deloitte & Touche questions them. Should the public be maintaining the parking garages for this private developer? We're now demolishing a garage downtown. Will the structures last 30 years and will the public have to construct new ones for the developer? In fact, what will be the condition of the existing mall forty years after its construction? Should the public be paying, through the P.I.L.O.T., for the footings upon which the expansion will stand? Is it a wise investment to provide $110 million of infrastructure for Phase 1 in order to construct only 800,000 square feet?, etc?, etc? These and many other questions must be answered, and you should not be restricted by any artificial six-week deadline to answer them. This is especially true when the proposal gives Pyramid four years to get construction financing if the deal is approved.

 

12. Since Pyramid says this is the only deal it will agree to, can we afford to walk away from this deal?

Not one County Legislator would ever accept a take-it-or leave-it deal, or accept the first offer in any business transaction of his or her own. The City of Syracuse has not negotiated any material changes to Pyramid's original proposal. It is inconceivable that Pyramid, or any major developer for that matter, would make the first offer its best offer. In fact, the truth of the matter is that we cannot afford the deal as it now stands. If Pyramid was able to build its present 1.6 million square foot Carousel Mall with a 15-year P.I.L.O.T. on vacant land upon, why does Pyramid need a 30-year P.I.L.O.T. - not just on the vacant land upon which the mall will expand, but also on the revenue-rich existing mall - in order to construct 800,000 square feet?

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I strongly urge the County Legislature to vote "No" on this proposed P.I.L.O.T. agreement. Inform Pyramid that you are willing to negotiate a P.I.L.O.T., but that the P.I.L.O.T. shall only be on the vacant land upon which Pyramid is obligated to build its expansion. The 15-year P.I.L.O.T. on vacant land upon which Pyramid built its existing mall was, at that time, and still is, the best deal Pyramid has gotten from any municipality. Its largest mall in New York State, the Palisades Mall, was built without any P.I.L.O.T. agreement.

Our taxpayers should get the benefit of the bargain that was struck eleven years ago by letting the existing P.I.L.O.T. run its course, thereby allowing $23 million in the next four years to be pumped into the public treasury, and also allowing City and County taxpayers to realize $10.5 million in annual property tax revenues thereafter. You have the same bargaining power that Pyramid has. Remember, Pyramid came to you.

Please base your decision on facts and common sense, not on what Pyramid has marketed. Make your decision by the same standards that you would use in making business judgments if your own assets were at stake.