A new 16-story Hyatt Regency is beginning to tower above the boarded-up storefronts on Buffalo's Main Street, the latest luxury hotel financed by a federal program designed to rebuild decaying cities.
While relatively few people think of Buffalo as a magnet for tourists, city officials are using millions of dollars in urban development action grants (UDAG) to try to turn their fading downtown district into a regional attraction.
The grants are helping to pay for two new banking headquarters, a pedestrian mall, the Hyatt and a nearby Hilton Hotel, all designed to link up with a federally financed subway and a new convention center.
"UDAG is just unbelievable," said Jim Militello, Buffalo's commissioner of community development. "It's the best program that the federal government has ever come up with."
Nearly five years after it was launched by the Carter administration, the UDAG program has been widely hailed by business and urban leaders. Each federal dollar has been matched by about $6 in private financing, they say, and the resulting projects have generated substantial tax revenue, housing and badly needed jobs.
But detractors say that these grants amount to a glorified subsidy for downtown developers, that they create few jobs at extravagant cost and that most of the projects would have been built anyway.
One conservative critic, Stuart Butler of the Heritage Foundation, dismisses UDAG as nothing but "an urban slush fund."
While hundreds of UDAG grants have been used for industrial parks and factory expansions, the downtown development projects are the largest and most visible targets of criticism.
In recent years UDAG has provided more than $170 million for 59 hotels, from the Hyatt on Baltimore's Inner Harbor to the planned Portman Hotel in New York. Its grants also have helped finance new convention centers in Paducah, Ky., Saginaw, Mich., Greenville, S.C., Lynchburg, Va., Carbondale, Ill., Muskegon, Mich., Columbus, Ohio, Springfield, Mo., and Allentown, Pa.
"You go around the country and find that every small town now has a convention center with a Hyatt hotel next to it," Butler said. "People begin to realize very quickly what gets the money, and you get a certain kind of development that really reflects the kind of grants that are available.
"Politically, though, it was a masterstroke. The federal government loves it because Housing and Urban Development Secretary Samuel Pierce can go down and cut some ribbons, the mayors love it because it helps them get reelected and developers love it because it's free money. It's in everyone's interest to support it."
This became evident in 1981, when the Reagan administration quickly backed off its plan to abolish the $440 million program after a heated protest from dozens of mayors. Still, the White House effectively cut more than half the program's outlays this year by deferring $244 million that was unspent until fiscal 1984.
Some of UDAG's weaknesses were detailed in a 1982 evaluation by HUD, which has been handing out the grants since former secretary Patricia Roberts Harris started the program in 1978.
The study generally gave the program high marks, saying that 64 percent of the benefits generated by UDAG projects would not have materialized otherwise. But it also found that 21 percent of the projects would have been built anyway, at least in part.
More than three-quarters of the projects generated the anticipated number of jobs, the study found, at an average annual cost of $11,570 for each job. Cities often had to use local government funds to help match the UDAG grants, so the amount of private money leveraged by each UDAG dollar was actually $4.40, not $6.
Housing projects built under UDAG wound up costing one-third more than expected, the report said. Tax revenues for cities were only half as great as projected. And one in 10 projects ran into serious financial trouble.
Stephen Bollinger, HUD's assistant secretary for community planning and development, said some of the study's findings are outdated and that applicants now have to prove they cannot go forward without federal money.
"We don't go out and invent these projects, they come to us," Bollinger said. "They are considered the priorities of the cities submitting them. Some of those new hotels are excellent in terms of increasing tax revenue and generating new jobs, especially for unskilled workers."
Bollinger also disputed criticism that the program favors big developers over small businesses.
"We are not in the business of underwriting high-risk projects," he said. "We're not interested in creating jobs that last 20 minutes. But a mom-and-pop grocery store is just as sound from an underwriting standpoint as a Hyatt or a Marriott."
Mayors across the country compete for the grants, but the program is tilted in favor of "distressed" cities, based on such factors as unemployment, population loss and percentage of older housing stock.
As a result, a handful of older cities, led by New York, Chicago, Baltimore and Detroit, has captured much of the money. Some of the grants are set aside for smaller cities, but many have had trouble securing private financing since the advent of high interest rates.
The HUD study also found that many of UDAG's housing developments are beyond the reach of low- and moderate-income people. In Detroit, for example, developers secured a $19 million UDAG grant to build two 29-story apartment towers, where rents are expected to range from $450 to $1,500 a month.
The Riverfront project will feature a 77-boat marina and yacht club along the Detroit River, an indoor swimming pool, six rooftop tennis courts, a private health club with whirlpools and saunas, valet parking, a gourmet shop and cable television.
Why is the federal government subsidizing this kind of project? Emmett Moten Jr., Detroit's director of development, said that without UDAG--and a 12-year break on local property taxes--developers could not afford to build downtown apartments.
"Riverfront is a luxury complex," he said. "But you can't have subsidized housing downtown and be attractive to retailers."
Cities make extra money on most grants by lending the cash to businesses at low interest. In Buffalo, Militello is giving the Hyatt developers a loan at 6 to 7 percent interest to transform a turn-of-the-century building into a hotel with a large atrium, 15-foot ceilings and a penthouse view of Niagara Falls.
"It made the package work," said Buffalo developer John Tynan. "Conventional financing would have cost us twice as much."
Militello also has used UDAG grants to finance expansions of Gioia's Macaroni, Abel's Bagels, Westwood Pharmaceuticals and, most recently, Hoffman Printing, which was planning to leave town for larger quarters. "Without UDAG, I don't know if we can offer the kind of carrots to get these companies to stay," he said.
In Jersey City, officials have just received the largest UDAG grant ever made, a $40 million award for a waterfront development that bears a striking resemblance to Baltimore's. The Jersey City development, more than a third of which is to be financed publicly, will include two department stores, specialty shops, 1,000 apartments and a garage.
Mark Munley, the city's community development director, said the $275 million project along the Hudson River will attract thousands of shoppers who now drive to suburban malls.
He said developers would not have touched the land without federal money to pay for street paving, gas and electric lines and water and sewer service.
"This will likely have a greater impact on Jersey City than Harborplace did on Baltimore," Munley said. "Other developers see something is happening in Jersey City and start to invest their money. We have people from state agencies buying brownstones here for the first time."