The Fall of Niagara Falls

December 2, 2010

By Bloomberg Business

On a misty night in late October, a stringy-haired newspaperman bellied up to the bar at Frankie G's, a musty dive in Niagara Falls, the decrepit city in western New York State that sits atop one of the natural wonders of the world. The editor, Mike Hudson, slapped down some cash and ordered a round of Labatt's for the house, which consisted of five people, including the proprietor. Hudson, the founder of the weekly tabloid, freely refers to his town as "a godforsaken place," and it was hard to argue with the assessment in the neighborhood surrounding the bar. The area is the worst the city has to offer, a place of drugs and crime and boarded-up brick houses.

Hudson knocked back a shot of Sambuca and rummaged around for his cigarettes, shouting epithets and contributing jokes to a running discussion on local politics. "It's been all downhill in this town since 1969," said one of the other patrons, a ruddy-faced man who had his first name, Fred, sewn onto his windbreaker. "Ever since they knocked down the whole goddam downtown," muttered the bartender, Frankie G. (short for Giaquinto).

"That's what everyone will tell you about the place," Hudson said later that night, over plates of spaghetti at a local Italian joint, which was bedecked with photos of hometown mobsters and dead celebrities.

Niagara Falls' descent into blight—in spite of its proximity to an attraction that draws at least 8 million tourists each year—is a tale that Hudson's little newspaper has been telling for years. It encompasses just about every mistake a city could make, including the one Frankie G. cited: a 1960s mayor's decision to bulldoze his quaint downtown and replace it with a bunch of modernist follies. There was a massive hangar-like convention center designed by Philip Johnson; Cesar Pelli's glassy indoor arboretum, the Wintergarden, which was finally torn down because it cost a fortune to heat through the Lake Erie winter; a shiny office building known locally as the "Flashcube," formerly the headquarters of a chemical company and now home to a trinket market. Once a hydropowered center of industry, Niagara Falls is now one of America's most infamous victims of urban decay, hollowed out by four decades of job loss, mafia infiltration, political corruption, and failed get-fixed-quick schemes. Ginger Strand, author of , called the place "a history in miniature of wrongheaded ideas about urban renewal."

Niagara Falls has something that sets it apart from other terminally depressed Rust Belt towns, something that makes its economic failure all the more remarkable: those falls, the 176-foot-tall cascade of thunder that is no less breathtaking for being your grandparents' honeymoon destination. For many years the city's route to a better future seemed straightforward, and it led to the water's edge, where you could look across the border to Canada and see a brightly lit skyline of new high-rise hotels. "It's a booming tourist mecca over there," Hudson said. "Over here, it's a slum."

While the Canadians were building theme restaurants and luxury suites, the American side spiraled downward. Niagara's median household income is now just $30,000, 40 percent below the national average, and one-fifth of its 50,000 residents (down from 100,000 in the 1960s) live below the poverty line. As of November, unemployment was 7.5 percent, lower than the national average; so many have been out of work for so long that they no longer register as part of the workforce.

There's a litany of explanations for this, but for the last decade, through a boom and a bust, several mayors, and nonstop recriminations, a single constant has loomed over the city: the Manhattan real estate billionaire Howard Milstein. In the late 1990s, the municipal government designated a private group backed by Milstein as the "master redeveloper" of 140 acres of downtown real estate. Milstein appeared, at first glance, to be just the man to help the city finally capitalize on its natural potential. He had a hotel and other development interests in Times Square—a fabulously successful example of commercial reclamation—and he proposed to revive Niagara Falls along similar lines, as a casino-centered playground. It never happened. Today, Milstein is still sitting on an enormous swath of land, a ghost town of abandoned homes, shuttered storefronts, and vacant lots in the shadow of a closed-down factory where Nabisco used to make Shredded Wheat.

"Precisely because the community was so excited by the promise of an enormous amount of development over a decade ago, I think today many people in our community feel let down by their inability to build something," said the city's mayor, Paul Dyster. Once hailed as a savior, Milstein is now maligned as a slumlord by many in Niagara Falls. "He's a big boa constrictor," said David Crapnell, a Presbyterian minister and community activist, who accuses the developer of "bad faith." To the pastor, the past decade of dithering and decay offers a parable of the risks any city takes when it wraps up its redevelopment hopes with a rich investor.

Milstein declined multiple requests for comment. Anthony Bergamo, a longtime Milstein lieutenant who is the chief executive of the Niagara Falls venture, places the blame on a dysfunctional city government. As the master redeveloper, Bergamo said, Milstein's role is to assemble and market the site to potential investment partners, such as hotel chains. "We have met with over 150 developers," he said, "all of whom declined to do business in Niagara Falls."

In truth, the failure can't be attributed to any single entity. It's the product of a machine that has for decades been running on unfulfilled promises, from the public and private sector alike, just whirring on in an endless cycle of dashed hope and failed deliverance.

Niagara Falls used to inspire people to dream. In the 19th century an investor named William T. Love proposed to build a utopian metropolis called Model City there, along the banks of the canal he was digging. His city was never built, and Love Canal went on to become a notorious toxic waste site. "Because it was a place that always drew visionaries and big thinkers, it has always showed the way that the nation is going," said Strand. If economic stagnation and distrust of government are the defining features of this American moment, Niagara Falls charted the way to the bottom.

People in Niagara Falls are so angry, they have not reelected a mayor in 20 years. Things are so depressed that one of Niagara Falls' major crime problems is an "epidemic" of pointless arson, the former fire chief told a local newspaper. In late October, fury led many households in this traditionally Democratic town to put up yard signs that read "I'm mad as hell too, Carl," advertising support for New York's Tea Party-backed gubernatorial candidate Carl Paladino. Although Paladino was trounced by Andrew Cuomo on Election Day, he took more than 60 percent of the vote in Niagara County, and the town threw out both of its incumbent Democratic state legislators.

Niagara's original sin, old timers say, was buying into a particular ideal of progress. A couple of generations ago, when the Canadians started building up their tourism sector, the Americans just laughed. They weren't going to work as bellhops, not when there were plenty of safe union jobs at the state's hydroelectric plant or in the heavy industries it powered. Then, after the manufacturers and chemical companies departed, leaving behind husked factories and brownfields, a second and perhaps more corrosive delusion set in—call it the fantasy of the silver bullet.

The city fathers, in their desperation, embraced a succession of capital-intensive cure-alls. In the 1970s they pinned their hopes on the convention center, soon to become a white elephant, while in the 1980s the Ghermezian brothers, who built the Mall of America outside Minneapolis, proposed to erect a massive shopping complex called Fantasyland right in the center of town. That idea collapsed in the face of local opposition. All the while, Niagara Falls kept getting poorer.

In the late 1990s, a high-living Toronto real estate developer named Eddy Cogan came to town, promoting the latest supposed panacea: gambling. Before a packed house at the convention center in January 1998, Cogan unveiled renderings of an ambitious master plan, produced by a renowned architectural firm, the Jerde Partnership, depicting a new Niagara Falls of leafy plazas and scenic canals built around a Las Vegas-style casino. Cogan promised to make the city into "the Venice of America," and he committed to invest $110 million, if only the state legislature would legalize gambling. In return, the city government gave him the rights to redevelop a large portion of the east side of town as well as other concessions.

Cogan, a brilliant dealmaker, charmed everyone he met, but as it turned out, he had a problem: He was close to broke. His contract with the city named a number of prominent financial backers, such as Lee Iacocca, but they never gave any public indication that they were actually willing to invest in his company, Niagara Falls Redevelopment (NFR). Cogan turned instead to a deep-pocketed acquaintance, Howard Milstein, selling him a 50 percent interest. "Eddy had no money," said NFR's Bergamo. "It's easy to sell the dream when there's no sense of reality based on the financial ability to perform."

At the time he bought in, however, Milstein said he fully shared Cogan's vision. "This will be the largest redevelopment of a city," Milstein told in 1998. "We can apply everything we've learned about urban design and planning." He had the resources to back up his talk: a family fortune that stood at an estimated $6 billion, amassed by his father and uncle through investments in real estate, banking, and other ventures. "We have enough money," he told the News, "to do what we need to do."

Milstein had a reputation for feuding with everyone from the owners of the Washington Redskins (after they rejected his bid to buy the team) to some of his own relatives (who in the early 2000s forced an acrimonious division of the family empire). Before long, Milstein fell out with his partner in Niagara Falls, too. When Cogan ran into worsening financial problems, Milstein took control. At the time of his death in 2003 from a heart attack, Cogan was still trying to wrest the land back, telling that Milstein had run the project "off the rails."

When Milstein took over, in late 2002, the change in style was apparent at once. The billionaire sent Bergamo, a tough-talking Manhattan lawyer, to meet with Richard Reinhard, the chief operating officer of Niagara Falls Redevelopment. As Reinhard recalled the encounter, the two discussed strategy over breakfast at a diner, the kind of place frequented by local power brokers. Bergamo pressed Reinhard to tell him who was sitting at each table. At the end of the meal he picked up the checks for the ones that he sized up as important and left the waitress a huge tip. "Bergamo said, 'Rick, in a town like this, this is how you buy people,' " Reinhard, who departed the company soon afterward, said. "I remember it like it was yesterday—I thought, oh my God."

"I don't think it's a big thing if I buy coffee and eggs for somebody," Bergamo said in response. As he sees it, over the last decade, his job has revolved around wooing a suspicious populace, and there's nothing wrong with a little diplomacy. "We're the stranger," Bergamo said in an interview at the offices of Niagara Falls Redevelopment. Sitting in a conference room decorated with maps and drawings of unbuilt buildings, he said that his company has been a good corporate citizen, donating money to dozens of local charities and community groups, and complained that it's been treated with little but scorn in return. "What we have here," he said, "is 50 years of competition to grab crumbs."

In 1999 voters elected a new mayor who promised to break Milstein's already controversial hold on the town. Impatient with the legislature, which had yet to act on a new gaming law, city and state authorities repossessed the convention center and gave it to the Seneca Indian tribe, skirting the law but removing the property from the tax rolls. The Senecas turned Philip Johnson's airy building into a darkened, smoke-filled casino hall, and constructed an adjacent hotel, depriving Milstein's project of the lucrative anchor it required.

Among the many proposals for a replacement revenue generator, put forward by various fly-by-night impresarios or NFR itself, are a dinosaur park, a boxing Hall of Fame, a Chinese-themed attraction called Dragon City, and an underground aquarium featuring 5,000 creatures of the deep. "I have a file full of the craziest ideas," Bergamo said, "but no one comes here with any money." He still claims that success is possible. To illustrate his point, he and his right-hand man, Roger Trevino, led the way across the Rainbow Bridge border post to the Canadian side of the falls. There they do have an aquarium—actually, a giant SeaWorld-like amusement park—along with a gleaming new casino connected to a Hilton, manicured parks, a wax museum, and a well-frequented district of strip clubs. You wouldn't call it classy; you wouldn't call it impoverished, either. Summing up the comparison, Bergamo asked: "Why have they done it when we haven't done it? Corruption. Lack of vision."

Back on the New York side of the falls, the tour continued past some of Milstein's properties. There's the hulking Nabisco plant, which NFR has vainly offered up as a potential new convention center. There's an odd domed structure known locally as the Turtle, which has sat empty since the long-ago demise of its original occupant, a Native American cultural center. A few years ago, a delegation from Mongolia decided that the building looked like a yurt and wanted to turn it into a museum reflecting their national glory, complete with a 150-foot statue of Genghis Khan that was to be erected in a nearby public park. Municipal officials reacted coolly to the idea of a shrine to the Mongol warlord. "I say history is history," Trevino said. "Why judge?"

Some suspect that such plans are not designed to be taken seriously. Privately, people in the local real estate industry said that Milstein appears to be playing a speculative game, biding his time in the hope that some external force—like massive public investment or legalized gambling—comes to the city's rescue. Bergamo countered that NFR has already invested $55 million to acquire, maintain, and pay taxes on its land. The title "master redeveloper" is not as sweeping as it sounds, Bergamo added: Only a relatively small, city-owned portion of the 140-acre site was deeded over in the original agreement, and much of the area, once a working-class neighborhood, was a checkerboard of lots that had to be purchased from private property holders. In 2008, a highly critical report by the New York State Comptroller's Office examined NFR's contract and the series of renegotiations and missed deadlines that followed it. At one point, the agreement was amended to set a date for Milstein to "commence construction." In response, the company fenced off a public playground within the project's boundaries, poured a concrete foundation, and never built anything further. The comptroller's report faulted the city for failing to adequately enforce its contract. Each side claims betrayal, but neither one seems prepared to go to court over what remains a wasteland, at least for now.

Bergamo said that the company now controls about 85 acres of the total redevelopment zone and has options to purchase a substantial portion of the remainder, but is still dealing with some holdout owners. Some critics argue that it is in the company's interest to keep property values depressed as it tries to buy up the outstanding parcels. "In the process of trying to get rich, he's causing the pain and suffering of other people," Pastor Crapnell said. "He does understand that the more the city dies off, the more he can get those lands for cheap." Milstein's defenders counter that the groups critical of him include some of the holdouts, who are just trying to drive up the price of their land. The company has done itself few public-relations favors, though, through actions like closing the playground and a nearby public recreation center, both moves that sparked community outrage. In 2007 an angry group of protesters gathered to try to break through a locked gate to the gym, and then-Mayor Vincent Anello charged at Trevino. "He said, 'I'm Sicilian—it only takes one bullet, and then I'll spit on your grave,' " said Trevino, who filed a harassment claim with the police. Anello acknowledges that there was a confrontation but denies threatening violence.

Relations between Milstein and local officials have been consistently tense, as mayor after mayor has called on NFR to start building or move on. Public officials who are reluctant to be quoted saying anything critical of Milstein complain that his company meddles in local politics and claim that he wields a blunt weapon against opponents: the . Mike Hudson's muckraking newspaper has been a staunch defender of Milstein and a vicious adversary to his rivals, pushing a bribery investigation of Anello (who later pled guilty to related federal charges), attacking the Seneca tribe and David Cordish, a shopping magnate who owned a derelict mall called Rainbow Centre (he sued for libel), and in one recent issue lambasting the high asking prices of holdout property holders under the front-page headline: "SHAKEDOWN!"

Although Hudson freely admits to being sympathetic to Milstein, whose company is also his paper's biggest advertiser, he denies that he is in anyone's pocket. Niagara Falls, he said, is just not the sort of place where you can avoid taking sides. "Everybody knows everybody," Hudson told me, "and they're either your friend or they're your enemy." "When does it get to the point where you give up?" asked Roger Spurback.

The community activist was driving his beat-up minivan through the streets of what he calls "one of the neighborhoods left behind." Spurback meant it literally: As the population of Niagara Falls has declined by half, some areas have become almost totally depopulated. Passing entire blocks of vacant houses with sagging roofs and doors sealed off with plywood, the wiry retired autoworker rapidly counted off the ones that were condemned. "One, two, three, four, five...." He stopped at 17. For the past 20 years, Spurback has headed the Niagara Falls Block Club Council, and he is encouraged that at least the government is starting to tear down some abandoned houses in order to manage the city's shrinking footprint. "These are the bad neighborhoods, yes, but we're dealing with them," Spurback said, his tone brightening. He called this "setting the table": demolishing the worst of the past so that a new Niagara Falls can emerge at some unknown point in the future, perhaps with Milstein's cooperation. "It took us 40 years to get here," Spurback said, passing a burned-out nightclub. "It's going to take us 15 to 20 years to get back."

One thing that makes him optimistic, he said, is the leadership of the current reformist mayor, Dyster, who has brought a spirit of competence to City Hall. "This is a city that has much in common with every other Northeastern industrial city, except that it's got Niagara Falls, which means you've got an economic engine to try to create a revival," Dyster said during an interview in his office suite, which was decorated with paintings of the falls and a conspicuous portrait of Franklin Roosevelt. "For that reason it could become a laboratory for change." Politicians have been making similar claims for generations, but Dyster is a different breed: a lanky former professor of international relations at Catholic University, he ran for office in 2007 on a platform of clean, efficient governance, and he has since begun to make good.

"One of the things that I said that I would do as mayor would be to try and rebuild the city's image," Dyster said, "and to be a mayor that the people of the city wouldn't be ashamed of." Whereas Niagara Falls was once was a haven for polluters, Dyster envisions a future built around ecotourism. The city's largest allotment of the $787 billion federal stimulus package passed in 2009 is a $16.5 million grant to build a new train station, and progress is finally being made on the old idea of rerouting the Robert Moses Parkway, an underused highway that cuts the downtown off from the riverfront and Frederick Law Olmsted's state park. Dyster has also tried, with some success, to attract companies specializing in alternative energy to a place that was one of the early centers of electrification. In an industrial area on the north side of town, manufacturers such as Globe Specialty Metals (GSM) and PEMCO are producing high-grade silicon and other materials that go into solar panels and fuel cells. The new watchword is "incremental." Dyster and other public officials are trying to avoid the magical thinking that led to ideas like bulldozing the central business district or lashing the town's fate to a single developer's whims. "I categorically reject the silver bullet," said Christopher Schoepflin, president of the state-affiliated USA Niagara Development Corp. In an era of tightened budgets, the goal is modest investments in projects that are meant to create a differentiated identity for the New York side of the falls. So instead of Planet Hollywood, the state is preparing to put $4 million toward turning the closed Rainbow Centre mall into a culinary school and restaurant. Grants also subsidized a new wine bar and a concert hall, as well as the conversion of a derelict art deco commercial building into a boutique hotel, offices, and condos.

Still, it's hard to envision any large-scale revival if Milstein, who controls much of the town's most desirable property, refuses to budge. "I'm not saying that Niagara Falls Redevelopment should give their property away, but they can't sit on it forever," said Robert G. Shibley, founder of the Urban Design Project at the University of Buffalo, which has worked on planning issues with the city. "They've been notoriously difficult to partner with and to move off the dime."

Dyster's relationship with Milstein is chilly, and the has attacked his administration mercilessly. "I'd almost equate it with Obama," Mike Hudson said. "He's a wonk, for sure, but it hasn't produced any results." Earlier this year, Charles Schumer, New York's senior senator and one of the most powerful Democrats in Congress, waded into the property dispute, moderating a private peacemaking meeting between the mayor and the developer. Dyster told me that when Milstein was asked what would entice him to build something, he replied that it would take a billion dollars of investment to get redevelopment off the ground, and that the government shouldn't look to him for most of that capital.

Bergamo would not comment on what he described as "a private conversation," but said: "Mr. Dyster has his own agenda....They are not pro-development people, this present administration. They are green people."

Milstein's critics point to a pattern: The Milstein family is known for buying properties and holding them for years, as in the case of a Times Square parking lot they purchased for $5 million in the early 1980s, clung to through a state effort to condemn and redevelop the area, and only sold in 2006, for the top-of-the-market price of $325 million. Another family-owned property, a giant hole in the ground in Stamford, Conn., has remained untouched since 1984. Many believe that Howard Milstein has adopted a similar strategy in Niagara Falls. While patience could ultimately work to Milstein's benefit, as it did in Times Square, it doesn't promise much in the meantime for the people who actually have to live in Niagara Falls.

"This used to be full of houses," Roger Spurback said, driving into the vast dead zone under Milstein's control. A few red brick ruins dotted the eerily open landscape of grassy lots, which run right up to the parking lot of the neon-lit Indian casino. Spurback said even this emptiness marks progress: At least Milstein is tearing down the houses he bought instead of leaving them to rot. "They're trying to work with us and trying to understand that these are our neighborhoods," Spurback said. "And that even though they own them, we have to drive through them, we have to live adjacent to them every day."

When he takes the long view, Spurback said, he still has hope for his city. He concluded his tour not far from the development zone, at Olmsted's lush state park. Throngs of Asian tourists were walking down the path to the Terrapin Point overlook to the falls, where they stood and gawked at the water roaring over the precipice and tumbling into the roiling pool below. The mist caught the sun and made that famous rainbow. It reached up toward that tantalizing Canadian skyline, before dissipating into the air, a little short of prosperity.

We're not opposed to a new hospital, just do not bulldoze Downtown Utica's Historic Columbia-Lafayette Neighborhood... "Build It At St. Luke's!"

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