Upstate NY job growth slow despite generous taxpayer subsidies

03/27/2017

By Jim Heaney and Charlotte Keith, Albany Times-Union

Special report by watchdog groups shows the state's substantial investment in the upstate economy has not generated many jobs

New York has seemingly tried every which way to jump-start its upstate economy.

Governor after governor proposed what they considered the answer to upstate's economic woes, but program after program came up short.

Gov. Andrew Cuomo was determined to change that when he took office in 2011. Cuomo has increased state subsidies, launched several bold initiatives and crisscrossed the state to announce state-funded projects he frequently described as "game-changers."

"The past four years we have focused on upstate New York and economic development like never before," the governor said in his 2015 state address.

The upstate economy remains sluggish, however.

Job growth for the state as a whole wasn't too far off the national average, 9.6 percent for New York compared with 11 percent nationwide, between December 2010, the month before Cuomo took office, and December 2016. But most of that job growth occurred downstate.

The number of jobs upstate has increased by only 2.7 percent during the Cuomo years.

What's more, 88 percent of the net jobs added upstate have been in low-wage sectors, led by restaurants and bars, employment data shows.

"The policies Cuomo says are focused on upstate and he claims have improved upstate were not the right policies and have not worked," said E.J. McMahon, research director of the Empire Center for Public Policy, a fiscally conservative watchdog group.

nvestigative Post, ProPublica, and the Columbia University Graduate School of Journalism teamed up to assess the state's economic development efforts since Cuomo took office in 2011. The work included developing a database to track nearly 16,000 subsidy deals involving 12 of the state's largest economic development programs and local industrial development agencies.

An analysis of employment data, interviews with dozens of public officials and others, and a review of reports and audits of subsidy programs conducted by the state comptroller and watchdog organizations indicate the state's substantial investment in the upstate economy has not generated many jobs. The research also found that economic development programs suffer from a lack of transparency and objective analysis to determine their effectiveness.

Indeed, the state does an arguably poor job of vetting subsidy recipients to determine their history of compliance with federal and state regulators. Some companies have also used their influence to tap into a variety of subsidy programs, or placed executives on decision-making bodies that help determine how tax breaks and other forms of assistance are awarded.

The upstate economy has long suffered from a loss of both population and the manufacturing jobs that were once its bedrock.

Experts note that economic development deals can only go so far in counteracting those forces. That hasn't stopped elected officials from trying.

Both state and local economic development agencies have ramped up spending on subsidy programs since Cuomo took office. In the last fiscal year the total subsidies hit a record $8.6 billion, according to a calculation by the Citizens Budget Commission, a nonpartisan group that tracks state spending.

The governor has also introduced a handful of bold economic development programs, several of which failed spectacularly.

His decision to empower former SUNY Polytechnic president Alain Kaloyeros to manage several upstate, big-ticket projects built at taxpayer expense has mired Cuomo's administration in scandal, culminating in criminal charges against developers and state officials, including Kaloyeros. It's also left many planned developments in limbo.

The Start-Up New York program, which Cuomo said would "supercharge" the upstate economy by creating tax-free zones for businesses locating near college campuses, has been widely criticized for meager job creation despite heavy state spending to advertise it.

Furthermore, the investigation found that New York under Cuomo continues to pursue costly trophy projects. In fact, no state in the nation has helped finance more of these megadeals.

Empire State Development, the state's primary economic development agency, declined requests for an interview with ESD President and CEO Howard Zemsky or another senior official.

Growth in subsidies

While Cuomo has worked to slow the pace of state spending since taking office, the cost of state and local subsidy programs has grown. The value of subsidies awarded at the state and local level rose from $7.9 billion for fiscal year 2011 to $8.6 billion for the most recent fiscal year that concluded last March.

The state's share of that grew from $3.7 billion to $4 billion during that period. Cuomo's proposed state budget for the upcoming fiscal year calls for $644 million in additional economic development spending and $1.5 billion in tax credits. The sheer number of subsidy programs helps explain New York's largesse.

There are property and sales tax abatements. Discounted power programs. Cash grants. State budget allocations to build and equip facilities for companies. And a growing number of state tax credits.

The Tax Reform and Fairness Commission empaneled by Cuomo reported that the number of state tax credit programs had grown from nine in 1994 to 50 in 2013, the year it issued its report.

Relatively few companies reap most of the benefits from these programs.

"A small number of taxpayers account for the vast majority of tax credits claimed," the commission reported.

A report issued about the same time by ALIGN, an economic justice research and advocacy organization, found that only 4 percent of businesses receive subsidies, many of them large, out-of-state corporations such as Target and Walmart.

The state's penchant for costly projects also contributes to New York's high spending on subsidies.

A database maintained by Good Jobs First, a national subsidy research organization, indicates that of 306 projects that received at least $50 million in public subsidies since 2000 no state has earmarked more for these so-called "megadeals" than New York.

The Empire State committed $11.8 billion for 24 megadeals, followed by Michigan ($9.9 billion) and Louisiana ($9.6 billion). No other state spent more than $4.1 billion.

Only a half-dozen of New York's megadeals took place downstate. The six costliest deals benefited businesses located upstate and include Alcoa in Massena, GlobalFoundries near Albany, and SolarCity in Buffalo.

Greg LeRoy, executive director of Good Jobs First, said megadeals are "guaranteed losers for taxpayers." The government can never hope to recoup its investment through increased tax revenues, he said, shifting the tax burden for public services to other taxpayers.

So why do megadeals remain popular?

"They're catnip for politicians," LeRoy said.

Major effort's woes

Cuomo's boldest initiative attempted to turn the state's traditional approach to economic development on its head by going even harder after megadeals. To that end, Cuomo sought to replicate a model used by Kaloyeros to develop a nanotechnology sector in the Albany region.

It's an unusual approach that involves taxpayers shouldering the cost of building and equipping advanced manufacturing facilities for a company recruited in exchange for job guarantees.

The task of exporting the Albany model across Upstate was entrusted to Kaloyeros and two state-affiliated nonprofit corporations he controlled.

Problems soon ensued.

The two development corporations, citing their nonprofit status, contended they were exempt from the state's Open Meetings and Freedom of Information laws. The development corporations also maintained they were not required to follow state procurement policies.

The outcome? Developers who were major Cuomo campaign contributors were awarded lucrative contracts with hardly any competition. Last September, then-U.S. Attorney Preet Bharara and state Attorney General Eric Schneiderman filed criminal charges of bribery and bid-rigging against Kaloyeros, top former Cuomo aide Joseph Percoco, and private developers in Buffalo, Syracuse and Albany.

Cuomo stripped Kaloyeros of his economic development portfolio after he was charged and Kaloyeros resigned a month later as president of the SUNY Polytechnic Institute. By then, the wheels had fallen off several other deals he brokered across upstate.

Projects in Rochester, Utica and Dunkirk have been delayed, scaled back or shelved altogether.

Meanwhile, a $15 million facility built outside Syracuse to serve as a filmmaking hub stands all but unused.

Mixed results

Start-Up New York, another of the governor's marquee initiatives, has also floundered.

State officials said the program, which allows companies to operate tax-free for 10 years by locating near university campuses, would lure businesses to upstate. The governor said it would "give New York an edge like never before" in attracting companies. But Start-Up New York created just 408 jobs in its first two years of operation, despite the state spending more than $53 million dollars to advertise it.

In the coming budget year, the governor proposes rebranding the program, reducing the number of jobs companies must promise to create and revising the eligibility criteria to focus more on genuine startups. State officials still say the program will create around 4,000 new jobs over the next few years.

Another of Cuomo's new initiatives, a system of 10 regional economic development councils that compete for state funding, has played to mixed reviews. A 2015 report by the Citizens Budget Commission found that inadequate reporting made it almost impossible to tell how well projects were doing.

Of the fraction of projects for which employment figures were available, none created as many jobs as promised, the report found.

Another report in 2016 found that although all 10 regions prioritized manufacturing in their development plans, six still lost manufacturing jobs between 2010 and 2015.

"The results suggest it may be time for REDCs to rethink their strategies," the report concluded.

Brian McMahon, executive director of the New York State Economic Development Council, disagrees.

"Overall, I think the REDCs have been effective," he said. "They have worked because they brought together opinion leaders to talk and develop strategies around economic development."

LeRoy, of Good Jobs First, said the combination of high spending and modest job growth, warrants New York an overall grade of "D minus."

"Just because you throw money at the problem doesn't mean you solve the problem. The question is, are you spending the money the right way?"

Jim Heaney is the founder, editor and executive director of Investigative Post (www.investigativepost.org), a nonprofit investigative reporting center based in Buffalo. Charlotte Keith is a reporter for Investigative Post