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Welcome to Dependistan!

A primer for Cuomo's new economic team

As the long-awaited northern summer arrives, the next phase of our new governor’s term begins. In the first phase, he had to prove that he is a fiscal disciplinarian, and he did so, with an on-time budget that addressed lingering problems without raising tax rates. The process of balancing the state budget was made easier by factors over which state government has zero control, notably Wall Street, which responded favorably to the policy package enacted by Congress at the request of (and to the political detriment of) President Obama. With Wall Street on the rebound in 2009 and 2010, and both employment and immigration up in the New York metro area, new revenues made balancing the budget much less painful.

Now it’s on to other problems. The biggest one is Upstate New York’s economy. Here, the challenge will be a more genuine test for state leadership, although once again, federal policy and international economic forces will have much to do with shaping the outcome. Goldman Sachs may be headquartered in Manhattan, but the crude-oil futures markets it and other Wall Street firms try to control respond to bigger forces even than them. New York State government relies on the taxes paid by Goldman Sachs deal-makers and the clever lassies and ladies at all those other firms that make their money betting on Chinese oil demand, on Libyan and Iranian oil supply, and on debt solutions for over-leveraged Greeks, Irish, Portuguese, and Spaniards. It’s high-risk high finance, and it foots our bills. But even all that Ivy-credentialed cleverness might be undone because goofball Sunbelt Republicans are playing chicken this week with our own national debt ceiling.

Far, far away from all that complexity is the daunting labyrinth of Upstate economics and policy. Andrew Cuomo is merely the governor, and not the person empowered to single-handedly create a one-state industrial policy that can restore manufacturing to American manufacturing’s old homestead. He did not create the 1976 Milliken decision of the Rehnquist Supreme Court, the decision that emptied most Rust Belt city school districts of their white middle-class families, but Cuomo has to deal with the aftermath of that decision in sprawled-out, racially polarized Buffalo, Rochester, and Syracuse. Cuomo has shown some interest, but not enough, in reining in preposterous town governments that keep issuing building permits and sucking county sales taxes for roads, public safety, and other goodies, leaving established cities and villages at a loss when it comes to residents, revenue, and retail.

Editor’s note: Ken Adams, Governor Andrew Cuomo’s new head of Empire State Development Corporation, is coming to Buffalo this week to explain the Administration’s views on regional economic development.

And Cuomo inherited an agency, formally called the Urban Development Corporation, that has for 40 years been handing out favors in the form of free money, or access to free money, or scrip that’s as good as free money, to politically connected real-estate developers and other donors with projects they want funded, all in the name of “economic development.” But neither this agency nor any of the dozens of others (industrial development agencies and local development corporations) do anything but ape papa. Their history is in doing one-off deals, not in changing regional economies. They set the boss up to fly in to the media market, cut a ribbon, then fly back out again. Earth to governor: No voters believe the parachute drama any more. Not in Erie Canal Harbor. Not in downtown Rochester. Not in Syracuse. Population in all three metros is declining and will continue to do so for the next two decades.

Cuomo also inherited the alphabet soup of agencies and authorities that all go their own way. What he did not inherit, and what he has so far not created, is a state agency that coordinates infrastructure investments. The result is that today’s Cuomo administration is a carbon copy of the Paterson, Spitzer, Pataki, and Cuomo administrations of the past, thus: The Thruway Authority, the Environmental Facilities Corporation, the Department of Transportation, the Dormitory Authority, SUNY, and Empire State Development Corporation each and all do their own thing, mindless of one another. Billions and billions get spent, ribbons get cut, press conferences are held, and none of the fundamentals change. There is simply zero coordination. The one bright promise that’s genuine: interest in high-speed rail. May we hope that it outlives the Obama administration.

But there is, with this governor, something promising that hasn’t been there before: Because of his service in the national government, he is personally aware of the fact that old policies that don’t work need to be changed.

The evidence for why change is needed is with us anew. Incomes are down in Upstate. In all but Livingston and Monroe counties in Kathy Hochul’s Congressional District, over 70 percent of the households reported incomes of under $50,000 in 2008. Six out of 10 households make under $40,000 a year in every one of her counties. The Erie County portion of this district has some prosperity clustered around the university. Hallelujah for that—but the highly touted new SUNY study of SUNY’s $20 billion economic impact glosses over two significant facts. First, in Upstate, the major benefit of SUNY is in the relatively high salaries that public employees make. In Erie County, 17 percent of workers are public, but 19 percent of the income derives from public employment; that doesn’t mean that public workers are overpaid, but rather that private-sector wages are terribly depressed. Why? Not because of state policy, but because of a national policy, in place since the 1970s, to demolish our old industrial and manufacturing base. The second problem with SUNY is that even as wages among workers fall, SUNY would build more new buildings with higher tuition dollars rather than creating intellectual capital, endowing chairs, investing in merit-based grants and scholarships, and hiring nationally ranked faculty. The new report from the Chronicle of Higher Education that explains how smart, high-scoring minority students are being squeezed out of name-brand universities should be mandatory reading for New York State’s economic developers: Raw talent is available, cheap, because the fashionable places want kids from the highest income brackets nowadays, not from the lowest. But instead of getting state investment in brains, either new minds a-forming or in established minds a-making, we get a new UB president endorsing an old-fashioned Urban Development Corporation chestnut: real-estate development, a policy of moving existing functions from one part of Main Street in Buffalo to another part of Main Street in Buffalo. Nothing new, just shifting from one place to another. Worse, we get another part of SUNY—the community college—throwing out Joel Giambra’s sensible plan to consolidate it all downtown in favor of keeping its functions split among three campuses. If SUNY were to consolidate all its Western New York functions in downtown Buffalo, that might make some long-term economic sense. But there’s no coordination, and the investment in intellectual capital is sadly lacking.

We’re crunching the numbers about the Upstate-Downstate fiscal imbalance. It’s been ugly for a long time, and it’s getting worse. Here’s a preview: In 2008, the last year for which I have complete numbers, taxpayers in the Upstate metros (Buffalo, Rochester, Syracuse, Binghamton) paid in $6.9 billion to Albany. They got back $2.8 billion more than they put in. Add in all the rural counties, and the figure is $5.1 billion to the good. New York City taxpayers put in $7.6 billion more than its residents got back in state spending.

In other words, state and local policy—and the national and international economic forces that hit us all—result in Upstate rural, suburban, and urban areas eating more than they grow. We are dependent upon New York City.

How could the state change this? How could we be more self-sufficient?

Part of it is local policy. Buffalo, Rochester, and Syracuse are stuck in a 1970s time-warp of cheap gas, state-bought roads, suburban spread, and racial isolation. And Albany just watches and does precisely nothing except send pension checks, Medicaid checks, road funds, and blank checks for make-work projects.

State policy has to be more about Upstate building its capacity for sustainability, and less about building buildings. State policy probably cannot unilaterally undo all that the Milliken decision did to isolate urban minorities from suburban whites—but why should Andrew Cuomo, of all people, tolerate 29 separate school districts in Erie County, where the school population is falling, where over-construction of housing continues, where depopulation will persist until at least 2030? State policy cannot unilaterally undo brownfields—but why should Empire State Development Corporation not team with the Department of Environmental Conservation to figure out how to leverage local and federal money to clean up Upstate’s natural comparative advantage, i.e., its fresh water? We know the price tag, and we know that the input-output models say that freshwater remediation delivers a higher output than commercial property, so what’s the wait?

As the new economic development team comes on board in Albany and starts making its way around New York State, it’s time to demand a little better than we’ve had. After all, our new governor was a cabinet officer, not the mayor of some Hudson Valley town. He knows how persistent and how intransigent some agencies and forces are, how inertia can be a force for great negativity. The forces of deindustrialization, racial polarity, and localism are indeed strong in Upstate. But our comparative advantages—clean water, cheap land (remember our report on how 1,500 acres of developable land is yours, inside Buffalo city limits, for only $43 million?), and a smart workforce—are only available if the state puts its money into cleaning up the water, banking the land and investing in the people. Not the damned buildings.

Breaking Upstate out of dependency won’t be easy. But it will be a whole lot cheaper than keeping us poor, sprawled, dumb, and polluted.

Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.

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