The eyes-closed plan for economic development

On a recent trip from Orchard Park to East Amherst to meet with some polite, highly intelligent, deeply anti-government American citizens, our group couldn’t help notice that there was not a single passenger-carrying vehicle on the 14-mile trip that wasn’t private.

We were getting together to have the first of a series of meetings to discuss economic development issues in Upstate New York. Governor Andrew Cuomo is soon to name his regional economic-development advisory panels, following shortly after New York State Comptroller Thomas DiNapoli issued his second report in two years criticizing the woeful lack of results of today’s many industrial development agencies (IDAs). The Partnership for the Public Good released another white paper about IDAs and their failure to produce results, other than jobs for the employees of IDAs, fee income for the attorneys and bankers who do the deals, and massive tax breaks for the tenants and especially for the developers of IDA-approved projects. Committees of the New York State Assembly have held numerous hearings on the failure of the state’s economic “development” apparatus to turn the $8 billion in tax holidays and direct investments they dole out into measurable economic benefit to the citizens of the state.

As if the evidence of inappropriate tax subsidies and questionable deals weren’t mountain-high already, the Erie Canal Harbor Development Corporation, a state entity, just announced Tuesday that it has designated the already-designated development company to be the sole developer of the former General William Donovan office building in downtown Buffalo.

While the usual fights over specific handouts to specific buildings and developers are fought, there is a separate conversation underway elsewhere—a conversation among policy wonks, government officials in other cities around the world, and even, occasionally, among economists. That conversation is about how the big changes in energy supply and energy costs, and in the weather, are going to hit us.

It’s time for New York State’s economic “development” conversation to stop being about insider-dealing developers, and to get refocused on what it will take to help regional economies develop the resilience to cope with $200-a-barrel oil.

Trapped on Transit Road

Resilient Cities: Responding to Peak Oil and Climate Change is one of the best recent books about the coming crisis in energy that none of our national or state political leaders is likely to read. Happily, this brief prescription for the good that can come from sensible regional economics is full of examples of what progressive local political leaders are actually accomplishing in Europe, Canada, Australia, and even in a couple of places in the United States. We Americans are accustomed to rolling our eyes whenever we heard about the eight million people of Sweden having a sane system, such as their goal of being oil-free by 2020. Perhaps this week we listen up at learning of Rupert Murdoch’s command to his News Corporation empire to become a carbon-neutral empire. But the eyes should be wide open to our own dependency on oil, a dependency that even the anti-government illuminati are not rich enough to pay for.

All our fellow citizens in the Atlanta area, which is wracked now with a drought that we in Upstate New York can’t even imagine, are as marooned as our fellow citizens in Houston, Phoenix, San Diego, and most other big American metros are, on an island called oil dependency. The authors of Resilient Cities note that Atlantans can’t be expected to cope too well with an oil crisis given that its per-capita consumption is 782 gallons per year. (New York City is much better, at 326 gallons, but most Europeans consume far less than 100 gallons per year, because so many more of them use public transportation.) Around here, we are like Atlanta. Around here, as in most American metros except the few where subways drive public transportation utilization up to about five percent, over 99 percent of us don’t take the bus or the train. That means that when the price for 700 gallons of petroleum fuel has gone up from $2,000 to $3,000 per person, that’s $1,000 more per person that comes out a household. And that’s just an average: The real hit to folks who live along Transit Road has been much higher than to folks who can walk up the street to a bus or a trolley, or just walk.

So an urgent question for any new economic development council or advisory board is this: Given that oil is mostly imported (around Upstate New York, it comes from Canada and it comes from the Middle East), the huge increases in per-capita expenditure on oil has meant a huge new export of dollars out of Upstate New York. Economic development should address the question of keeping local dollars inside this region, which is already massively dependent upon Downstate’s subsidies—so the critical economic development question might be phrased as follows: What economic development policy will you propose that will help keep more money in the pockets of people who live in Clarence, Amherst, Lancaster, Depew, West Seneca, and Orchard Park, which are all served by Transit Road, where the only real public transportation is the school bus? Because the hard fact is, a cars-only, oil-only policy that has been federal, state, county, town, and Niagara Frontier Transportation Authority policy since the 1950s, means that the folks who live near Transit Road have no alternative but to get poorer—unless that policy is changed.

Next: the water

The Australian and the two Americans who wrote Resilient Cities accept the Hubbert hypothesis, which is that the production of oil will reach its peak in the next few years, if we haven’t already. Hubbert was a geophysicist who worked for the Shell Oil Company. Last year’s Wikileaks documents included a secret cable from an American diplomat in Saudi Arabia, in which our guy cited the Saudi oil minister’s confession that his country’s production will peak out in 2014. Even though the Canadians will keep pumping Alberta oil (which is the stuff that leaked into the Yellowstone River last week), prices must remain high for them to keep producing it.

Thus making oil go farther is a huge economic development issue, not only because it already costs a lot, but also because demand may soon outstrip supply, further driving its price up. Energy policy and transportation policy are intimately and inextricably connected.

The other big question for economic development is water. Western New York is very fortunate that Ohio Governor John Kasich last week vetoed an insane bill that reached his desk—a bill that would have allowed any Ohio company to pull millions of gallons of fresh water out of Lake Erie, whose levels will continue to decline as the weather warms.

One can only hope that the Obama Administration’s Great Lakes cleanup fund—which was already reduced from over $400 million to just over $300 million—is not further reduced in some ill-considered budget deal. One must also hope that the New York Power Authority’s fund balance, which has been reported to contain over $100 million for “economic development,” is better managed than the New York Power Authority money that went to the Erie Canal Harbor Development Corporation, which has spent millions on consultants but nothing on water quality save an absurd “pooper scooper” at the Commercial Slip.

Abundant, naturally replenished fresh water is Upstate New York’s key comparative advantage, in addition to some capacity, through hydro and wind, to produce power without producing greenhouse gases, too. The massive discharge of untreated sewage into Lake Erie and the Niagara River—more than four billion gallons a year, according to the New York State Department of Environmental Conservation—can be remedied with local funds matched with federal funds to change the way we manage the rain.

Only a fundamental redefinition of what constitutes “economic development,” so that that phrase addresses the energy, transportation and water-quality issues that are barreling down upon us, will get any meaningful results for Upstate. One must be hopeful, but one must also recognize that the current political dynamic is about throwing public funds at local elites. In an age of increasing miniaturization and personalization of electronic health-monitoring and healthcare-delivery systems, Albany is giving local elites in Buffalo what local elites want, which is more buildings for a medical school. Despite the many books and reports that this column and many others have reviewed and summarized about the shrinking supply of clean water, the New York State economic development apparatus has used water-quality money for consultants, public relations, relocated concerts, and attorney fees, but not for water-quality—because local elites who like to burn public money have Albany’s ears and eyes. If the regional economic development councils are informed by local elites rather than by scientists, engineers, and people who add up public costs from policies that no longer work, then we will get more of the same kind of economic development that we’ve gotten all along—the kind that the Comptroller, the Partnership for the Public Good and so many others have documented as fraudulent.

Enough with the fraud already. It’s time to make energy, transportation, and water quality the policy priorities for Upstate New York.

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