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Green by the Numbers

Sustainability as economic development

This past week, the violent rainstorms that shut down New York City’s airports and caused flash-flooding all over Upstate New York once again overloaded our storm-sewer systems, even as Governor Andrew Cuomo’s new regional economic development councils began convening. Their job is to figure out how to use the $1 billion in grant money he has put on the table. Cuomo has made it clear that he wants to see regional solutions, and a break with past “economic development” projects that have a tendency to take in lots of public money, but that end up putting nothing much out. Lieutenant Governor Bob Duffy, former mayor of Rochester, is in charge of these new councils. Eyes are on Duffy to deliver the goods; while the rains were overloading everybody’s storm drains, a Duffy-endorsed “economic development” project in downtown Rochester—a typical corporate handout deal that was supposed to be iron-clad, rock-solid, and foolproof—fell completely apart after millions were invested.

World Bank economist Ken Rogoff and Princeton Nobel Prize-winner Paul Krugman have been all over the chat shows recently, agreeing that much of the rest of the US economy looks like Upstate New York’s. There aren’t enough buyers out in the marketplace, so unemployment and under-employment are pretty widespread; there are 10,000 fewer people working in the Buffalo-Niagara Falls metro area than there were in 2008, and our regional income levels are pretty low, with over 70 percent of households reporting under $49,000 in income in a state where that’s the median income. Kathy Hochul is now US Representative Hochul because the region’s rapidly-aging electorate is newly and keenly aware that it’s not rich. Only around 8,000 of the more than 400,000 households here can count a penny of tax-benefit from the Bush-era income tax rate cuts, but a large and growing number of households will rely on Social Security, Medicare and Medicaid. Washington took billionaire investor Warren Buffet’s advice to cut those programs’ future outlays; Washington has not yet taken his advice to stimulate the economy by raising tax rates on him and on some of those 8,000 Western New York households that report incomes of over $200,000, and using the money to fix the infrastructure.

At least in Washington, there seems to be some new energy—except among the Tea Party types—that government action is going to have to be a part of the solution to economic stagnation. The Tea Party and the Republican presidential candidates are fixated on keeping tax rates low, and all of them ignore Warren Buffett, the richest stock-speculator in America, who points out that he has never yet invested a dollar, or not invested a dollar, because of the tax rate he would pay on the money he made. Buffett, like the economists, thinks that fixing the infrastructure is a tried-and-true, proven, prudent, and appropriate way to create jobs, and thus to put more money into middle-class households, which today don’t have enough money.

The question in Upstate New York is whether infrastructure fixes are going to be part of the “economic development” conversation. There are several sets of data that indicate that Upstaters, and especially Western New Yorkers, need to get focused on coordinated and focused infrastructure fixes.

People, houses, and taxes

The first set of numbers that economic developers should look at is from the Cornell University program on applied demographics, which is one of the respected academic outfits that crunches Census data. Before any blaming of local officials or of state tax rates or of God for giving us more snow days than 100-degree days, folks just need to face up to the trends that professional demographers have spotted. Cornell’s numbers agree with analyses produced by the Census and by the Wharton School, and this is what they show: that today’s Erie County of around 900,000 people will be fewer than 800,000 in 25 years; that the number of children born in the area will shrink; that both the absolute and relative size of the over-65 population will grow; that the number of 25- to 44-year olds (i.e., the number of baby-makers and of house-buyers) will shrink.

While you’re digesting the numbers that say that we’ve probably got more than enough school buildings built and more than enough roads and more than enough houses, the next set of numbers to consider are from 2009—a township-by-township look at which homeowners were eligible for property-tax breaks based on the homeowner’s age. Not surprisingly, the towns where more than a quarter of the property taxpayers are over 65 are the first-ring suburbs, where much of the housing dates from the 1950s and 1960s. Taking a drive through Amherst, Cheektowaga, West Seneca, Tonawanda, and Hamburg, you get a pretty consistent picture of suburbia circa 1965: lots of Cape Cods, lots of split-levels, lots of white folks of a certain age, a few minorities who are slightly younger. Within the next few years, many more of these houses will be emptied by the Grim Reaper, and many of them will be great bargains for young home-buyers—of whom there will be a shrinking number. What jumps out at you if you’re looking at infrastructure budgets is this: It sure doesn’t look like the tax base in any of these places is growing, and it sure doesn’t look like there’s going to be any way to deal with fixed overhead for roads, sewers, bridges, culverts, or water lines if the way to pay for this stuff is through the property tax.

Just taking those two sets of numbers, the conclusion leaps out: Fewer taxpayers, older taxpayers, and aging public works mean that the tax base is going to be stressed.

The City of Buffalo has already been there. A homeowner in the City of Buffalo already pays a fee for garbage pickup because the property tax system couldn’t cover that bill. Ditto sewers. Ditto water. There are places in America where all public services are included in the tax bill.

So as our “economic development” committees think about the challenge of getting higher wages for working people, and as they think about the return-on-investment calculations that investors always think about when doing private transactions, the calculable, measurable consequences of having a shrinking tax base for public services—before we even get to the question of paying for the people to operate those services—should be part of the discussion.

Jobs and wages?

But maybe local taxes and fees for local services are simply going to go up. Some analysts think that the cost of local taxes and fees is not particularly relevant to job creation. Does anybody leave Silicon Valley or Wall Street or the University of Chicago’s Hyde Park because of property taxes or water bills? The answer is obvious: What economists call “magnet sites” become magnets for investment because of the high level of human capital present, not because of the price tag for snowplows or firefighters.

But every place in the Rust Belt is asking the same question as the regional economic development councils are asking. In Cleveland, which is home to the multibillion-dollar Cleveland Clinic and to many Fortune 500 headquarters offices—and which is losing population just as the Buffalo area is—the presence of those huge concentrations of human capital is still leaving Cleveland with negative demographic trends.

Of all the Rust Belt cities, Pittsburgh stands out as having turned the tide on out-migration. The secret of its success in retaining high-value employment and building new jobs is a story two decades in the making—a story of coordination among its three largest foundations (each of which has an endowment at least five times as large as the Oishei Foundation’s, Buffalo’s largest), plus a lucky legacy of its universities, its hospitals, and its cultural institutions having been built right next to one another in a relatively compact downtown, as in Chicago, Toronto, Boston, Montreal, Rochester, Syracuse, and other non-tropical cities.

One should be skeptical of claims that a new increment of public investment in any single project—especially one that is focused on consumption or entertainment rather than on producing or sustaining something—will get any results in Western New York. But as it begins to dawn on our regional councils that even the “eds and meds” paradigm of Cleveland Clinic has not been a magic bullet for Cleveland, and that it took two decades of intense, planful, coordinated labor of three universities, three foundations, and of a unified hospital system—plus a determined, supported, mentored entrepreneurship program—to help Pittsburgh get to population stasis rather than decline, we have this water problem staring us in the face every time it rains.

Water, water, water. Clean water. Clean and green. We don’t have Pittsburgh’s dense cluster of institutions downtown. Nor Cleveland’s world-beating clinic. What do we have? Cheap, cheap land, cheap and abundant housing that the West Side’s PUSH Buffalo proves can be efficiently retrofitted for winter, and water, water, water. What message could Buffalo send to its own people, and to young people who aren’t yet thinking of being here, if Buffalo were the one Rust Belt city that put sustainability, cheap housing, green infrastructure, and small-scale community activism forth as its economic development paradigm? In the coming weeks, we will use analysis underway at the Center for Economic and Policy Studies to make the case for sustainability, for green infrastructure and for our overbuilt housing stock to become the focal points of the Buffalo-Niagara region’s achievable comparative advantage.

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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