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Buffalo to Rochester MapHow does the state decide where to lure companies with lavish government grants and tax incentives?

TThe state announced last year it’s spending $55 million to help IBM set up a data center in downtown Buffalo. It’s eventually supposed employ 500 workers. Aside from questions about the contracts awarded to the governor’s donors, there’s another question raised by a recent Buffalo News article. Why on earth did the state pick Buffalo?

“The skills we’re looking for are hard to find anyway. If we were sitting in the Silicon Valley, it still would be very hard to find,” Goodwyn said. A big part of IBM’s workforce development plan is to bring in a sizable number of entry-level workers by building ties with colleges from across upstate, from the University at Buffalo to the Rochester Institute of Technology and the University of Rochester, to Cornell University and Clarkson University, Goodwyn said. UB lacks a specific data analytics major within its computer science and engineering school, but other schools, like RIT and the University of Rochester, have it.

“That’s part of our business plan: College and university hires,” he said.

 

 

Locating Solar City in Buffalo was also questionable. We have a giant industrial facility called Eastman Business Park that desperately wants to attract solar companies. In fact, Kodak specialized in material science and chemicals, the same stuff needed to innovate in solar. But the state chose to spend hundreds of millions of dollars to build on a brand new site.

Locating photonics in Rochester made sense. We already have a lot of photonics companies, university programs and talent.

I’m not suggesting Buffalo doesn’t deserve nice things. I’m suggesting when the state uses carrots to attract companies, it should put some analysis into where these companies would be a good fit. I’m sure there are things more suited to Buffalo than Rochester. But Albany doesn’t seem to care.

Side note on high-speed rail:

Couldn’t people commute between Rochester and Buffalo? Unless Rep. Louise Slaughter gets her wish on high speed rail, we don’t have a mega-region. There’s no way to regularly commute between Rochester and Buffalo unless you have a car. Even if high speed rail becomes a reality, the last mile is a problem. How do people get to where they’re going when they get off the train? Inter-city buses would also be an issue. Jobs are no longer concentrated in downtowns. Right now, fewer than 2,500 people commute between Erie and Monroe counties. It’s possible that number could grow as transit and job opportunities grow. Any high speed rail or inter-city transit project must consider STAMP in Genesee County, a 100 percent car-dependent project. The bottom line is our regions are not connected via transit or economic development. They probably should be. I’m skeptical we’ll see a mega-region, as described in this New York Times op-ed, in our lifetimes.

NYS Labor Department

 

Governor Andrew Cuomo came to Rochester in early January and held a campaign-style event at Tower280. He talked about how Upstate New York is on the way back and the state has more private sector jobs than ever before.

cuomoAfter his speech, I asked him how he can be so positive when Rochester has 40,000 fewer people working than it did at its peak in the late 1990s. Cuomo called me a cynic and said we’re all going to die one day. The governor was joking, of course. But new data shows the Rochester economy is no laughing matter.

First, census data shows a net loss of 25,000 people in Rochester over the last five years when you add up the number of people who moved in and the number of people who moved out. If it wasn’t for new births and international immigrants, we would be in a population free fall. People blame taxes, the weather and lack of jobs.

Speaking of jobs, data out last week from the New York State Labor Department shows Rochester had the most job losses in the state over the last year. We lost 1 percent of jobs between February 2015 and February 2016. That’s 4,700 jobs.

Meantime, in a Democrat and Chronicle article holding the state accountable about jobs promises, officials say some of their efforts to create jobs are paying off. Others will pay off in the future. And some probably won’t pay off, after all. For now, we wait.

The state’s economic development policy is to throw obnoxious amounts of money at companies and hope they create jobs. The state calls it investment, but it could also be called gambling. Most recently, Cuomo came to Rochester to announce two photonics companies are coming here. He said they would create 1,400 jobs, even though neither company makes anything right now and both have a tiny number of workers. As with other announcements on photonics, the jobs estimates are purely speculative.

As much as I love Rochester, it’s clear there’s something deeply wrong with our economic climate. Instead of focusing on making Rochester a wonderful place for all to do business, the state is focusing on only a few businesses in programs such as Start-Up NY. The big picture has been lost.

It turns out I was right to be cynical. I was also right. The region is not on the upswing, as Cuomo would have us believe.

Update: The state labor department questions its own data. Whatever the case, it’s not a pretty picture. – RB 3/29/16

Links of the Day:

 

Cable BoxCall centers are bad economic development. The jobs don’t pay well and there’s little opportunity for advancement. There’s high staff turnover. Call centers are easy to open and close.

But none of these concerns stopped the state from awarding Time Warner Cable $3.1 million in tax breaks for a Buffalo call center that will employ 152 people.

This is a company that charges you $100 a month for cable and Internet service and raked in $21 billion in revenue last year.

The Buffalo News reports:

Assemblywoman Crystal Peoples-Stokes, D-Buffalo, said such jobs typically pay an average of $15 an hour nationwide, or $31,200 for a 40-hour workweek. That means roughly two-thirds of the average salary would be paid for by tax credits.

(snip)

Terence Rafferty, regional vice president of operations for Time Warner Cable, confirmed that other states were in the mix, with their own incentives.

Still, he said it wasn’t just the money. “Tax incentives are a business decision,” he said. “At the end of the day, it’s the people. That’s what makes a business great, the people, not tax incentives.

If that’s true, Mr. Rafferty, please give the incentives back to a community struggling to shore up its tax base.

The size of the tax breaks mean that like Xerox’s call center in Webster, the state could foot the bill for much of the cable giant’s investment. The state is paying rich companies to open call centers that don’t provide the stability needed to rebuild and revitalize the economy.

 

Links of the Day:

 

– I reported on the Regional Economic Development Councils failure to disburse money quickly to projects. The state says it doesn’t pay for projects until they’re completed. That makes sense. But when only $19 million has been disbursed out of $1.5 million, there are questions about what is being accomplished.

– Six in 10 children who have Medicaid did not see a dentist in 2011. Dentists often don’t accept Medicaid patients.

Heroin deaths spike in Onondaga County.

– The majority of service members who are sexually assaulted every year are men.

– A Hamburg mother is furious at a crazy teen party at her house that ended with the family car being stolen and set on fire.

– Supreme Court Justice Sonia Sotomayor made a secret visit to North Syracuse graduation ceremony.

Wow.

Terry Pegula and the Sabres are making a gigantic investment in downtown Buffalo. They will build a $123 million complex that includes two ice rinks, a hotel, retail and a “destination” Tim Horton’s. (It’s supposed be a really special Tim Horton’s.) It will be connected to First Niagara, where the Sabres play. It’s considered a first-of-its-kind concept in the NHL.

While the city is providing tax abatements, it does not appear Buffalo threw a ton money at the deal, the Buffalo News reports:

The Sabres will pay the city $2 million for the 1.7-acre parcel, and city residents will be sought for post-construction jobs. Local labor will be used for construction. Employees of the ice rink and parking ramp also will be paid a living wage, Brown said.

The Sabres are expected to seek a payment-in-lieu-of-taxes agreement, which abates local property taxes, and state brownfield tax credits. Brown said he did not expect the city to provide additional financial assistance for the project, which Sabres spokesman Michael M. Gilbert confirmed.

WGRZ reports the Sabres will pay about $4.8 million in taxes a year once the project is done. The station also reports there are deadlines built into this deal:

Under terms with their agreement with the city, the Sabres need to have the parking garage and ice rinks open by no later than September 30, 2014…The Sabres have until May 30, 2015 to open the 200 room hotel.

This is very exciting for downtown Buffalo and hockey fans.

Rochester needs a Terry Pegula downtown. Maybe he’ll buy Blue Cross Arena, home to his minor-league club, and take a shine to Midtown?

Businesses pay property for a reason. They get fire and police protection. They get roads paved. They get streets plowed. They get to plug into infrastructure. Governments rely on businesses to get revenue. Yet property tax breaks have become ubiquitous and governments are now hurting for revenue.

It’s time to rethink property tax abatements, according to a new study. The Lincoln Institute of Land Policy found throwing property tax incentives at businesses is bad public policy:

Three major obstacles can impede the success of property tax incentives as an economic development tool. First, incentives are unlikely to have a significant impact on a firm’s profitability since property taxes are a small part of the total costs for most businesses—averaging much less than 1 percent of total costs for the U.S. manufacturing sector. Second, tax breaks are sometimes given to businesses that would have chosen the same location even without the incentives. When this happens, property tax incentives merely deplete the tax base without promoting economic development. Third, widespread use of incentives within a metropolitan area reduces their effectiveness, because when firms can obtain similar tax breaks in most jurisdictions, incentives are less likely to affect business location decisions.

The authors say states should restrict property tax breaks to distressed geographic areas and certain types of projects. They say governments should actually study if property tax breaks are effective. They also suggest other kinds of government support, such as job training and regulatory relief.

The study found tax breaks for retail and housing developments don’t increase income or employment. But we continue to subsidize projects like College Town and the Greece Ridge Mall.

Links of the Day:

– Riding along with police during the Dave Matthews concert at Darien Lake is a riot.

– Carl Paladino filed a lawsuit accusing the Buffalo school board of appointing the new superintendent in secret.

– They were the state’s original double-dippers. Slave owners who charged their slaves to buy freedom while collecting compensation from the state.

– Albany restaurants are fretting that the state may end lawmakers’ allowances for travel and food.

– The video of San Diego accidentally setting off all of its fireworks at once is insane.

okc.gov

Links of the Day:

– This is how you get things done. Two decades ago, Oklahoma City discovered it couldn’t lure companies because it lacked quality-of-life amenities. Throwing tax incentives at firms wasn’t enough.

The mayor wrote in the Huffington Post about what the city decided to do:

An innovative new program, Metropolitan Area Projects (MAPS), was developed through which we could invest in our community. The program featured defined capital projects that would be funded by a penny sales tax. The tax would have a start date and an end date and the projects would be paid for in cash, without incurring debt.

In 1993, the first MAPS vote proposed the construction of a 20,000-seat, indoor sports arena; construction of a 15,000-seat downtown ballpark; construction of a new downtown library; construction of the Bricktown Canal; development of a trolley transit system; development along the North Canadian River; and renovations to the Civic Center Music Hall, Cox Convention Center and Oklahoma State Fairgrounds.

(snip)

As a result of the original proposal, Oklahoma City’s Bricktown, with its canals, restaurants and hotels, is the most popular and lively entertainment district in the region. The river — formerly a ditch that we had to mow from time to time — is now filled with water and hosts a world-class, U.S. Olympic rowing training center. The ballpark is home to the Houston Astros’ AAA team and the indoor sports arena is home to the Oklahoma City Thunder, one of the most successful franchises in the NBA and certainly the hottest ticket in town.

A second MAPS program funded school renovations. A third is remaking the downtown core. Oklahoma City now has a low unemployment rate and is considered an entrepreneurial hub.

In Charlotte, North Carolina, government partnered with businesses from 1976 to 2001 to build $200 million in cultural facilities. Charlotte has taken much of Upstate New York’s talent over the years.

Meanwhile in Rochester, the rebuilding of Midtown Plaza is painfully slow. A performing arts center hasn’t gotten off the ground. A downtown campus for MCC is at a political stalemate. Medley Centre sits empty. The Inner Loop is an underutilized moat choking off downtown. The aqueduct project is on the shelf.

Would you pay an extra penny in sales tax to rebuild our city? Maybe that wouldn’t work here, but these stories show where there’s a will, there’s a way.

– New York is not on track to get truly high speed rail. While Governor Andrew Cuomo touts high speed rail, the state is passing on speeds that would spur economic development.

Cornell researches have figured out why supermarket tomatoes taste bland.

It’s time for sweet corn! Alas, State Senator Mike Nozzolio’s bill to make sweet corn the official state veggie failed again.

This is great advice for coming up with the perfect password. 

Remember when East End businesses harshly criticized former Mayor Bill Johnson for subsidizing the High Falls entertainment district? They said the High Falls area was getting an unfair advantage.

What’s likely about to happen at the Mall at Greece Ridge Center is along the same lines. Wilmorite stands to get $3.6 million in property, sales and mortgage tax abatements over the next 30 years. Many restaurants in town (or their landlords) don’t get this kind of help, but we’ve gotten numb to subsidies for the big box retailers.

Unfair competition is one reason skeptics oppose tax breaks for retail. Another reason is the jobs are often part-time and pay low wages. Finally, unless retail is in an economically disadvantaged place, the development is likely to occur anyway. (Wilmorite has said in the past, it cannot do these types of mall upgrades and stay competitive in the industry without taxpayer help.)

Greg LeRoy of Good Jobs First said this country has a glut of retail space. “Retail isn’t economic development. The only time (incentives) are justified, is a neighborhood that’s been demonstrably red-lined.”

West Ridge Road, packed with businesses, isn’t a disadvantaged and isolated neighborhood. Meanwhile Greece and other municipalities and school districts are squeezed for cash.

A 2011 study found St. Louis spent billions on retail incentives with very few gains in jobs or sales tax. The problem is we don’t suddenly have more money to spend just because more stores open.

“If you want retail to succeed, make sure people have good paychecks,” said LeRoy.

But then you look at Medley Centre and ask, “If this project doesn’t happen at Greece Ridge, will we end up with another Medley Centre?”

I don’t know. But it’s legitimate to ask what is the role of the taxpayer.

Links of the Day:

– Buffalo is finally getting its fair share, according to the Buffalo News editorial board:

We understand why other upstate cities are covetous of the billion dollars’ worth of affection that Gov. Andrew M. Cuomo is prepared to lavish on Buffalo. They want some loving, too. We might feel the same in their shoes.

Yet, those cities are missing the larger point, one that Cuomo understands and that should help him stay firm in his commitment. Buffalo, the state’s second-largest city, is failing worse than others. Those two facts — the city’s size and its long-term trajectory — send damaging reverberations throughout the state economy.

<snip>

What is more, as Cuomo also observed, Buffalo simply hasn’t gotten its fair share from Albany…

The idea that Buffalo has been comparatively neglected by Albany is laughable when you consider it has gotten more state aid per capita than Rochester for many years. Rochester is also required to give its schools twice what Buffalo is required.

The poverty rate in Rochester is worse. Buffalo’s schools perform slightly better. While Rochester’s regional economy is certainly performing better, the urban areas have the exact same challenges.

– Albany has a law against predatory towing that it will now have to defend in court.

– People have been killed making iPads. In an important piece of journalism, The New York Times exposes harsh working conditions in Chinese factories.

– Gerrymandering is alive and well. Rochester could be represented by six state senators.

– Kids in preschool and daycare don’t get to play, because providers are worried they’ll get hurt. Lenore Skenazy writes in the Wall Street Journal:

In striving to make our kids super safe and super smart we have turned them into bored blobs.

– The search for what is causing the LeRoy girls’ illness continues, even though doctors have already made a diagnosis of conversion disorder.

Is Xerox, which posted profits of $1.3 billion last year, getting a call center courtesy of taxpayers?

Xerox – after several weeks of mildly threatening to locate the call center elsewhere – decided to proceed with plans to renovate a portion of Building 200 in Webster. The call center would employ 500 people over two years and cost $4.3 million.

The company had already been awarded $271,000 in county sales tax breaks. But the state press release made clear what sealed the deal: a $1 million grant and $5 million in job creation tax credits.

If you do the math, $1 million plus $5 million minus $4.3 million means Xerox comes out ahead.

Lieutenant Governor Bob Duffy and County Executive Maggie Brooks seemed genuinely started when I pointed out the call center would essentially be free and questioned the accuracy of the state’s press release.

But both defended giving the project incentives.

“It’s not about giving anyone a free call center. It’s all about leveling the playing field for companies that want to stay here because they have a larger investment,” said Brooks.

“I can assure you that other governors in other states would be right there offering to build this,” said Duffy.

A Xerox spokesman disputed the idea the company would be getting a free call center. He tax credits are not cash and they are paid out after many years and only if Xerox creates and retains jobs. But the spokesman could not say exactly how much money the tax credits would be worth.

Austin Shafran, a spokesman for the Empire State Development Corporation, also said this is not a free call center. He said tax credits are paid out over 10 years and Xerox must adhere to its job creation and investment agreement.

“Only after verifiable proof has been demonstrated will the company get the tax credits,” Shafran said. “The tax credits are paid off over a long term period, get paid off over 10 years.”

Shafran says it’s not fair to compare tax credits with Xerox’s $4.3 million investment. I disagree because Xerox may not have moved forward with the call center without the incentives. Tax credits are worth money, whether Xerox realizes that savings up front or down the road. The fact is the company could eventually recoup its $4.3 investment.

As for the jobs being created, Xerox couldn’t say how much they would pay. Innovation Trail points out call centers don’t pay a whole lot. Also, Xerox is being rewarded for creating 500 jobs after eliminating 500 local jobs in 2011. (Two-hundred-fifty were outsourced to another company, much to the consternation of those workers.)

Whether the state foots the bill for some or all of this project, it’s clear taxpayers are paying a lot so a multi-billion dollar corporation can rehab an existing building to create low-paying jobs.

City of Rochester

Rochester is seeking developers interested in restarting the La Marketa project. The city has long-envisioned a commercial district that not only benefits the neighborhood, but becomes a destination. La Marketa would presumably focus on the area’s heritage as home to thousands of Latinos.

Previous efforts to build something on the 1.66 acre site have failed. A recent study by Ingalls Planning & Design states the obvious:

In the case of North Clinton Avenue, the appearance of safety is poor. Clearly, drug dealing is an issue on the street as well as other crimes that go along with drugs. This issue is a critical one to deal with in order to go forward. Economic development programs will have less impact if the street continues to look crime ridden. Another important issue in the appearance of safety is the fact that many stores have metal screens that gives the street a fortress appearance.

But the study also shares some details about the North Clinton corridor that present both opportunity and challenges:

– There are 50 storefronts on North Clinton. Fifteen of them are convenience stores. About half of the storefronts have a recognizable Latino name. There are 21 vacant lots.

– Between 12,000 and 16,000 cars drive on North Clinton every day. That’s comparable to St. Paul Street, Portland Ave., and North Goodman Street.

– One-third of households in the neighborhood do not have cars. That compares to one-fourth of city households and one-tenth of county households that are without vehicles.

– The neighborhood’s population has declined from more than 10,000 people in 1990 to 8,000 in 2010.

– Hispanics make up 39 percent of the population.

– The median household income is $21,307. Forty percent of households earn less than $15,000.

The study found the area’s reputation, derelict properties and small size are weaknesses to development. Strengths include density, high traffic, low land costs and a strong neighborhood association.

It would be nice to see North Clinton Avenue become a regional destination for Latino food and shops, and the study’s authors think that is possible. Latinos have a long tradition in the neighborhood; it’s time to capitalize on it. But it’s clear there are significant challenges to making it happen.

Communications Bureau, City of Rochester

Links of the Day:

– Rochester is doing just fine, thank you.

The New York Times has discovered the possible death of Kodak is not another Rust Belt cliché. In an accurate assessment of how we’ve weathered the company’s decline, The Times writes:

But beyond the urban core, in sparkling new office parks and research labs, at the University of Rochester and the Rochester Institute of Technology and the local medical complexes, Rochester remains quite robust, in no small part because of the legacy Kodak and other faded industrial giants left behind.

The fact that Kodak declined over decades, rather than suffering a sudden collapse, allowed people at the company and elsewhere to explore new options — to take skills in medical technology, photonics, imaging or optics to small startups or to start their own.

The Times pointed out wages have sunk, even as we’ve experienced job growth. The report also noted the “decay” in urban neighborhoods.

Recently, the Wall Street Journal and CNBC have also noted the area’s “reinvention.” So much for those blaming Rochester’s size and location for stifling innovation.

– The Strathallan is going to get a new pool and brand name. New owners Christa Development have big plans. So far, the company hasn’t been able to pull together financing for Midtown Tower.

– The Rochester Regional Transportation Authority is a model for struggling Buffalo.

– Rochester then and now: The Democrat and Chronicle has another installment of its Retrofitting Rochester series.

I reported today on the explosive growth of the University of Rochester. The college has surpassed 20,000 workers for the first time and foresees adding 500 workers a year. The U of R’s impact on the regional economy is huge. In 2010, CGR estimated 47,000 direct and indirect jobs paying $2.3 billion in wages.

I visited iCardiac to show an example of a U of R spinoff company. Local leaders would like to see many such companies, but cofounder Sasha Latypova said there are two big barriers.

“The community needs to grow more entrepreneurs. The community needs to attract more people who are like us,” she said. “We may not be engineers, researchers or clinicians, but people who understand technology, are not afraid of it and can ‘productize’ things.”

I was surprised to find out Latypova and her partners are not scientists. They’re business people. “Steve Jobs didn’t know how to code,” she told me. She said Rochester needs more people who can envision the market potential of U of R’s research.

The other barrier to creating more spinoff companies is money. Latypova said access to venture capital is extremely difficult in Rochester. It’s tough to bridge the “Valley of Death.”

“They also have to think new ways of bridging the gap between research science and commercial products,” said Latypova.

iCardiac has 50 workers. Can you imagine what could happen if dozens and dozens of U of R startups emerge? What if a few of them end up employing hundreds of workers?

CGR’s Kent Garnder ultimately envisions some kind of “Research Triangle,” similar to the one in North Carolina. He said if the U of R and RIT can cover the geographical distance between them, the sky’s the limit.

Gardner and U of R officials believe the 390 Interchange project would help facilitate such a “research triangle.”

On a related note, I have been questioning the estimated 29,000 jobs local leaders say the highway upgrade could create. Gardner says 29,000 direct and indirect jobs could be created if the U of R follows through with its master plan, which calls for adding 4.9 million square feet. That growth would happen over many years. Gardner said the potential for 29,000 is there, but it’s not a firm number.

Potential is the word of the day. Let’s hope Rochester lives up to it.