Thursday, January 5, 2012

IDA blues

Time to Change the Rules


(photo by Alan Bedenko)

Can Mark Poloncarz stand up to real-estate developers and the politicians they fund?

As a regional economy that is far away from Wall Street and even farther from Washington, the Buffalo metro area greets the new year hopeful, as ever, that if we get our own house in better order, we’ll have a better chance of living through whatever new calamities Wall Street and its Washington handservants engineer. Fortunately, the new Erie County executive has a strong electoral mandate. He also speaks calmly and firmly about stewardship, government’s role as a protector, and about how this region has suffered from poor private-sector leadership. Unfortunately, that same private-sector leadership, which thwarted a previous county executive’s electoral mandate to create a strong regional government, is still in power here.

When Mark Poloncarz took the oath of office for Erie County executive on New Year’s Day, he wasted no time in reminding us that he intends to do what he can to change the region’s economic development agencies, which have been the playthings of the bankers and real-estate developers here. These industrial development agencies were established throughout the northern USA during the era of the rapid deindustrialization of the northern USA, when highly mobile capital searched, and found, places where workers would accept lower wages and communities could be forced to tolerate pollution. Well-documented histories show that steel, chemical, automobile and other heavy industry, followed by manufacturers of consumer goods from pencils to shoes to baseball hats, moved first to the southern US, then to the Mexican border zones, then further away, to China, Malaysia, Indonesia, Central America, Haiti—wherever labor was cheap. Between 2000 and 2010, the New York State Department of Labor reports that the state lost 294,000 manufacturing jobs. That left these “industrial” development agencies to cope with a globalized production and shipment structure that they remain ill equipped to challenge. But once established, these entities remained empowered to do something to justify their existence. So they became fee-driven enablers of real-estate development schemes.

Poloncarz campaigned with a critique of the fractured, duplicative, competing local industrial development agencies that have produced no net new employment. He refined and amplified a well-reasoned critique of their practice of keeping their staffs and their vendors paid by financing real-estate deals that always include multi-year giveaways of taxes on the promise, never fulfilled, of economic growth and renewal. Because of other forces, the regional economy does indeed continue to grow in overall output: The federal Bureau of Economic Analysis data show that inflation-adjusted output in the Buffalo-Niagara Falls metro area has actually grown over the past decade to over $40 billion annually, though the workforce here shrunk from 554,600 to 532,700 between 2000 and 2010, a 3.9 percent drop. The population shrunk 3.3 percent.

According to “Money for Something,” a new national survey of economic development agencies, the numerous programs in New York State deliver much less than they promise. The Washington, DC group Good Jobs First rated New York’s agencies 43rd out of the 50 states and the District of Columbia when comparing the cost of the tax breaks to the actual jobs created.

The Bureau of Labor Statistics and the New York State Department of Labor do indeed report that there are fewer jobs here today than there were three years ago, five years ago, 10 years ago. (There have been no net new jobs added in the Buffalo-Niagara Falls metro since November 2010.) The population is smaller, there are more people on Food Stamps, and fewer children in school. In 2010, the federal government sent over $8 billion in grants to individuals and governments within Erie County, over $5.1 billion of it in direct payments to named persons, which is a big chunk of the $43.4 billion in personal income the federal government reports here for that year. My 2009 analysis showed that New York state government annually sends more than $1 billion more to Erie County individuals and governments than is collected in state taxes here; a new Rockefeller Institute analysis of 2010 data shows that same trend continuing.

Economic development agencies alone cannot be expected to reverse that dependency. Large forces have been at work here for decades—most famously, the departure of the massive heavy-metals industry, the change in the geography of Great Lakes freight transport when the St. Lawrence Seaway bypassed Buffalo, and the decision, in the 1960s, to isolate the State University of New York’s campus on an island in suburbia rather than to achieve the agglomeration economics that sustain and renew every great city on the planet, i.e., by siting the university within the city. Ed Glaeser, the celebrated Harvard economist who in 2007 criticized the ongoing massive make-work projects that have failed to turn Buffalo around, says in paper after paper, and in his new book on cities, too, that the critical advantage that cities have is that information gets shared where the population rubs shoulders, and doesn’t where it doesn’t. The economic literature is full of examples of resilient regions that have adapted best to the stresses of globalization by retaining their core institutions in or close to their cores. Buffalo didn’t, and the region has suffered as a result.

But now there is a regional political leader who has a mandate to address at least the issue of what our economic development agencies ought to be doing. He did so in his first speech on his first day in office. The county executive does not, however, have unilateral authority to consolidate the industrial development agencies in Amherst, Clarence, Concord, Hamburg, and Lancaster with the Erie County IDA. When then-County Executive Joel Giambra set out in 2000 to consolidate the six IDAs into one, he went up against town-level politicians who serve on the Erie County IDA board and who influence their own town IDAs, and against the real-estate developers who fund those town officials’ political careers. Giambra’s campaign for IDA consolidation was also undermined by the regional chamber of commerce, the Buffalo Niagara Partnership, which is a lobbying organization controlled by the bankers and real-estate developers who feed off the current system.

If a new Erie County executive is going to succeed in consolidating IDAs, he will need support from New York State elected officials to enact a statute that stops town-level IDAs from making abatements of state and county taxes—a change that would put the town IDAs out of business. The new executive will need legislative assistance, too. The Erie County Legislature in 2005 was complicit in doling out an additional $12.5 million in regional revenues to town governments, a sum which, coincidentally, is about the size of the current budget shortfall of the public transportation agency upon which low-wage workers, students, and the city-dwelling elderly rely. Towns, the truly redundant level of government in New York State, annually devour tens of millions of dollars of county revenues for suburban roads, and issue building permits in a frantic intra-regional poaching process that beggars all. No executive can expect cooperation from town governments stuck in that paradigm, especially if that executive is committed to the most radical change in policy a regional leader here can have—namely, to reorient development theory, and practice, toward the poorest, most rapidly-shrinking, and most distressed area of the region, namely, the city.

Institutionalized corruption?

Just before Christmas, newly elected State Assemblymember Sean Ryan dramatized the urgency of IDA reform when he criticized the Amherst Industrial Development Agency for granting tax abatements and other public subsidies to a big liquor retailer to subsidize its move from Delaware Avenue in Tonawanda to Sheridan Drive in Amherst. As Ryan said in his critique of the deal, he was not out to blame the liquor store’s owners, because nobody who’s any good at business is going to turn down the freebies these IDAs offer. The problem, Ryan said, is a system that subsidizes businesses that already exist, that aren’t growing or adding jobs, that aren’t moving out of the area, and that are in competition with other local businesses that don’t get the goodies.

The cynical response from real-estate developers here is that public subsidies are necessary not only for attracting businesses but also for retaining existing businesses. But it’s a wonder that developers would trouble to say anything in their own defense. They don’t really need to, because they own both political parties outright.

The main beneficiaries of the system in place today are the suburban real-estate development firms that preserve their access to subsidies by handing out massive campaign contributions to politicians of both parties, at both the state and the local levels, who preserve the status quo. A few minutes’ worth of browsing the New York State Board of Elections databases of campaign contributions tells a depressing tale. Plug in the names of the major commercial real-estate developers around here and you get the picture right quick: Hundreds and hundreds of thousands of dollars go to town board members, town supervisors, county legislators, and state legislators who leave the cynically misnamed “industrial development” agencies to do what they do.

This dynamic of subsidies for reshuffling established businesses from one place inside Erie County to another place inside Erie County is repeated all across New York State. And all across New York State, except in the immigrant-rich New York City metro area, the population trends range from flat-lining to precipitous shrinkage. Since 2000, the Upstate region overall has lost both population and employment despite localized successes, and has grown more dependent on Gotham’s largesse. The question lurking within the problem of dependency is how in the world—literally, how in the globalized economy—the economic wheels will keep turning here if Wall Street falters.

Political contributions by real-estate developers

Carl Montante, Uniland Development

Personally: $83,425

Through Uniland companies: $156,590

Michael Joseph, Clover Management

Personally: $76,474

Through Clover companies: $46,832

Dennis Penman, formerly of MJ Peterson, moving to LP Ciminelli

Personally: $25,525

Ciminelli family

Personally: $305,172

Through Ciminelli companies: $92,026

Patrick Marrano, Marrano Homes

Through Marrano companies: $47,518

Figures are taken from campaign finance disclosure filings with the New York State Board of Elections, as attributed directly to individuals and the primary companies with which they are associated. They do not take into account contributions attributed to subsidiary companies, such as LLCs created for the ownership of individual properties.

Allies for sustainability

A newly empowered wave of thinking among economists is that growth per se is the wrong goal, and that we should instead be thinking of sustainability. That would seem just about the correct framework for Buffalo and other Rust Belt metros. As the birth rate is falling, and as every fourth resident of Erie County will, by the end of Poloncarz’s first term, be over 60 years of age, and with immigration pretty much limited to college students and the 1,500 or so refugees sent here annually by the State Department, chances are that population growth here will not happen anytime soon.

But that’s no reason for pessimism. It’s about time our frame of reference shifted, and our policy response with it. If it is true that the region will have more old people, then the region needs to figure out how to employ some of those newly arrived, English-challenged refugees as home health aide workers, which is a successful strategy now underway in Minneapolis, so that our elderly in Cheektowaga and West Seneca and Tonawanda can benefit from the bravery and resilience that helped Somalis, Burmese, Bhutanese, and others get here in the first place. Helping the International Institute with a big new effort to teach these folks English could help meet the growing demand for this specific kind of labor.

The potential for growth in home health aides illustrates an important fact about the region, which is that it is changing, not dying, and that the economic development agencies are engaged in activities that are irrelevant to the changes underway.

That’s why this mismatch of current projects is so galling. Tens of millions of dollars are being spent on the construction of reflecting pools on the site of the old Aud to support a new, retail-oriented downtown center in a region that is already massively over-retailed, that has shrinking disposable income and a median household income that is at least $8,000 less than the statewide median. Why? Once again, it is because of the pervasive influence of the suburban real-estate development industry.

Alternatives, meanwhile, go begging. There’s an economist at Ohio State University who has calculated that there’s sufficient vacant, cultivatable land in Cleveland that, if farmed, could supply that city with all the vegetables it currently consumes. His models should be tested here, where there are at least 1,500 acres of parcels that altogether, in 2010, were assessed at under $10,000 apiece, acreage that could be purchased for a total of $43 million. Our state economic development apparatus is spending twice that amount on reflecting pools, structured parking, and a developer subsidy for a retail “anchor tenant” in Erie Canal Harbor, while the 1,500 acres of recoverable, or farmable, or homesteadable land, collects snow.

The adaptive re-use of the Statler Hotel, the Lafayette Hotel, the Larkin warehouse complex, and other sites in Buffalo use some of the same tools that the suburban store-and-office subsidizers use. A shrinking region should absolutely re-convene in its center, and the cost-benefit analysis—demolishing the Statler would have trimmed taxpayers at least $16 million, while helping redevelop it will cost less—actually favors re-use. Where there is a measureable public return-on-investment, the numbers should dictate the input.

But the reality for all real-estate projects, city or suburban, is that they all still need tenants. Today, prospective tenants come only from existing buildings. The law firm that will move into the state-owned 1962 downtown office building named for General William “Wild Bill” Donovan, the South Buffalo war hero who helped to found the CIA, is not moving in from out of town, but rather from the HSBC tower just a few hundred yards away. At tremendous expense to the public purse, a hero’s monument will be adapted to shift an existing downtown tenant’s address one city block. The developer benefits. The tenant benefits. The economic “development” agency staff benefits. The excess taxes paid by downstate New Yorkers fund all this.

None of our economic development apparatchiks has ever advanced a plausible plan to make of Buffalo the adult destination for post-adolescent college students in the area, over 50,000 of whom are here already. These kids, who will increasingly arrive in Buffalo from Downstate because Upstate doesn’t make as many babies as it used to, are a wasted potential workforce if all the public resources for economic development are shunted into retail projects that employ nobody new. Elsewhere in the US, even in the Rust Belt, public funds are being invested in green infrastructure, housing reclamation, energy efficiency, and other developments that employ young people, including young people with college degrees. Not here.

Why? So far, it’s because refocusing on these new opportunities would mean taking the subsidies away from the developer class that pays the politicians. It’s not a matter of money: Thanks to the gushing fountain of tax revenue that gets sent here from the world-wreckers on Wall Street, there is money galore. What has been lacking is the political will to take on the developer class that currently funds the political class. What’s needed, beside a sane set of plans that actually address the region’s challenges, is the mentality that the late Democratic boss of California bluntly described to a newcomer as essential equipment for a public official. Jesse Unruh, the California Democratic legislator and boss who ran unsuccessfully against Ronald Reagan for governor in 1970, said it this way: “If you can’t eat their food, drink their booze, screw their women and then vote against them, you have no business being up here.”

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