The Empire Page

Background:  To get us out of the current recession government agencies, elected officials and the business community these days are all focusing on the problems of economic development.  What obstacles do we face to growth -- is it a lack of credit or customers?  Are high taxes and make-work regulations the problem?  The NYS Economic Development Council represents the 900+ professionals engaged in helping to attract and retain businesses.  We talked to NYSEDC's executive director Brian T. McMahon about what his members are telling him.

 

Empire Page: Your members are on the front line of trying to grow the economy in NYS.  What are they telling you are the major obstacles they face in trying to attract and keep business in NYS?

McMahon: The biggest obstacle to attracting and keeping business in my members’ communities is the very high cost of doing business in NYS. Our business tax environment is the second worse in the country: Workers Comp costs are the highest; electric costs are fourth highest; and Medicaid costs exceed California, Texas, and North Carolina COMBINED.   The work done by NYSEDC members are essential to somewhat level the playing field.

But, my members are deeply concerned that during this severe economic crises, NYS government is dismantling its most important economic development programs at the very time we need them most.  The Empire Zones program, which is responsible for factories being built in every corner of the state and more than 70,000 new jobs being created, will end on July 1, 2010. Industrial Development Agencies, local government’s most important economic development program, are under assault by unions and some legislators who want to impose job-killing wage mandates on projects they finance. These additional costs would greatly exceed the value of incentives that IDA can provide to projects.

The credibility of the state as a trusted partner in economic development is being questioned by business decision makers and site location consultants: the very people we are trying to convince to invest in our communities. The rules of key programs, such as Empire Zones and the Brownfield Cleanup Program, keep changing in the “middle of the game.” As a result, many businesses that followed the rules, did nothing wrong, and factored these incentives into their investment decisions and financial plans, are being kicked out of the programs.  Business leaders are losing faith that a commitment made by the state of New York will be honored in the future.

While other states are creating new economic development programs because they know that economic growth must be part of the solution to long term financial stability, New York seems to be unilaterally disarming.

 

Empire Page: In his state of the State, Gov. Paterson proposed several new economic development programs, including a "Manufacturing Legacy Program" which would "repurpose abandoned industrial facilities," a small business revolving loan fund, efforts to advance clean energy use with the implication of lowered energy costs and an Excelsior Jobs Program designed specifically to replace the Empire Zone program.  How do your members view these initiatives?

McMahon: In the last 10 months starting with the enactment of last year’s budget, taxes and fees on businesses have been increased by $7.5 billion, and the sunset date of the state’s flagship  economic development program, the Empire Zones program, has been moved-up 18 months. There is a huge need to establish certainty in our economic development programs in order to re-establish credibility by the state.

That is why NYSEDC is urging the legislature to extend the life of the Empire Zones Program, which is scheduled to end on July 1^st. The Empire Zones program has been a very effective jobs creation program. Former ESD Commissioner Marisa Lago testified at last year’s budget hearing that the average benefit to cost ratio for businesses in the Empire Zones program is 35 to 1. While the cost of the program is what many focus on exclusively, the program has generated significant benefits for the state, the communities where EZ projects locate, and has helped create more than 70,000 new jobs for its citizens.

The Empire Zones program has 10 years of branding with our business customers; ten years of fine tuning by the Legislature; and ten years of effective job creation. NYSEDC does believe the program can be simplified, made less bureaucratic, and less costly.  For example, the program could be targeted to larger expansion and attraction projects. It could be further targeted to specific sectors, and,  the Real Property Tax Credit, which is the most expensive and unpredictable part of the Empire Zones program, could be contained so as to make the cost to the state predictable from year to year.  But, simply ending the program and replacing it with a far less effective program, such as the Governor’s proposed Excelsior program, would add to the state’s uncertain commitment to economic development.

NYSEDC believes the Excelsior program would accomplish many, but not all of the goals we think the State’s flagship economic development program should achieve. Some of our concerns with the Governor’s proposal include the following:

1.       We are not sure how the $50 million cap could be managed effectively. For example, a few large projects could easily consume most of the $50 million in credits, leaving other attraction and expansion projects left out…probably left out of New York. Also, would the program be "first in, first served"? If so, projects that apply early in the year would have a clear advantage of securing approvals.

2.       The 50 jobs threshold would probably preclude many areas of the state from participating. This is especially true of the Adirondacks.

3.       Because the 50 new jobs requirement would be a net job requirement against statewide employment, the program would discriminate against existing New York businesses. Larger multi-location employers considering expansion may not be able to utilize the program because of layoffs due to the recession in other parts of the state

4.       The program fails to allow investment to qualify. Consequently, the program fails as a job retention tool. This is important since investment secures employment in our communities, especially for manufacturers.

5.       While the job credit is not insignificant, the program fails to address the primary cost factor businesses are most concerned with in New York: Real Property Taxes.

6.       Businesses still would not know what their benefits would be until completing a negotiation with ESD. Certainty in the economic development process is essential. Businesses will be less likely to factor New York into their investment decisions if they think approvals are part of non-economic considerations.

The Governor’s budget would create a new $25 million small business loan program. We support this because of the credit constraints small businesses face. We have recommended to the legislature that the program be administered by the New York Business Development Corporation, which could leverage the dollars many times over, and has the small business underwriting experience that few organizations in the country possess.

The Governor also proposed creating a $25 million seed venture fund to support early stage start-ups. This is the hardest kind of VC to attract for entrepreneurs, and often good ideas never get off the ground due to a lack of early stage seed venture capital.

 

Empire Page:  Let's turn to the national stage.  President Obama in his state of the union and since has focused on restricted lending opportunities for busineses as the primary obstacle to growth.  Yet many businesses report the problem is a lack of customers and not difficulty obtaining loans to replace inventory or hire new employees.  In general what are your members telling you about obtaining credit from banks in New York?

McMahon: Businesses are not investing now because they do not know what their future tax and regulatory liabilities will be. Until there is more clarity, investment will be slow.

 

Empire Page: Twenty plus years ago when I started Empire Information Services (a press release distribution service which today is named readMedia) I was surprised to find economic development agencies "competing" against each other in neighboring communities.  In Schenectady, where i eventually started my company, there were both city and county agencies. Are there too many unique economic development agencies across New York State today which duplicate efforts, consume local resources and potentially undermine results?

 

McMahon: Economic development agencies rarely compete with one another. Sometimes a business will consider multiple locations in an area or around the state, and local economic development organizations will respond to those inquiries. There often are multiple economic development organizations in an area because economic development is a priority for most local governments and those governmental entities want to have some influence and control over their economic futures. But, where there are multiple organizations serving municipalities within the same region, there should be and usually is a high degree of cooperation and collaboration, not competition.

Another aspect of this is the trend toward regionalism. As this trend develops further due to dwindling state/local/federal resources, and a recognition that regions typically develop along common economic interests, regionalism will become the dominant focus of economic development in NYS and around the country. We are seeing that already as regional economic development organizations, such as the Buffalo Niagara Enterprise and the Center for Economic Growth,  grow to become respected and important coordinating agencies for economic development in their regions.

 

Empire Page: You stated your top priority is extension of the Empire Zone program which the Governor wants to replace.  What kind of reception are you getitng in the Legislature?  Are they listening to the business community and its allies on this issue?

McMahon: I do not want to predict what the NYS legislature will do. But, I do believe there is a recognition by legislative leaders in both houses and both parties that  economic growth must be part of the solution to addressing NY’s long term fiscal problems. I also believe there is a recognition that NY must establish greater continuity in its economic development programs in order to re-establish credibility with the internal and external business community. That is why we are hopeful the Empire Zones program will be extended in a manner that simplifies it, makes it less bureaucratic, less costly, yet remains a powerful tool to create jobs and attract investment.

 

Empire Page: You also stated that workmen's compensation rates are an obstacle to employment growth in NYS.  Wasn't that addressed a few years ago?  Why does it keep coming back as a problem?  Is there are long-term fix that needs to be adopted?

McMahon: I am not the WC expert, so cannot tell you how to fix the problem. What I can tell you is that WC costs remain a significant cost factor for current NYS employers and those considering NY locations.

 

Empire Page: Final question:  What's your prognosis for New York's economy in 2010 and 2011?

McMahon: NY’s economy will remain slow this year, but I believe will show improvement in 2011. However, history shows that NY usually remains in recession long after the country recovers. For example, according to the NYS Labor Department, for the four recessions that preceded the current one, the country was in a technical recession for 16 months, while NYS remained in recession for 75 months. That indicates structural underlying problems related to costs. Long term, NY must control spending and begin to reduce employer costs. But, if the state does commit to this long term strategy, it is positioned well, especially in technology sectors, to again lead the world in innovation, finance, and advanced manufacturing.