Download the upstate challenge - Rockefeller Institute of Government

Chapter Three
THE UPSTATE CHALLENGE
Key points:
· Longstanding economic, social and political differences between Upstate and Downstate New York are
among the most important elements of the state’s political and governmental culture.
· Most of the Upstate region has suffered from chronic
economic problems for more than a decade, and debates over how to address such problems are now a
top public-policy concern.
· Reducing the overall cost of doing business, developing high-tech industries, and restoring vitality to
downtowns are among the most commonly cited solutions to Upstate’s economic woes.
W
hen the young United States of America considered building a
union that would be stronger than the one created by the Articles of
Confederation, the outcome was highly uncertain. The flaws of the
nation’s first charter were clear — starting with the lack of authority to
36
NEW YORK STATE GOVERNMENT
raise revenue or do much else without consent of the states. Yet distrust
of centralized governmental power remained strong when Congress
sent the proposed Constitution to the states for ratification in 1787.
No state was more split over the federalist issue than was New York.
After months of debate and elections for a state convention in
Poughkeepsie, delegates voted 30-27 in favor of ratification on July 26,
1788. The Federalists, led by Alexander Hamilton and others, supported a stronger central government. They included most wealthy
landowners, leading merchants and professionals such as lawyers who
served them. George Clinton’s Antifederalists, many of them farmers
and other small-business owners, were motivated largely by fear that a
far-off, national government would restrict their liberty to live as they
chose, and would impose taxes they could not afford.
When the votes were counted, all the delegates from what we now
call Upstate opposed the more powerful central government. All those
from south of Orange and Dutchess counties were in favor.1
More than two centuries later, the political and economic divide between Upstate and Downstate retains some of that historical flavor.
Downstate is far wealthier, on average; it’s home to higher proportions of
rich as well as poor. Upstaters tend to be more socially and fiscally conservative, and Downstaters more liberal. The pace of life is faster in New
York City and its environs. West of Albany, Upstate becomes progressively more Midwestern and middle American. The Big Apple is one of
the world’s great centers of immigration; nearly half of its residents are
foreign-born, while in most Upstate cities the proportion is less than 5
percent. International migration into the big city makes its population
younger than it would otherwise be; outmigration of the young from
much of Upstate means that its residents tend to be relatively older.
The differences are not only social and economic, but political —
especially those between Upstate and New York City. In 1994, voters in
the Big Apple favored Democratic Governor Mario Cuomo more than
2-to-1 over Republican challenger George Pataki; north and west of
Westchester County, the numbers were nearly reversed. When the Legislature puts a borrowing proposal on the ballot, supporters plan big
get-out-the-vote efforts in New York City to overcome the sizable “no”
vote they expect from Upstate.
1
David M. Ellis et al., A History of New York State, Ithaca, NY: Cornell University
Press, 1967, p. 127.
THE UPSTATE CHALLENGE
37
Key Indicators, Upstate and Downstate New York
Upstate
Downstate
U.S.
Population growth,
1940-90
44%
28%
89%
Population growth,
1990-2000
1.1%
8.2%
13%
Population change, ages
20-34, 1990-2000
-22.4%
-5.9%
-5.4%
Change in private-sector
employment, 1990-2005
3.5%
5.0%
22.6%
$206,385
$531,371
11%
16%
11.3%
48.8%
33.7%
50.7%
Personal income, 2004
(millions)
Poverty rate, 2000
Percentage of total votes
cast for George W. Bush,
2004
$9,731,400
Sources: U.S. Census Bureau; U.S. Bureau of Labor Statistics; Public Policy Institute of New York State; Brookings Institution; Federal Elections Commission
Through the decades, public discussion of Upstate-Downstate relations has frequently been characterized by acrimony and derision. New
York Mayor Ed Koch famously called rural Upstate “a joke,” insulting
the men’s department-store suits and the women’s “gingham dresses.”
Upstate legislators periodically proposed establishing the region as a separate state, to break away from the perceived negative effects of association with the big city. After more than a decade of economic troubles
facing Upstate, though, the discussion has taken on new seriousness and
urgency. Two lengthy articles in The New York Times in June 2006 signaled the end of any debate over whether the Upstate economy was in
trouble, and whether the issue required special attention in Albany.2
This chapter outlines the now-chronic economic difficulties facing
Upstate New York — an ongoing loss of jobs and people rivaling any in
the country. It also examines the attendant loss of political influence for
2
Sam Roberts, “The Upstate Economy, the Problem That Still Plagues Politicians
and Their Promises,” June 11, 2006; and “Flight of Young Adults Is Causing Alarm
Upstate,” The New York Times, June 13, 2006.
38
NEW YORK STATE GOVERNMENT
Upstate — which some observers say has led to public policies in Albany that make it even more difficult for Upstate to make a comeback.
A Dramatic Reversal of Economic Fortunes
After completion of the Erie Canal in 1825 laid the foundation for New
York to become the Empire State, the following century brought a flood
of growth that created good jobs by the thousands. The canal made partners of Upstate and the counties that would later become New York City,
each enjoying enormous profits and growth from the grain and manufactured goods that were shipped from heartland America to the world.3
From a combined 223,000 residents in 1830, New York and Kings counties grew to over 1 million 30 years later. By then, Erie (Buffalo) and
Oneida (Utica) counties were each home to more than 100,000. With
continued growth, New York City’s population reached 3.4 million by
the turn of the 20th century. It was by far the nation’s biggest city, and
Buffalo was the 8th-largest, with well over 300,000 people.
The entire state, and particularly its cities, continued to boom in the first
decades of the new century. Buffalo, Rochester, Syracuse, and other major
cities reached their all-time high populations in 1950. The state’s economy
was more than up to the task of providing jobs for millions of new residents. New Yorkers enjoyed rising incomes and improving quality of life.
Wealthy, home-grown philanthropists sponsored major cultural institutions such as Buffalo’s Albright Art Gallery (now the Albright-Knox);
even smaller cities such as Schenectady were able to create sizable urban
parks and other amenities with their growing tax revenue.
By World War II, New York State’s economic and population
growth had begun to slow relative to the rest of the nation’s. And conditions within the state changed as Upstate began to outpace the New
York City metropolitan area. From 1940 to 1990, the number of Upstate
residents rose by 44 percent — significantly more than Downstate’s 28
percent. During the devastating 1970s, Downstate shrank by 6.5 percent, with New York City in particular watching jobs and people seek
better opportunities in lower-cost, lower-tax locations. Upstate’s population rose slightly over the decade.
3
Peter L. Bernstein argues that the great canal not only produced a booming American economy, but led to repeal of tariffs, reduced costs of production and industrial
development in Great Britain and Europe. See Wedding of the Waters: The Erie Canal and the Making of a Great Nation, New York, NY: W.W. Norton & Co., 2005.
6,256
7,989
8,724
9,576
10,729
11,632
10,880
11,156
12,068
1920
1930
1940
1950
1960
1970
1980
1990
2000
Source: U.S. Census Bureau
5,292
Population
1910
Year
8.2%
2.5%
-6.5%
8.4%
12%
9.8%
9.2%
27%
18%
39%
Change from
10 years earlier
Downstate
6,908
6,834
6,678
6,609
6,053
5,254
4,755
4,599
4,129
3,822
Population
Changes In Population, Regions of New York State
(population in thousands)
Upstate
1.1%
2.3%
1.0%
9.2%
15.2%
10.5%
3.4%
11.4%
8.0%
10%
Change from
10 years earlier
40
NEW YORK STATE GOVERNMENT
Although the faltering of the Empire State had begun mid-century,
the first major academic review of New York State’s failure to keep
pace with the nation was a 1981 book that grew out of the State Museum’s bicentennial planning. Its authors wrote:
In the postwar era, three developments are particularly striking. From the
very first, the growth of the New York economy lagged behind that of the
nation: in population, in employment, and in per capita income. Second,
this retardation accelerated sharply in the 1970s as total employment actually declined and population growth turned negative. Third, all of these developments were particularly marked in New York City.4
The Big Apple suffered further in the recession of the early 1990s — a
mild recession in most of the country that hit much harder in New York
State, particularly New York City. Yet the city boomed again starting in
mid-decade. With record gains on Wall Street, favorable federal tax policies, sharp reductions in crime, major increases in immigration, and tourism, the city’s population reached all-time highs at more than 8 million.
Upstate, though, the trends were heading in the opposite direction.
Over the 15 years ending in 2005, Upstate’s economic performance was
among the worst in the country:
· If considered as a separate state, Upstate’s population
growth during the 1990s would have ranked 49th in the nation, ahead of only North Dakota and West Virginia. And
one study found that nearly 30 percent of Upstate’s growth
reflected increases in state prison populations.5
· Upstate’s personal income rose at half the national pace during the 1990s — and most of its new income came from
gains in Social Security, public and private pensions and
other transfer payments, rather than new economic activity.6
4
5
6
Peter D. McClelland and Alan L. Magdovitz, Crisis in the Making: The Political Economy of New York State Since 1945, New York, NY: Cambridge University Press, 1981.
Rolf Pendall, Upstate New York’s Population Plateau: The Third-Slowest Growing
‘State,’ Brookings Institution Center on Urban and Metropolitan Policy, Washington, DC, August 2003.
Rolf Pendall and Susan Christopherson, Losing Ground: Income and Poverty in
Upstate New York, 1980-2000, Brookings Institution Center on Urban and Metropolitan Policy, Washington, DC, September 2004.
THE UPSTATE CHALLENGE
41
· While manufacturing has been the region’s economic bedrock
for over a century, industrial employment throughout Upstate
fell by nearly a third from 1990 through 2005 — a greater loss
proportionally than almost any state, and significantly worse
than trends in comparable areas such as Michigan and Ohio.
Meanwhile, almost all net new jobs in Upstate were either on
public payrolls, or in sectors such as health care and social services that largely depend on taxpayer funding.7
Upstate’s economic woes are especially visible west of Albany.
From 1996 to 2005, according to Empire State Development, private-sector employment in the “Upstate West” region rose by less than
2 percent. The comparable growth nationwide was more than 16 percent, and in New York City-Long Island, around 10 percent.8 From
2001 to 2006, while U.S. employment rose by 2 percent, metropolitan
areas such as Binghamton, Buffalo-Niagara Falls, Elmira, Rochester,
and Utica lost jobs, as shown in data compiled by the Fiscal Policy Institute. If the Binghamton area had kept pace with nationwide growth
over the five years, it would have gained 2,400 jobs by 2006, instead of
losing 8,100. In the Buffalo-Niagara region, matching the nation’s pace
would have meant an additional 18,000 jobs in 2006. 9
A Rising Tide, Then an Ebb,
of Manufacturing Jobs
For Upstate in particular, the rise and fall of fortune over more than a
century largely reflected the flow of manufacturing activity. Much of
the United States boomed with the industrial revolution in the late
1800s and early 1900s. That growth in factory-based employment continued through World War II and well into the post-war era, reaching a
high of 19.4 million in 1979. Nowhere was the term “industrial powerhouse” more appropriate than in New York. Home to one in 10 Americans in 1940, the state accounted for one in seven U.S. industrial jobs.
7
8
9
David F. Shaffer, Could New York Let Upstate Be Upstate?, Albany, NY: The Public Policy Institute, May 2004.
John Bacheller, Structural Change in the Upstate Economy, presentation at the
Rockefeller Institute of Government, Albany, NY, September 15, 2006.
Author’s calculations from Fiscal Policy Institute data in The State of Working New
York 2006: An Uneven Recovery, Latham, NY, September 2006.
42
NEW YORK STATE GOVERNMENT
Manufacturing employment in New York reached a high of more than 2
million in the mid-1950s, but the state’s share of the national total
started declining. By 1980, population had dropped noticeably relative
to other states.
Manufacturing declined even more precipitously. From 1959
through 1979, New York lost 400,000 manufacturing jobs — while the
United States as a whole gained 4 million. Through the start of the 21st
century, factory-related employment declined nationwide, due to sharp
increases in both labor productivity and global competition. New York
continued to suffer disproportionately. For much of the period, the state
lost an average of 100 manufacturing jobs a day.10
Besides losing more industrial jobs, New York did far worse than
most states in keeping and attracting the highest-paying jobs. Nationwide, reductions in manufacturing employment were concentrated in
lower- and mid-skill positions, according to the Buffalo Branch of the
Federal Reserve Bank of New York. The number of high-skilled manufacturing jobs across the country rose dramatically, by 37 percent, from
1983 to 2002, as factory workers increasingly came to use sophisticated
machinery that added value to their work while eliminating the need for
many lower-paid jobs. In New York, though, even high-skilled jobs declined by 14.3 percent over the period. While other northern, historically industrialized states also suffered large losses in overall
employment, most gained skilled jobs while New York was losing
them. Employment in such positions rose by more than 20 percent each
in Massachusetts, Pennsylvania, Ohio, and Michigan, although it declined 10 percent in Connecticut. 11
Overall manufacturing losses were heavy throughout New York
State, but the economic and social damage was greatest west and north
of Albany where, unlike Downstate, employment in other sectors was
also relatively flat. As of 2005, the statewide total of 580,000 manufacturing jobs represented just over 4 percent of the national total —
roughly a third of the comparable share half a century earlier.
The loss of industry devastated many small Upstate communities
where one or more local factories had provided the best paychecks and
benefits, with each job supporting one to three others in supply,
10 Robert B. Ward, “100 Lost Jobs a Day,” New York Post, November 7, 2003.
11 Richard Deitz, “Restructuring in the Manufacturing Workforce: New York State
and the Nation,” The Regional Economy of Upstate New York, Winter 2004, Buffalo Branch, Federal Reserve Bank of New York, Buffalo, NY.
THE UPSTATE CHALLENGE
43
services, retail, government, and other sectors. While some residents
moved away to seek opportunity, others remained, struggling to survive
on reduced incomes that often required public and/or private support
(see sidebar on next page).
Sharp Decline in Upstate Cities
While many of Upstate’s small towns and rural areas were in decline in
the second half of the 20th century, most of the region’s cities lost population as well. Among the 61 cities statewide, 25 experienced five consecutive decades of population losses from 1950 through the end of the
century, according to the Office of the State Comptroller. The average
population drop in those localities was 26 percent. Major cities that had
anchored Upstate’s boom suffered even greater losses.
In terms of population loss, the large upstate cities have been particularly hard hit. For example, the City of Buffalo lost approximately half
of its population from 1950 to 2000. This population loss is the fourth
highest among large cities nationwide. Rochester (34 percent decline)
and Syracuse (33 percent decline) experienced significant population
reductions for the same period. Like Buffalo, these cities have had five
consecutive decades of declining population levels.12
The comptroller’s report put the cities’ decline in the context of industrial shifts Upstate and nationwide. “Manufacturing-focused cities,”
it said, “have steadily lost ground to lower-cost competitors in other
states and foreign countries.”
The steel industry provides a good illustration of the forces behind these
trends. While the demand for steel has remained strong, production technology and corporate practices have shifted. The proliferation of
“mini-mills” in lower cost, non-unionized regions of the U.S. has enabled
smaller start-up companies to produce steel at a more competitive rate. As
a result, steel-centered metropolitan areas such as Buffalo, Youngstown
and Pittsburgh — areas which were home to the less competitive, larger,
integrated and heavily unionized steel production firms — have all experienced a virtual disappearance of their steel production facilities.13
12 Office of the State Comptroller, Population Trends in New York State’s Cities, Albany, NY, December 2004.
13 Ibid.
44
NEW YORK STATE GOVERNMENT
“We Are in Desperate Times”
Experts in the private sector, government and academia have written detailed analyses of the weak Upstate New York economy in recent years.
None of those reports, though, captures the human impact of economic
stagnation better than did the Salvation Army in a fall 2005 newsletter. An
excerpt follows.
“We are in desperate times here in Canton — really all around Upstate New
York,” says Shari Wilcox, Chairman of The Salvation Army Service Unit
in Canton, NY, and Executive Director of the Church and Community
Program.
“Meghan is just one example of how the children have been affected by
the stress their parents are going through. She was a troubled high school
student from a single-parent home. She was put in my care while doing her
community service for her crime,” explains Shari. “She got caught stealing
toilet paper. Why did she do it? She overheard her mom say times were so
bad they couldn’t even afford toilet paper,” says Shari.…
Shari described how the Canton community was once a thriving area
with a major food manufacturer providing plenty of good-paying jobs.
That company left years ago along with all of the major grocery stores and
department stores that catered to the working class.…
(W)here do the people live?
“Predominantly in trailers and substandard housing,” says Shari. “And
one of the biggest problems we have is keeping these people warm, especially the ones in trailers,” she says. “There’s no insulation.”
And going hungry is always an issue. “The nearest grocery store is
over five miles away!” Shari raises her voice. “People can’t afford cars, and
there are no buses — no taxis. So they go to the convenience store at the gas
station where everything costs a small fortune and it’s basically junk food,”
she says, shaking her head.
From “Young Meghan Gets Caught Stealing for Her Family: What Made Her Do It?”, On The
March, The Salvation Army Empire State Division, Syracuse, NY, Fall 2005.
As jobs and residents moved away, most cities saw their tax bases
stagnate or decline. With revenues flat or barely increasing, continual
increases in public-employee compensation and other expenses, and
lack of productivity improvement, mayors were forced into service
THE UPSTATE CHALLENGE
45
reductions that prompted more residents — disproportionately those
who were more affluent — to depart. Cities such as Buffalo, Syracuse,
and Niagara Falls now have “severely constrained revenue streams,
high levels of debt and high fixed costs — suggesting that they are so
negatively affected by fiscal stress that they have very little local capacity to attain long-term fiscal stability and growth,” the comptroller’s office said.14 With their population down by a third or even half in recent
decades, most Upstate cities saw housing quality decline and numerous
local service businesses close their doors. Once-lively neighborhoods
deteriorated into communities of concentrated poverty, often afflicted
with high levels of crime and family dysfunction.
The Upstate Economy Becomes a Political Issue
One of the first observers to point out the decline in Upstate’s economic
fortunes was then-Assemblyman Charles Schumer, who made the Upstate economy an issue in his 1998 campaign for the U.S. Senate.15 Two
years later, then-First Lady Hillary Clinton echoed the call for special attention to Upstate in her campaign for Senate. Her opponent, U.S. Rep.
Rick Lazio, spoke more positively about trends in the region, drawing
harsh criticism from some editorial pages and perhaps damaging his electoral chances. In an endorsement editorial, for instance, The Buffalo
News wrote: “The decisive factor for Western New Yorkers in this tightly
contested and closely watched race should be Clinton’s early and strong
grasp of the economic challenges faced by this region.”16
Since then, candidates for statewide office or legislative seats from
most of Upstate have considered it essential to talk about proposed solutions to the region’s economic stagnation. In 2006, both gubernatorial
candidates spoke repeatedly on the issue, offering detailed plans to reduce taxes and take other steps that would reinvigorate the region.
14 Office of the State Comptroller, Analysis of Fiscal Stress in New York State’s Cities, Albany, NY, February 2006.
15 See, for example, Adam Nagourney, “Schumer Tours Upstate to Counter Attacks
by D’Amato,” The New York Times, September 28, 1998. In 1994, state Senator
George E. Pataki made rebuilding the state’s economy a central plank of his ultimately successful run for governor. With New York City still early in its rejuvenation, however, he made little distinction between the state’s overall economic
trends and those in Upstate.
16 “Clinton for Senate,” editorial, The Buffalo News, October 30, 2000.
46
NEW YORK STATE GOVERNMENT
What Explains Upstate’s Long Decline?
Upstate’s longstanding reliance on manufacturing has been a major factor in the region’s failure to keep pace with Downstate and the nation.
Manufacturing employment across the country is down some 20 percent since 1998. Although the Midwest and other regions that historically depend heavily on industry have also suffered, national
manufacturing trends cannot fully explain Upstate’s troubles. During
the mid-1990s, Upstate lost tens of thousands of factory jobs while the
nation gained several hundred thousand. Over a longer period, from
1990 through 2005, manufacturing employment declined 20 percent
nationwide — and by 35 percent in Upstate New York. States such as Illinois, Ohio, and Michigan have enjoyed double-digit percentage gains
in overall private-sector employment since 1990, while Upstate’s increase was less than 4 percent.17
Using a statistical technique called shift-share analysis, federal labor economists concluded that New York lost the equivalent of 1.8 million jobs due to its failure to match nationwide growth levels in each of
its employment sectors from 1983 to 1995. The analysis is designed to
eliminate statistical effects from such factors as nationwide economic
trends and differences in industry mix among states.18
New York … had the worst overall share index. With the exception of
mining (a very minor industry in New York), employment in all major
industry groups grew at rates substantially less than the national average over all periods examined.19
In other words, employment in the Empire State suffered dramatically for reasons that had nothing to do with the national economy or
the state’s unique combination of industries. Among other relevant factors, the economists concluded, in a time of increasing global competition, “firms and industries are less constrained by geographic factors
than was previously the case.” New York also had a relatively low level
17 Bureau of Labor Statistics data.
18 William G. Deming, “A decade of economic change and population shifts in U.S.
regions,” Monthly Labor Review, U.S. Department of Labor, Washington, DC, November 1996.
19 Ibid.
THE UPSTATE CHALLENGE
Is Upstate Becoming Appalachia?
“If you drive from Schenectady to Niagara Falls,” Eliot Spitzer said
during the 2006 gubernatorial campaign, “you’ll see an economy that is
devastated. It looks like Appalachia. This is not the New York we
dream of.”
While political opponents criticized the comparison to the region
that had come to symbolize American poverty, employment and population data support the observation — which did not originate with
Spitzer. Assemblyman Joseph Morelle, a Monroe County Democrat,
had made a similar comment not long before. A 2004 report by the Public Policy Institute of New York State reviewed employment and population trends in the region and asked, “Is Upstate New York going the
way of Appalachia?”*
Indeed, some key indicators show Appalachia far outpacing Upstate in recent years. The Appalachian region — all of West Virginia
and parts of 12 other states, including 14 counties along New York’s
Southern Tier — saw its population rise by 9.1 percent in the 1990s, according to the Appalachian Regional Commission. Even central Appalachia, the poorest section, enjoyed a 6 percent increase in population.
By contrast, the number of Upstate New York residents rose 1.1 percent; excluding the Hudson Valley, the region lost population during
the decade.
Appalachia gained a net 700,000 new residents from elsewhere in
the United States during the 1990s. Upstate New York lost some
400,000 more than it gained in domestic migration.
Overall employment in Upstate rose 0.2 percent in 2005. Eleven of
the other 12 states included in the Congressionally designated Appalachian region did better. West Virginia, the heart of Appalachia, produced new jobs at a rate of 1.4 percent; if Upstate had matched that
pace, it would have gained an additional 36,000 jobs.
Still, Upstate New York retains some of its historic economic
strength. Average annual wages in the New York counties considered
part of Appalachia were far higher, just over $40,000, than the Appalachian median of $29,000, in 2000. More people live in poverty
throughout Appalachia (13.6 percent, as of 2000) than in Upstate New
York (11 percent).
*
Shaffer, Could New York Let Upstate Be Upstate?, ibid.
47
48
NEW YORK STATE GOVERNMENT
Broome, Chemung, Chautauqua, and other counties that represent
Appalachian New York boast higher educational levels, with 83 percent of residents holding high-school diplomas and 21 percent college
degrees as of 2000. Throughout Appalachia, those figures were 77 and
18 percent, respectively. Still, the educational gap between Appalachian New York and the overall Appalachian region was smaller than it
had been in 1980.
of federal defense spending, as a share of gross state product, and its
share fell by more than half during the period studied.
Analysis of the Upstate economy by the Buffalo Branch of the Federal Reserve Bank of New York points to a cycle in which “people follow jobs and jobs follow people.”
Manufacturing employment has been moving from the Northeast to
other parts of the country to pursue lower cost resources, such as labor
and land, and has tended to avoid unionized labor in the Northeast. Service sector employment in support of manufacturing, such as transportation and warehousing jobs, has followed. 20
Lifestyle factors such as warmer weather to the south have contributed to the problem, according to the Buffalo Fed. Yet those factors also
affect states where, as noted earlier in this chapter, employment trends
have been more favorable.
Business leaders and many economists point to high business costs
in New York, including Upstate, as the key disadvantage in global and
national competition for jobs. One of the most prominent critics of the
state’s business environment has been the chairman of Buffalo-based
M&T Bank, Robert G. Wilmers. Among other comments, Wilmers has
compared his company’s marketplace in Upstate New York with areas
such as neighboring Pennsylvania, where M&T acquired Allfirst Financial Inc. in 2003.
(L)ocal government taxes as a percentage of personal income in Upstate New York are fully 35% above the national average, a level higher
20 Richard Deitz, “Population Out-Migration From Upstate New York,” The Regional
Economy of Upstate New York, Winter 2005, Buffalo Branch, Federal Reserve
Bank of New York.
THE UPSTATE CHALLENGE
49
than any state except New York as a whole (including downstate). In
contrast, central Pennsylvania — a market in which the Allfirst acquisition has increased M&T’s presence — stands 31% below the national
average in the bite taken by local taxes. This is just one of the many reasons we are more hopeful about that region’s economic prospects.21
New York’s high business costs go beyond a combined state and local tax burden that studies consistently rank as the highest or second-highest in the nation. Electric prices for commercial and industrial
users are often 20 to 30 percent lower elsewhere in the United States.
Workers’ compensation premiums are significantly higher in New
York; in 2006, the chief executive officer of Delphi Corp. cited the issue
in discussion of whether the company would retain a major auto-parts
factory in the Buffalo area. Upstate property taxes, particularly on commercial and industrial property, are also higher than those in many competing locations.
Extensive anecdotal and research evidence indicates that business executives and investors react to high costs. Mark Bitz, a Central New York
business owner, estimated that energy, property taxes, employee health insurance, and workers’ compensation cost his company a total of $600,000
more in New York than would have been the case in a typical competing
state.22 With gross sales of $20 million, that figure would represent a substantial difference in annual profits. Separately, a corporate site-selection
consultant concluded that opening a bank data center with 75 employees in
the Buffalo-Niagara region would require an investment of $11.6 million,
nearly $2 million more than the cost in Sioux Falls, South Dakota.23
While business costs are especially high in the New York City metropolitan region, companies there typically can overcome high costs by
virtue of the city’s global status in financial and business services, corporate headquarters and other high-value activities. Most of Upstate
has relatively high costs, but lacks those advantages.
Gubernatorial candidates Eliot Spitzer and John Faso both cited Upstate’s high business costs frequently during their 2006 campaign.
More detailed comments by Spitzer appear later in this chapter.
21 Robert G. Wilmers, “Message To Stockholders,” 2004 Annual Report, M&T Bank
Corp.
22 Mark W. Bitz, Creating A Prosperous New York State, 2006.
23 David Robinson, “Cheap power, incentives clinched deal for data center,” The Buffalo News, Buffalo, NY, October 15, 2006.
50
NEW YORK STATE GOVERNMENT
Still, Some Key Advantages
While its recent history is discouraging, Upstate New York retains much
of the long-term economic and human capital built up over more than a
century — significant advantages in a national and global marketplace
that increasingly values education, innovation and quality of life.
The region remains an economic force on a par with states such as
Virginia and North Carolina, with a gross product — the total value of
goods and services produced — of $262 billion in 2000.
With institutions such as Cornell, the University of Rochester,
SUNY campuses at Buffalo and Albany, Syracuse University, and others, Upstate is home to a disproportionate share of respected colleges
and universities. The initiative by Governor Pataki and the Legislature
to develop Centers of Excellence in nanotechnology, biotechnology,
and other advanced fields is expected to attract billions in private investment and significant numbers of new jobs — and, in limited fashion, has already begun to do so. Long-established research locations
include Saranac Lake’s Trudeau Institute, in the heart of the
Adirondacks, as well as major corporate research/development centers
such as General Electric’s outside Schenectady and IBM’s in the
Hudson Valley.
New York’s rich cultural and economic heritage leaves Upstate
home to nationally and internationally respected centers of culture such
as the Chautauqua Institution, where more than 140,000 visitors attend
summertime programs and classes on public issues, the arts, science,
foreign affairs, and other topics. Museums such as the Women’s Hall of
Fame in Seneca Falls, birthplace of the women’s movement, recall Upstate’s historical leadership in advancing human rights. The Corning
Glass Museum, International Museum of Photography and Film, and
Albany Institute of History and Art educate 21st-century students and
tourists on industrial advances that built Upstate’s economy decades
ago and remain important today. For the increasing number of history
buffs across the country, the Saratoga battlefield and Fort Ticonderoga
are among dozens of important landmarks.
Home prices in most of Upstate are relatively affordable, compared
to those in many other metro areas (although, as mentioned, high property taxes reduce buyers’ purchasing power). Visitors from regions such
as Atlanta and Los Angeles envy Upstate’s easier commutes and shorter
distances to lakes and wilderness. Outsiders often find Upstaters
THE UPSTATE CHALLENGE
51
generally nicer than people in many other areas; Buffalo, for example,
was named the nation’s “friendliest city” in a 2001 poll by USA Today.
Other quality-of-life advantages include breathtaking natural environments, from the 6-million-acre Adirondack Park to Genesee County’s
Letchworth Gorge and Niagara Falls.
There are some signs that these and other advantages are producing
more positive results for the region. The number of Upstate residents
moving out declined, and those moving in rose, after the mid-1990s, according to the Brookings Institution.24 In the year ending in August
2006, the Elmira region added jobs at a faster pace than the nation,
while the Syracuse region showed some strength as well. Binghamton
added manufacturing jobs during the same period. In Buffalo, development of the Lake Erie waterfront and other projects held promise of
better times ahead.
Looking Ahead
If the level of attention given to the Upstate economy is any indication,
there may be reason to hope for broader recovery. After years of increasing agitation by business executives, editorial writers and citizen
activists, no issue commands a higher ranking on the must-do list for
Albany.
What to do, precisely?
Business advocates are more united than ever in urging state leaders
to “let Upstate be Upstate,” or to “unshackle Upstate,” by changing policies to reduce business costs in the region.
Left to its own devices, for example, Upstate would never have a
Medicaid program that is by far the most expensive in the country —
helping to push property taxes to the highest levels in the nation. Upstate
wouldn’t have kept tolls on the Thruway after the early 1990s, when the
last bonds were being paid off and the late Sen. Daniel Patrick Moynihan
was extracting $5 billion in federal funds to help remove the tolls. Upstate probably wouldn’t have laws (e.g., the Triborough provision) giving public-employee unions such decisive leverage to drive up local
government costs, and to block consolidation or privatization of services.
24 Pendall, Upstate New York’s Population Plateau, ibid.
52
NEW YORK STATE GOVERNMENT
Upstate wouldn’t choose energy policies that push basic industrial
electric rates about 17 percent above the national average — while a
competitor like Ohio has rates below the national average.25
Business groups and taxpayer advocates argue that Albany’s political and ideological culture has become more reflective of Downstate’s
traditional approach to public policy, one dominated by public-sector
unions and other voices that favor higher spending and taxes, and more
government regulation of private businesses. Clearly, with the state’s
population shifting Downstate in recent years, the metropolitan region
has gained seats in the Legislature at the expense of Upstate; that trend
is likely to continue after the 2010 Census. After the 2006 elections, all
four statewide elected officials were from New York City. Assembly
Democrats, with the city as their primary stronghold, were in their
fourth decade of control. Republicans, with an Upstate and suburban
base, retained the majority in the Senate, but many political observers
expected that to change in coming years due to ongoing population and
demographic shifts.
Some community activists blame New York’s high taxes on its complex, costly array of local governments and lack of regional cooperation
on planning and economic development. They urge giving county governments more authority to limit local tax abatements that reduce government revenue, and to develop comprehensive land-use and
transportation plans to push investment to core urbanized areas. 26
The state’s economic-development efforts rely heavily on tax exemptions and other financial incentives provided by programs such as
Empire Zones. Using tax revenues that flow disproportionately from
the New York metropolitan area, state officials spend a majority of economic-development dollars in Upstate, according to statistics from the
state business-promotion agency, Empire State Development. From
1995 through 2005, some 992 companies in New York City and Long
Island received funding from the state’s major economic-development
programs, compared to more than 2,200 companies in, or north and
west of, the Capital Region. Funding for major projects totaled $431
million in the “Upstate-West” region, $275 million in the Hudson Valley and $225 million in New York City and Long Island. 27
25 Shaffer, Could New York Let Upstate Be Upstate?, ibid.
26 David Rusk, Upstate New York: A House Divided, May 20, 2005.
27 Bacheller, “Structural Change in the Upstate Economy,” ibid.
THE UPSTATE CHALLENGE
53
The New Governor’s Plan For Upstate
In numerous formal addresses and other settings, gubernatorial candidate Eliot Spitzer outlined his ideas for improving the Upstate economy. This statement, published in the Utica Observer-Dispatch on
October 1, 2006, is one typical example of his comments.
The decline of manufacturing over the last few decades has left upstate
hemorrhaging jobs, people and its tax base. From 1990 to 2004, upstate
lost 33 percent of its manufacturing base, more than any other state.
Since 1990, upstate lost 25 percent of its young people ages 20 to 34.
This cannot continue. Revitalizing the upstate economy requires a coordinated and sustained effort. Our government should have no higher
priority than standing up for New York State’s economic future and
making New York the best place to do business in America.
First, we must make business more competitive by improving New
York State’s business climate. Second, we must foster innovation and
cultivate the growth of strategic industries and expand the research capacity at our colleges and universities in areas with direct commercial
applications.
Third, we must revitalize our cities and downtowns to make them
economically vibrant places to live and work. Fourth, we must implement a focused program to support small businesses. Fifth and finally,
we must develop a transportation, energy and broadband Internet infrastructure that will create and support economic expansion. With dedicated leadership, New York will emerge as a state where ideas are born,
companies are raised and jobs and careers thrive.
Upstate’s “good living” could be an important attraction as many
Americans’ rising incomes and increased mobility create competition
for residents. Some observers suggest a broad initiative to develop
communities with a “New Urbanism” approach of mixed residential
and small-business properties, pedestrian-friendly streets, and high levels of amenities.
(T)here’s good living in upstate New York, you can get a nice house for
modest prices, good schools, you can commute easily. There are nodes
in Saratoga, Albany, the Finger Lakes, where you can build on the ambiance. New strategies might be ripe for these times: not smoke-
54
NEW YORK STATE GOVERNMENT
stack-chasing, not big factories, but communities that can attract
people.28
Some new Americans are discovering the good living of Upstate as
a result of invitations from longtime residents. Over the last 20 years,
two Upstate cities — Utica and Schenectady — have bolstered population counts and urban vitality by attracting thousands of international
immigrants. Refugee groups in Utica encouraged more than 10,000 individuals from Bosnia, other areas of Eastern Europe, Southeast Asia,
and elsewhere to move to Oneida County. Schenectady officials traveled to neighborhoods in Queens where many immigrants from Guyana
had made homes, inviting families and individuals to move to the Electric City. More than 1,000 Guyanese did so in the past decade. Such immigrants have strengthened housing prices, created small businesses,
and provided qualified workers for established manufacturing companies in the two areas. While refugees may drive up local social-services
and educational costs in the short run, the Utica and Schenectady experiences are among the most positive steps local officials in Upstate have
taken on their own to reverse discouraging population trends.
Each effort to build a better future carries its own challenges. None
alone will return Upstate to its historic position as a driver of economic
growth for the Empire State and the nation — and perhaps no combination of steps will do so. Clearly, though, frustrated Upstate residents
who consider current economic and political conditions intolerable are
being heard in Albany. State leaders pledge a combination of a more
competitive business environment, and focused efforts to stimulate
economic development, that together will lead to new jobs and good
reasons for young New Yorkers to stay New Yorkers. If those promises
come true, and if a new Upstate generation can rediscover the entrepreneurial genius of the past, the region’s best days lie ahead.
28 Richard P. Nathan, quoted in “The Upstate Economy, the Problem That Still
Plagues Politicians and Their Promises,” ibid.