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Cops, bailouts and rock 'n' roll

A little bit of this, a little bit of that for a Wednesday.

The Washington Post reports that banks getting federal bailout money have curtailed their lending more than those who haven't accepted government help.

Reports The Post:

Some of the first banks to get funding, such as Citigroup and J.P. Morgan Chase, have reported the sharpest drops in lending.

Hey, isn't this supposed to be the other way around?

M&T Bank, the largest locally based lender, fared a little better than the industry as a whole in the final  quarter of last year.

Jonathan Epstein, our banking reporter, tells me that compared with the final quarter or 2007, M&T's average business loans in the same period last year grew 9 percent annualized, while commercial real estate loans rose 2 percent and consumer loans fell by 2 percent.

M&T received $600 million in bailout funds in December. It will be interesting to see what its lending practices look like in the coming months.

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My colleague Phil Fairbanks had an eye-opening story the other day about the surging cost of providing health insurance for retired government workers in Western New York. Essentially, the liability has grown to $3.7 billion and local governments and school districts aren't putting away nearly enough money to cover it.

If they were, local budgets would be staggered, especially in Buffalo. If they were keeping pace with their obligations, City Hall and the Board of Education would be socking away $163 million a year. They're only putting aside $62.5 million, however, which tells me the day of reckoning is going to be awfully ugly.

But the way politics operate in this town, those now in office figure the bill won't come due until they're safely retired -- on a cushy state pension, no doubt.

This is how out of control the costs are -- fully funding its liability for providing retirees with insurance would eat up about one of every seven dollars the school district now spends.

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Let me get this right. Get held up in your home in the middle of the night by a guy who points a shotgun at your head and you're hard-pressed to get your place fingerprinted, or more than an interview or two with a detective. But let someone send out some nasty e-mails and the police will come storming in like the Army on Normandy beach. At least when the victim is the mayor.

Mike Beebe did a takeout in Sunday's paper which does nothing to alleviate concerns that the "investigation" into the actions of Syaed Ali was a misuse of police powers by an administration that housing activist Aaron Bartley has previously described as suffering from "clinical paranoia."

Reported Mike:

The issue won’t go away in City Hall, where the debate is whether there truly was a concern for the mayor’s security, or if it was just a ham-handed effort to silence a critic of the mayor.

For good reason.

Why did the police haul away belongings that could not have had anything to do with the investigation, including "his mother’s purse, his father’s and brother’s business records, and at least $750 in emergency cash. (Ali) said they also took his personal deodorant, shaving cream and nail clippers."

And why have they not returned anything they took, some three months after the raid? I mean, are the nail clippers considered a potential weapon of mass destruction?

And why did police press Ali for information that could implicate a couple of the mayor's perceived rivals? It wouldn't have anything to do with the intention of one of them to run for mayor this year, would it?

Why are the mayor and his police commissioner hiding behind their flaks?

Why, why, why?

Seems to me these are questions best answered by our new DA, Frank Sedita. His last name is Sedita, not Clark, right?

I mean, there's something happening here. What it is ain't exactly clear.

 

Economic development - Reform or retrenchment?

We are approaching a moment of truth regarding the state's major economic development programs.

Few, aside from those managing or benefiting from them, dispute that the programs are not delivering as promised. One only has to look at the condition of the Upstate economy to realize that.

While state legislation provides for a raft of economic development programs, three of them account for the vast majority of the subsidies doled out to business. Between them, Empire Zones, industrial development agencies and some 10 electricity discount programs managed by the New York Power Authority grant tax breaks and utility discounts worth well north of $1 billion, perhaps approaching $2 billion a year.

A range of studies -- done by newspapers, the state comptroller and advocacy organizations -- long ago identified the shortcomings in these programs. The long and short of it is that they often fail to deliver jobs promised as a condition for getting public subsidies. All too often, the programs do more to fatten corporate bottom lines than they do to create good-paying jobs.

Yet there's been little reform. Until now, anyway.

All three are up for consideration this year in the State Legislature. This presents an unprecedented opportunity to fix the programs. Of course, it also provides a window of opportunity to those who want to preserve, and in some cases, extend the status quo.

Here's a run-down on where things stand and what we can expect to see in the months ahead.

Gov. Paterson has proposed sweeping change in the Empire Zone program. 

In essence, he wants to subject companies currently receiving benefits to a cost-benefit analysis, and those deemed not generating at least $20 in payroll and investment for every $1 in subsidies would get tossed from the program. The guv's budget people project this would shave benefits statewide from $1.2 billion to $600 million, thus helping to plug part of the budget deficit. Companies signing up in the future would be largely limited to manufacturers and financial services.

The business community here has gone ballistic over the proposed changes and they've enlisted politicians like Byron Brown and Robin Schimminger to carry their water. Never mind that a Buffalo News investigation, among others, found the program in Buffalo and elsewhere to be an undeniable failure. 

A reasonable argument can be made that the state should not be changing the rules of the game in mid-steam individual companies. But does the state not have the right, even an obligation, to revamp a  program that is so obviously failing to meet its mission? Why shouldn't companies face consequences when they fail to deliver as promised?

I can't help but notice in the stories I have read that none of the critics of the governor's proposal have offered a Plan B. No, they want things to remain just as they are.

As a result, I expect this to be a heated battle. The business community, here and elsewhere, will continue to argue that the program is a necessary tool, especially in these troubled times.

But a lot of powerful folks, including Assembly Speaker Sheldon Silver, have long argued that the program needs an overhaul. This year's budget crisis may just be the catalyst to change, be it good, bad or indifferent.

Also up for consideration, in a sort of Round Two, is legislation governing industrial development agencies. This issue never got resolved last year, despite the lapse of authorization to allow civic and non-profit organizations to use IDA benefits to build projects.

Reformers want more transparency, clawbacks to take away benefits from non-performing companies, payment of prevailing wages on construction projects using IDA financing and the payment of living wages to firms that occupy those buildings.

IDA officials choke on the prevailing and living wage provisions in particular, saying they would drive up costs beyond any savings that could be had through IDA financing.

Finding a middle ground this time around may depend on Paterson's willingness to dirty his hands. He backed off last year late in negotiations, when some felt a deal could have been hammered out.

The IDAs here in Erie County are giving serious thought to what would be a welcome step -- revising the criteria used to determine which projects receive financing. (The story was published in our Prospectus section of a couple of weeks ago and is worth a read.)

Finally, there are the electricity discount programs managed by NYPA at the direction of state law. 

Of particular interest to WNY is the pending expiration of contracts to more than 100 local companies that get dirt-cheap hydropower generated at the Niagara Power Project in Lewiston. Negotiations are expected to start later this year.

Some of the largest recipients have been getting the power since the plant opened when the Beatles were a bunch of no-names knocking around Liverpool. These power customers treat the power as a birthright.

But NYPA is under pressure to subject the companies to a more rigorous cost-benefit analysis because of the pounding it's taken in the press over wasteful subsidies. 

The major recipients, working in an alliance called Power for Economic Prosperity (PEP), are waging a behind-the-scenes campaign to get long-term contracts with little, if any change in the status quo. They're talking with state officials and local labor and business leaders in the hopes they can muscle something through. NYPA, however, appears intent on at least doing some homework to determine what it's getting for what amounts to some $200 million a year in discounts before sitting down to negotiate.

I can tell you first-hand how PEP is going to play the game because I sat in a year ago on a meeting they had with the editorial board of The Buffalo News. They're going to say to anyone who will listen that failing to extend the status quo endangers tens of thousands of jobs, that if you think the local economy is bad, just wait.

The argument is disingenuous, on several levels.

For starters, while power recipients employ more than 45,000, at least until the recession hit, some of the largest employers get a relatively small portion of their electricity from the NYPA deal. So a change in terms is not going to be game changer for them.

More importantly, the worst abuses involve two Niagara Falls chemical companies - Olin and Occidental - who between them gobble up close to 30 percent of the low-cost power but provide only about 1 percent of jobs.

As I reported in my 2007 investigation:

The discounted power last year saved Occidental and Olin an estimated $53 million, or an average of $126,155 per job.

I'm told some of the PEP companies are claiming in private that their profit margins in the local plants are so razor thin that even a slight bump in price, much less a cut in allocation, would prompt them to shift their operations elsewhere.

To which I say: If your viability depends on millions, perhaps tens of millions of dollars of subsidies, year after year, then you do not have a viable business. The government should not be propping you up but should instead cut the chord and invest the power in plants that offer growth potential.

Much like the Empire Zone crowd, I'm not hearing any talk from the PEP people about modifying the program to address problems. Nope, they've apparently circled the wagons.

Like Paul McCartney, they believe in yesterday.

Hit it, Paul.

The local discount program aside, NYPA President Richard Kessel is hoping to present a legislative package to reform all the other discount programs in an effort to make them, among other things, more uniform. Some of the programs, including Power For Jobs, have been operating with year-to-year extensions, as past governors, legislative and Power Authority leaders haven't been willing to tackle the issue. Kessel, however, appears willing to dive in, so that could be a catalyst.

In short, this could be the year we finally see IDA, NYPA and Empire Zone reform. But those benefiting from these programs are working hard to not only maintain, but extend the status quo, one that is part of the reason WNY's economy is hurting.

People, you need to be paying attention, particularly to what members of the WNY delegation are doing in Albany.







 

Stimulus becoming another word for waste

Last week, Barack Obama said it was "shameful" that Wall Street executives taking billions in federal bailouts were turing around and using some of the money for top-dollar bonuses.

But in the brazen department, Wall Street has nothing on Chuck Schumer and the rest of the Congressional Democrats.

It seems they slid a big slice of pork into the economic stimulus bill -- $2.43 billion over the next two years to make up for a potential loss in state aid to schools in New York state. That would come on top of additional aid included elsewhere in the stimulus package aimed at building schools and helping special education and underachieving students.

What does the $2.43 billion have to do with jump-starting the economy, you ask?

Absolutely nothing.

The same can be said about too much of the $700 billion, $800 billion, do I hear $900 billion? stimulus package approved by the House last week and awaiting Senate action.

Doug Turner nails it in his column today.

The bailout would shield New York’s bloated local and state governments, the teachers unions, other public employees and hospital workers from serious financial sacrifices in this recession, or depression.

Because of crushing state and local taxes imposed by their demands over the years, upstate ceased to be a “producer” economy — a place where new private-sector investments create payrolls and wealth.

Everybody said the stimulus would come from building and repairing roads and bridges.

There is disagreement over exactly how much in the House bill would go to the states for infrastructure. The reality is a pathetic 5 percent or 6 percent of the total.

Nationally, money for local and state government-worker bailouts is $80 billion — double the amount for infrastructure — a chilling index of the grip their unions have on Congress and President Obama.

New York State’s share of the funds going to roads, bridges and tunnels is pitiful: Less than $4 billion. E.J. McMahon, of the Albany think tank Empire Center, compares that with the needs outlined in the five-year plan of the state Department of Transportation and the Metropolitan Transportation Authority: $50 billion.

Let me repeat what Doug just said: the stimulus package would spend twice as much propping up state and local government as it would rebuilding infrastructure.

In other words, it's a form of welfare for state and local governments. Welfare, I might add, that adds to the ballooning national debt.

If the Dems are anxious to keep teachers on the job, and their paychecks circulating in the economy, perhaps they can get behind pension reforms proposed by Gov. Paterson that would require teachers to work later in life than 55 before they're entitled to a full pension.  

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