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Who needs Jay or Conan with Sarah? And other observations

Random thoughts on another cold and dreary day in the City of No Illusions:

It's time the Common Council selected a successor to replace Brian Davis. It's going on two months since Davis resigned his Ellicott District seat, the Council has interviewed all the candidates, and Democratic committeemen have finally made their recommendation. Please, put us out of our misery.

I can't help but notice the number of subsidy deals being approved by the Erie County Industrial Development Agency that have little to do with industry or creating a significant number of good-paying jobs.

The deal cut between Erie County Executive Chris Collins and Legislature Chairman Barbara Miller-Williams to provide $300,000 in funding to the Colored Musicians Club, while eliminating funds earmarked for other projects, looks even more dubious with the news that Miller-Williams' husband is vice president of the club's board of directors.

I realize that some of Gov. David Paterson's rhetoric aimed at the State Legislature amounts to self-serving hot air and that some of the more ambitious proposals he has floated may be more for show than anything. But it's still good to hear someone at his level of public office tell it like it is.

With Sarah Palin slated to appear regularly on Fox News, do we really need Jay Leno or Conan O'Brien for televised laughs anymore?

It's been a long time since I saw as contrived a controversy as the one involving comments Sen. Harry Reid made about Barack Obama during the presidential campaign.


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The other Partnership's priorities

We've got two "Partnerships" in town and in the past three weeks we've been given the benefit of their competing visions for the community.

Late last month, the Buffalo Niagara Partnership summoned its people and compliant politicians like Chris Collins and Byron Brown to unveil a REGIONAL AGENDA! Yeah, technically, it was a shared vision, but Andrew Rudnick's fingerprints, palm prints and footprints were all over it, right down for a call to eliminate any progressive elements of national health care reform.

In a nutshell, the folks crying for government to cut taxes and generally get government off our backs asked Albany and Washington for $450 million in capital projects. Stuff like parking ramps, football stadiums and other projects that would supposedly turn this community around.

Wednesday, the Partnership for the Public Good unveiled its 10 priorities for the coming year at the Merriweather Library on Jefferson Avenue.

Chris Collins wasn't in the room; he must have been busy counting all the money it's going to take to pay those Washington lawyers he's hired to defend the abuse of county prisoners.

The mayor? I dunno, maybe he was down the street getting a haircut at one of the barbershops he doled out grant money to.

Allison duwe For those of you who don't know about PPG, as it's known in progressive circles, it's an umbrella organization of nonprofit organizations trying ot make a difference. People like Aaron Bartley of PUSH Buffalo and Allison Duwe of the Coalition for Economic Justice, pictured right.

This is the third year they've developed, in collaboration with partner organizations, a list of priorities that have at least a fighting chance of getting accomplished and an organization working towards that end.

Allow me to run down the list quickly, then focus on the most intriguing one:

-- Deal with poverty through the continued promotion of living wage initiatives.

-- Improve conditions at the downtown holding center and county jail in Alden.

-- Maintain inner-city health care centers targeted by Collins.

-- Revive stalled efforts to deal with the growing number of housing vacancies not only in the city, but inner-ring suburbs.

-- Eliminate toxic pollution belching from Tonawanda Coke. (In the interest of disclosure, my daughter, Erin, is executive director of the Clean Air Coalition of Western New York, which is leading that fight).

-- Launch initiatives in two targeted communities to promote green initiatives that would result in, among other things, lower utility bills and provide jobs for poor people performing green retro-fits of houses.

-- Improve the access of low-income city residents to healthy food through a number of initiatives, including the promotion of urban farming and establishment of a city Food Policy Council.

-- Reform state economic development subsidy programs, namely Empire Zones and industrial development agencies, to promote the creation of quality jobs and corporate accountability.

-- Reform state campaign finance laws to include, among other things, lower contribution limits, matching public financing and more vigorous enforcement.

-- Last, and not least, negotiate a community benefits agreement for Canal Side, a.k.a. Bass Pro.

Community benefits agreements aren't common in these parts, but they're used in some other communities, and the Los Angeles Alliance for a New Economy has proved particularly adept at negotiating them out in la-la land for projects involving oodles of public money. (Here's an excellent primer on CBAs from the Federal Reserve Bank of Minneapolis.)

The PPG folks here would like to see an agreement on five issues, and I'll quote directly:

-- living wage jobs.

-- environmentally friendly buildings and operations.

-- locally owned businesses.

-- mixed income housing.

-- a building and site design appropriate to the location.

Quinn, canal sideI got hold of Larry Quinn last night, the guy with the pointer on the left and one of the main movers behind Canal Side, and bounced the proposed CBA off him. I thought he might take exception, but he was pretty receptive.

"I agree with four of their five points," he said.

Living wages is where he parts ways with PPG.

"I don't blame them for their sentiments, but I think instituting a living wage would result in fewer jobs, not more," Quinn said. "It doesn't reflect the real marketplace for jobs."

Hmmm, sounds like, on balance, there's room for a constructive dialog.

The biggest disappointment of Wednesday's event came near the end, when politicians in attendance were invited to make a few remarks. Maria Whyte was a bit of a let down.

Oh, it wasn't anything she said. In fact, it was nice to hear a politician speak without saying "I" over and over again. (Of course, that kind of conduct over time could land her in hot water with the politicians' union.)

No, it was that, for the first time in which I've heard her speak, Whyte didn't once punctuate her remarks with a clenched fist or three.

I know it's the week before Christmas and all, but don't go soft on us, Maria.

I distinctly remember her at a rally outside Tonawanda Coke a couple of months back, railing against plant owner J.D. Crane, cradling her baby in one arm and pumping her fist with the other. It was something to behold, people.

I haven't see that kind of progressive passion on a local stage since Gene Fahey had a full head of hair.

No empty pants suit, she.

Which begs the question: What are you doing in four years, Maria?

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Redevelopment? Yes. Hotels? No.

Rocco Termini wants to restore the luster to the tarnished gem known as the Lafayette Hotel.

He wants to convert the abandoned AM&A's building into something other than the downtown's largest building code violation.

Good for him.



Yeah, maybe.

Because, as they say, the devil is in the details.

Termini is talking the possibility of hotel rooms being part of the mix.And being part of the developer crowd that can't possibly do a project without a government handout, his hand is no doubt poised to dip into our pocket.

The trouble is that practically every hotel in and around downtown Buffalo was built with public subsidies, and most of them are treading water -- at best.

In a story I did a year ago, I reported:

For nearly 30 years, politicians have poured more than $65 million into downtown Buffalo hotels — an average of more than $50,000 per room. The strategy produced five hotels — and a lot of red ink.

Some of downtown’s largest hotel operators say the last thing they need is more competition, especially subsidized competitors.

But that’s exactly the course City Hall is pursuing.

Indeed, since I wrote that story:

Now, Termini is considering adding yet another hotel or two to the mix.

I think the phrase is "Good money after bad."

I mean, if five subsidized hotels can't make it for lack of demand, how will eight, nine -- do I hear 10! -- fare?

A year ago, Richard Geiger, then president of the Buffalo Niagara Convention & Visitors Bureau, said that more rooms would not help bolster the convention and tourism business.

“Based on current market demand, we have a sufficient number of rooms in the downtown core,” he said.

He's since gotten the boot from Chris Collins, and his successor, Drew Cerza, is singing a somewhat different tune, according to our story the other day.

In the end, Cerza believes that the market will decide how many projects move forward.

I think the market decided a long time ago. The problem is the politicians think they know better. They've been wrong -- tens and tens of millions of dollars wrong. The question is whether they'll keep making the same mistake for the sake of photo ops and rewarding campaign donors. 

Not everyone in local government has such a "subsidize now, ask questions later, if ever." Niagara Falls Mayor Paul Dyster is one of them.

As for Termini, I wish him well with his latest undertakings. But please, remember to put up the safety railings before the fact.

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Rooms with a view -- and no property taxes

Like a lot of you, I read the story Wednesday about attorney Steve Barnes buying a waterfront penthouse for $1.1 million. I imagine a lot of readers thought that was a lot of money.

Me, I thought something else: "He's not going to pay a penny in property taxes for a long time."

CondoSo I got to work figuring out how much in taxes he won't pay because the condo project he's buying into is located in an Empire Zone, which provides tax abatements to property owners for 10 years.

I made some calls, got some data, crunched some numbers and it turns Barnes will save $221,595 at present tax rates.

But then I got to thinking, why stop there, what are the abatements worth for the buyers of the other 52 units at Waterfront Place?

Answer: $5.3 million.

Then I got to thinking, why stop there, The condos at Avant on Delaware Avenue are selling for even more money. What are those abatements worth?

The Avant project is using a different tax abatement program, and the savings for the 28 buyers there are worth an estimated $4.8 million.

The whole story is here.

Now don't get me wrong: It's a good thing that high-priced real estate is being built in and around downtown and that those able to afford it are ponying up.

But do the rest of us have to subsidize them?

The average condo at Waterfront Place is selling for about a half-million-dollars and buyers, according to my calculations, will save about $100,000 in property taxes over 10 years.

Units at Avant are going for more like $750,000 and buyers will save on average about $170,000 over 12 years thanks to a different abatement program.

If you buy a $1 million condo and put 20 percent down, your monthly principal and interest payments are going to run $4,417. Buy a $500,000 pad and you're talking $2,209.

Gee, given the size of the checks that buyers have to write the bank every month, is it asking too much for them to pay property taxes like the rest of us to pay for the police and fire protection, the snow plowing and street repairs, etc., that city property taxes pay for?

But don't blame Steve Barnes, or anyone else buying at Avant or Waterfront Place. They didn't make up the rules, they're just playing by them.

No, blame the politicians and the downtown business interests who have put them up to the shenanigans that lead to millionaires living property-tax free in the third-poorest city in the nation.

The Empire Zone program was conceived in the mid-1980s as a way to promote investment and job creation in impoverished neighborhoods and down-and-out commercial and industrial areas. The old Republic Steel site, inner-city neighborhoods, places like that.

But the downtown business crowd persuaded Tony Masiello and the Common Council to draw the zone boundaries in ways that benefited them. That's why companies like M&T Bank under Bob Wilmers have reaped millions in tax breaks over the years, why Cellino and Barnes over four years saved three quarters of a million-dollars.

Gov. David Paterson pushed for a major overhaul in the program earlier this year and the howls from Buffalo, in particular, could be heard all the way to Albany. Among those lining up against reform were Mayor Byron Brown, Buffalo Niagara Partnership President Andrew Rudnick and many of the developers who have been feeding at this particular public trough over the past decade.

They're all for bringing the public employee unions to heel. But leave their perks alone.

The Avant project is another matter.

I think most people agree something had to be done with the hulking 15-story building. The federal government had abandoned it, asbestos and all, and it was too big and too ugly to just sit. It was the successor to the old Nemmer Building on Main Street as the biggest eyesore on the downtown landscape.

In addition to tax breaks for the condo buyers, the developer also will enjoy a long-term freeze on property taxes that amounts to big-time savings that will be passed along to business tenants. That comes on top of $18 million in state grants and a few lesser public goodies, put towards work that totals $83 million.

So, who are the lucky tenants who get to set up shop?

Well, one of the city's biggest law firms, Damon and Morey, has leased two floors.

Great, we're helping out lawyers, like they need it.

There's also an Embassy Suites hotel occupying nearly half the building. Almost every hotel built in downtown in the last 20 years has been subsidized and many of them are struggling financially. I did a story last December that detailed the problem, and operators like Paul Snyder said the last thing the downtown market needs is another subsidized competitor.

But it has one.

Anthony Armstrong, program officer of the Local Initiatives Support Corp., a non-profit development organization, said there's a double standard when it comes to subsidies for working class people and the affluent.

"The way we talk about subsidized development shifts, depending on who is getting the
subsidy," he said.

"There is a stigma assigned to low-income housing, when we are really talking about working people trying to make it. But we don't seem to have the similar push-back against the use of public funds for people in a higher-income bracket."

Somehow, I think a line of people ready to push back is beginning to form.

Empire Zone reform lite

The state budget modifies -- I hesitate to use the word "reforms" -- the Empire Zone program while sidestepping any measures that approach a fundamental revamping of the program, widely regarded as, ah, something less than a success.

The Syracuse Post-Standard has a story that provides details.

State leaders agreed to kick out of the program any businesses that do not match $1 in investment for every $1 in tax breaks and any that used paperwork gimmicks to qualify for tax breaks they did not deserve.

Paterson also set out to ban from the program retail stores, utilities and real estate businesses -- industries that are under no threat of leaving New York. But those industries are not targeted in the new plan.

Allowing for the continued use of Zone benefits for retail makes the program a favorite for the likes of Home Depot -- not exactly what the framers of the original legislation had in mind

The proposed ratio was $20 in benefit for every $1 in tax breaks, so you can see, Gov. David Paterson and the Legislature have really eased off. In the business world, I'm not sure anyone is putting up $1 to make $1. There has to be a better return.

But hey, this is New York State, which perhaps ought to change its motto from "The Empire State" to "A billion here, a billion there -- whatever."

There was a bit of good news for reformers in the budget. The expiration date for the program was moved up one year, to June 30, 2010. Not that I'm expecting the program to simply sunset. Too many corporate  interests -- and campaign donors -- benefit from it for that to happen.

The Post-Standard has a nifty look-up table on its Web site that enables readers to look up Empire Zone beneficiaries by company name. This is worth mining, folks.

For example:

GEICO'soffice operation in East Amherst enjoyed $24.9 million in tax breaks in 2007, the most of any participating company in the state. GEICO  employed 1,180, paying an average of $14 an hour. GEICO, owned by Warren Buffett and company, appears three times in the database; here is the largest of the entries.

M&T Bank received the most tax breaks of any participating business in the City of Buffalo, worth some $3.4 million. The bank is headed by Bob Wilmers,who is also chairman of the Empire State Development Corp., New York's leading economic development agency. ESD oversees Empire Zones and presumably had input into the changes just enacted -- or not -- to the program.

Interesting what you find on the public record.

Sagging economy rendering subsidies even more obsolete

I've got three points to make, so stick with me.

The New York Times had a story on the economy over the weekend that is getting a lot of attention. It says, in part:

As government data revealed that 651,000 more jobs disappeared in February, a sense took hold that growing joblessness may reflect a wrenching restructuring of the American economy.

The unemployment rate surged to 8.1 percent, from 7.6 percent in January, its highest level in a quarter-century. In key industries — manufacturing, financial services and retail — layoffs have accelerated so quickly in recent months as to suggest that many companies are abandoning whole areas of business.

“These jobs aren’t coming back,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “A lot of production either isn’t going to happen at all, or it’s going to happen somewhere other than the United States. There are going to be fewer stores, fewer factories, fewer financial services operations. Firms are making strategic decisions that they don’t want to be in their businesses.”

Rather than riding out the storm, economists said the time is rapidly approaching to retool the economy and train workers for the next generation of jobs.

In short, we will not be returning to business as usual.

Meanwhile, Jeff Jarvis - author of What Would Google Do? - has weighed in with a blog post that portends Future Shock.

It’s not a great depression, neither is it a great recession we’re going through now. At the Brite conference this week, Umair Haque called it a great "compression" as an economy built on perceived value reconciles with actual value ...

I try to argue in my book that what we’re living through is instead a great restructuring of the economy and society, starting with a fundamental change in our relationships - how we are linked and intertwined and how we act, nothing less than that.

Yes, entire swaths and even sectors of the economy will disappear or will change so much they might as well disappear:

America may well not be in the auto industry soon.... Financial services will have to be completely remade (by government). ...Large-scale retail will shrink and consolidate and then be transformed by a search-and-buy economy ... Residential and commercial real estate will have to restructure around a new capital structure ... Consumer productsof all sorts will have to change in the face of empowered customers and, in some cases, with competition from small competitors given the benefits of scale on platforms (see: eBay, Etsy, Amazon, et al) ...Government will grow but thanks to the empowered populace, it, too, will face fundamental change.

There are opportunities here, of course. There always is in change if you’re willing to see and seek it.

This is the time when startups start. I agree with Reid Hoffman that founding new companies is our way out of this mess. Given the profound nature of the restructuring, starting new businesses - not fixing old, doomed ones - is the only sensible path.

Ah, yes, the sensible path. The road not often taken here in Western New York.

Look folks, the hand writing is on the wall. We're going to get hammered. In fact, it's already happening.

What are we big on? The legacy manufacturing and financial services that many economists say are going bye-bye.

And where do we come up short? Technology and entrepreneurship - the future according to Jarvis and others.

We've got two choices.

We can keep doing what we're doing - which is the choice we always seem to take. As in: "Hang on to what we have, regardless of the cost, both in dollars and lost opportunities."

Or, we can look around and start to retrofit our regional economy, building off our legitimate strengths to meet the needs and demands of the economy that emerges from the current carnage.

It's going to take some time to figure things out, but that's no reason not to get started. The government subsidy programs we've come to rely on, in lieu of lower taxes and other steps other states have taken to make themselves more conducive to economic growth, are a good place to start.

They were mostly out of step and ineffective before the economy started to tank. They're even moreso today in the face of the Great Recession.

Think about it: The Empire Zone program is widely regarded as a failure - the whining of local developers like Rocco Termini notwithstanding about reforms proposed by Gov. Paterson. But even those reforms, which in part would focus future benefits on industry and financial services, look suspect, given the prospect of a permanent decline of those very sectors. I think this means the reform requires reform.

It doesn't stop there.

The New York Power Authority expects to open negotiations later this year with more than 100 local industries regarding the sale of low-cost hydro-electricity. The major customers are pushing hard for long-term extensions and NYPA boss Richard Kessel, for all this talk of reform, keeps sending signals that suggest he will oblige, despite the wasteful subsidies showered on some of the largest customers whose best days are far, far behind them.

These subsidy programs represent a finite resource. Every megawatt of power given to a fading industry  is a megawatt that can't be provided to help power a company with growth prospects. Every tax break given a developer to put up a building whose tenants will employ people at sub-par wages means another project that might create good-paying jobs goes without them.

We've got some things going for us as we look at the pending new world economic order. Our access to fresh water. Our capacity to generate renewable sources of energy. A similar capacity to retool some of our industrial wherewithal to service that renewable energy sector. Our proximity to Toronto, a mega-region that has long been spitting out investment dollars we haven't figured how to attract. Colleges and universities churning out a lot of educated people. Our border location - despite our ineptitude in exploiting the opportunities it presents.

Look at who we've helped bankroll of late through subsidies.

Citigroup, whose stock is now worth the price of merchandise you can pick up at the Dollar Store.

General Motors, whose financial books left auditors holding their noses. 

Olin and Occidental chemical companies, whose best days were back in Happy Days.

Folks, we've got to be a lot smarter. 'Cause if you think the last 25 years haven't been pretty, you ain't seen nothing yet.


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.


Ending corporate welfare as we know it

The most over-the-top reaction to Gov. Paterson's proposed budget -- which is saying a lot, as reading the paper conjures up images of a kindergarten class on a bad day -- comes from Andrew Rudnick.

The proposal to change the Empire Zone program is unethical -- unethical! -- says the $337,000-a-year president of the Buffalo Niagara Partnership.

"What he's proposed is very stark," Rudnick said in yesterday's Buffalo News. "That's ethically wrong, bad business practice, and sends a terrible message to anyone considering a future investment in New York state."

No, Andrew, the Partnership accepting $50,000 from the New York Power Authority in 2005 and then coming up small as the community tried wrestle money out of the authority during negotiations to extend NYPA's control over the Niagara Power Project could be challenged on ethical grounds.

So could the downtown business community's hijacking of the Empire Zone program, intended to promote investment and job creation in impoverished and blighted sections of the nation's third-poorest city, to fatten their bottom lines.

But Paterson's efforts to introduce accountability into the program? Or revoking benefits to companies that fail to deliver jobs as promised? Or insisting the big business share the pain of the state's fiscal crisis?

I call that "about time."

For the past six years, I have spent most of my reporting time investigating economic develop programs in Western New York. One word constantly comes to mind: Squandered.

We've used industrial development agency subsidies to underwrite everything from dollar stores in North Buffalo to doctor offices in Amherst to upscale groceries in Clarence.

Federal block grant money aimed at combating poverty has ended up in the pockets of developers with unbankable projects.

Low-cost power that can help build a new economy is instead used to prop up fading industries.

And Empire Zone benefits have flowed to companies that are a cross between Who's Who in Corporate Buffalo and Fortune magazine's list of the richest Americans.

Warren Buffett's had two companies getting benefits, Geico and The Buffalo News.

Tom Golisano's hockey team and arena are getting them.

But enough about the billionaires. On to the multi-multi-millionaires.

There's Bob Rich and company, Jeremy Jacobs and his Delaware North, and M&T Bank headed by Bob Wilmers, the big business enchilada in town who the governor has installed to run the Empire State Development Corp., the state's top economic development agency.

And don't forget about Cellino and Barnes. Yup, lawyers are getting Empire Zone subsides, too. How do you think they can afford their TV commercials?

You add up all these gimmes from the assorted subsidy programs and it comes to $300 million, maybe $400 million a year.

Tell me, anyone see anything approaching a half-billion-dollars a year of economic growth?

I didn't think so.

The reason why is that the subsidies come without strings attached. Oh yeah, there's accountability -- sometimes -- but only in theory.

Investigation after investigation, study after study has shown that many to most companies fail to deliver the promised jobs and investment. The attitude is: "Oh, well, they tried."

The Empire Zone program alone is costing the state more than $600 million a year. Paterson wants to cut the drain on the budget by half. But the suits at the public trough are screaming, saying, in effect, the program is an untouchable entitlement.

"Who is going to locate a business or make a big capital investment in upstate New York without incentives?" asked Jordan Levy, chairman of the Erie Canal Harbor Development Corp.

Maybe a capitalist, Comrade Levy.

Bill Clinton reformed welfare as we know it in 1996.

David Paterson is trying to reform corporate welfare as we know it in 2008.

You go, guv.


We're already subsidizing some automakers

The Senate has rejected, for at least the time being, a $14 billion loan to General Motors, Ford and Chrysler. A subsidy watchdog group has calculated that state and local governments have given foreign-owned automobile plants some $3.6 billion in grants, tax breaks and other assorted financial assistance since 1980.

In reality, the number is probably a lot higher, especially when inflation is taken into account, but Good Jobs First compiled the numbers as a way of saying government has long been in the auto-subsidy business.

Do not read this as an endorsement on my part of any auto bailout. I just find the information interesting.

I mean, it's not like the Big Three haven't benefited from all sorts of subsidies as well. Locally there's been big hydropower discounts, state grants, etc.

Two years ago, when I did my Power Failure series, I calculated hyrdopower savings at $7.1 million annually for the GM plant in the Town of Tonawanda and $2.6 million for the Ford plant in Hamburg. Delphi Automotive in Lockport, long a GM property as Harrison Radiator, was saving $7.8 million.

Here's the list complied by Good Jobs First, which includes property and sales tax exemptions, income tax credits, infrastructure aid, land discounts and training grants. The list is drawn from press accounts, which probably overlooked some deals.

  • Volkswagen, Chattanooga, TN, 2008, $577 million
  • Kia, West Point, GA, 2006, $400 million
  • Toyota, Blue Springs, MS, 2007, $300 million
  • Nissan, Canton, MS, 2000, $295 million
  • Hyundai, Montgomery, AL, 2002, $252 million
  • Honda, Lincoln, AL, 1999, $248 million
  • Nissan, Smyrna, TN, 1980, $233 million
  • Nissan, Decherd, TN, 1995, $200 million
  • BMW, Spartanburg, SC, 1992$, $150 million
  • Toyota, Georgetown, KY, 1985, $147 million
  • Honda, Greensburg, IN, 2006, $141 million
  • Toyota, San Antonio, TX, 2003, $133 million
  • Subaru, Lafayette, IN, 1986, $94 million
  • Honda, Marysville OH, 1980, $27 million*
  • Toyota, Princeton, IN, 1995, $30 million
  • Toyota, Huntsville, AL, 2001, $30 million
  • Honda, Anna, OH, 1985, $27 million*
  • Honda, East Liberty, OH, 1987, $27 million*
  • Toyota, Buffalo, WV, 1996, more than $15 million
  • Mercedes-Benz, Vance, AL, 1993, $258 million

I find it interesting that the three richest deals are the most recent, starting with the more than half-billion dollars going to Volkswagen in Chattanooga. That and the Kia deal in Georgia come to nearly $1 billion.

Another call to end the Empire Zone program

The state's Empire Zones are the Muhammad Ali of economic development programs. Everyone flails away, but the program survives, much like Ali and his use of rope a dope against George Foreman in Zaire.

The News did a major investigation in 2003, the Syracuse Post-Standard has done its share, and the state comptroller has issued several critical audits. Add to the list the Citizens Budget Commission, which released a critical report Tuesday.

The title says it all: It's Time To End Empire Zones.

The program is costing the state $582 million this year, according to the study, up from $30 million just eight years ago. That's no small consideration, given the state's fiscal plight.

The report said the state is getting a poor return for its money.

Among the key findings:

The Zones have proliferated to such an extent that the mission of the program has been lost. The Zones no longer correspond to distressed areas; instead, Zones are built around businesses that seek the tax credits.

The program's objectives are not measured consistently, and local agencies do not hold firms accountable for the economic development commitments they make. The program is complicated by the combination of State and local administration and compromised by a lack of transparency.

The program is failing to meet the targets that the firms themselves set when they were
approved for participation. Numerous audits have shown that recipients do not meet their
stated employment and investment goals.

I found especially damning quotes cited in the report from the upstate and downstate economic development czars under former Gov. Eliot Spitzer.

"On balance, the Empire Zone program has been a failure, and in some ways a gross failure. We have no way of knowing how many jobs have been created or retained," said Patrick Foye, who was the downstate chairman of the Empire State Development at the time he made the comment.

“Of the 9,700 companies that currently claim Empire Zone benefits, three-quarters of them are in the upstate region. Yet job growth has been sluggish or non-existent. The problem we have with the Empire Zone program is that it is not tied to any overall economic
strategy," said Dan Gundersen, Foye's upstate counterpart.

The program was tweaked several years ago. A cost-benefit analysis was imposed with the idea of weeding out bad projects and zone administrators were required to end the practice, common in Buffalo, of carving up zones into dozens of non-contiguous parcels. These were not insignificant changes.

But, according to the latest report, the reforms have not done the trick.

The question now is: "What is the governor and Legislature going to do about it?"

A more effective program has particular importance to Buffalo, which has four square miles of Empire Zones, double that of most other locales. The program here has been used mostly to provide tax breaks to downtown business interests.

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