COVID Didn’t Kill the Upstate Economy – Politicians Did

Long before we were faced with the challenges of the COVID shutdown, Upstate Jobs noted New York’s failed economic development approach.  New York has long had its priorities out of whack as more productive investments in line with the direction of today’s economy and next generation talent has taken a back seat to failed backroom deals.

Big spending, but where’s the progress in Upstate economic development?

Our government trumpets the billions of dollars we spend in the name of economic development as if spending is the measure that matters most to taxpayers footing the bill.

The Regional Economic Development Councils report $6.9 Billion has been spent on economic development since 2011, with a promise to create or retain 240,000 jobs. Has that happened? With a complete lack of transparency in matching up the job projections to approved grants, there is a dearth of state-provided data showing positive results.  Instead, the nonprofit Empire Center  research found that over the period 2010-2018:

• Upstate New York has gained private-sector jobs at barely one-third the national rate, and less than one-third the downstate rate.
• Only three states have had lower private job creation rates than upstate New York.
• Twenty-three counties, all but one of them upstate, have yet to recover to their pre-2008 private employment levels.

Letting politicians pick winners is a losing strategy

For far too long, New York’s economic development approach has been one of politicians trying to pick winners and losers, investing large sums of public funds in bricks and mortar in an impossible mission of “if we build it, they will come.”  The attractiveness from a political standpoint is clear: let the government write a check to a company as part of an economic development effort to create jobs. Unfortunately, history has shown us the government’s track record for picking winners is horrible.

Just one example of this was the government’s failed attempt at creating the New York State Film Hub in Syracuse. A $15 million investment with taxpayer funds constructed a gleaming new facility with the promise of creating more than 350 high tech jobs. In 2018, after failing to secure commercial tenants or traction with film projects, the state transferred title of the facility to Onondaga County for $1, effectively writing off the $15 million taxpayer investment as a total loss. 

A January 2020 paper “Evaluating State and Local Business Tax Incentives” was prepared by researchers at Columbia Business School and Princeton investigating effectiveness of economic development tax incentives. The researchers found no evidence that tax incentives given to individual companies increased overall economic growth. Furthermore, the study found that almost a third of total state incentive spending “went to .0072% of new firms and only 1.41% of all jobs created by those firms.”

Committed leaders are needed to drive change

So how do we fix it?  We need to pursue a new approach to economic development that focuses on leveraging more private capital in job creation strategies, coupled with a stepped up effort at both disclosure of job growth outcomes and analysis of the effectiveness of these programs. Here are a few key policies Upstate Jobs supports to do just that:

1. Let private investors, not government, take the risk in picking the winners. While Upstate Jobs would rather not see any taxpayer dollars funding investment into private companies, a compromise position would be limit  public support to those situations where private investors are taking greater risk than tax payers. For example, investments in startup companies (having highest level of risk) should have a lot more private capital committed than public money. Large public infrastructure investments may put in a higher amount of total dollars than private investors, but only when there are sufficient “clawback” mechanisms for the State to retrieve funds from the company if job commitment targets are not achieved.
2. Provide greater transparency in job creation outcomes. Just like in the business world, transparency in spending and investment is absolutely essential to establish confidence in investors, stakeholders, and most of all taxpayers.  To truly enable an ecosystem that produces outcomes of more jobs, state policymakers must begin by reporting in each economic development grant the cost of public investment per job (CPJ) that is the basis for the investment or incentive as well as the evaluation period that CPJ will be tracked. Adding those measures to the publicly reported spending on each approved grant will then permit us all to see the effectiveness of economic development programs at both a micro and macro level. With that reporting the voters will be better positioned to hold our leaders accountable for the decisions being made.
3. Put the Regional Economic Development Councils to Bed. The REDC process began with the idea of local business and community leaders being hands on in making decisions involving the allocation of economic development resources. While local groups still review and recommend grants, the final decisions are made by the Governor’s office, effectively marginalizing local leaders. With COVID-19 budget challenges looking to sideline the REDC process this year, the time is right to re-think this process.  The current structure has REDCs locked in a “Hunger Games” competition tied to strict zip code based political boundaries which ignore the realities that commercial opportunities flow without regard to these same boundaries. Developing provisions for REDCs to collaborate with each other would help take advantage of regional efforts to benefit both companies and workforce flowing across multiple REDCs.

The Empire State has been a leader in many ways over the course of our centuries in the heart of the American republic.  Today, faced with recovering from the crushing burden of a public health crisis, we have a greater opportunity than ever to lead.  Let’s shrug off the old system of economic development and seek a new approach that builds for the innovation economy with private investment and practical thinking.