Outrages & Insights

My version of Hot Stove League

The baseball season may be over, but controversy about the public subsidies for Yankee Stadium continue.

Clawback, the blog of Good Jobs First, has a good roundup of the latest developments, including a take out by the New York Times on the deals for both the Yankees and Mets.

Meanwhile, the Associated Press is reporting the Yankees are having a hard time moving all their suites because of the economy.

Given the state's fiscal condition, this could be the last big stadium/arena project for a good, long while. Besides, what is left to build?

Some of you might say a replacement for Ralph Wilson Stadium at some point in the future. Yeah, it's 35 years old, and it's modest by NFL standards. And yes, the team's lease expires in 2012. But it's not gonna happen.

State Sen. Antoine Thompson has floated a new stadium idea a couple of times and it's gone nowhere. The idea of using precious waterfront real estate may have something to do with it. But the notion of sinking well in excess of a half-billion-dollars into a facility used 10 times a year doesn't make a lot of sense, at least not here.

Yeah, it makes sense in Dallas and New York, where you can sell suites and seat licenses at top-top dollar. WNY just doesn't have the corporate base to pull it off.

New Yankee Stadium: Field of Schemes

I'm a big New York Yankees fan. That said, the financing scheme to build the new Yankee Stadium has a growing odor to it. We're not talking chump change -- the project's tab is $1.3 billion. (The photo above, via Newsday, was taken the middle of July).

Assemblyman Richard Brodsky has taken taken the Yankees, and their enablers in government, to task, as reported by the New York Times.

“This stadium is being built by the people of the city and the state of New York,” Mr. Brodsky said during a press conference at the north end of the new stadium, at 164th Street and Jerome Avenue. “In return, they’re getting almost nothing. This deal does not serve the public’s interest. It serves the Yankees’ interest.”

Mr. Brodsky and other critics have argued that the city violated federal tax regulations by manipulating the assessed value of the land beneath the stadium so that the team’s annual payment in lieu of taxes would effectively equal the annual payments to bondholders, or debt service, of $56.7 million beginning in 2010.

Good Jobs New York has done some good work on this topic. Check it out here. Also, here's a recent story from Newsday on Congressional attendtion paid to the project.

State salaries -- and subsidies -- in a time of deficits

A little number crunching I did on seethroughny while the howls of protest  continue over Gov. David Paterson's proposal to cut the state's deficit budget by $600 million.

-- There are 14,656 state employees who earn more than $100,000 a year.

-- Of them, 297 make more than $200,000. Many of the folks on this list work for the state university system. Other agencies that pop up include the New York Power Authority, the Long Island Power Authority and the Comptroller's office.

-- Four state employees make more than $500,000, led by Steve Strongwater, vice president of hospital affairs at Stonybook Hospital, who is slated to earn $715,851.

Mind you, this is out of some 263,000 employees listed in the database, and not all authorities are listed. Among the missing is the Thruway Authority. Also, the wages reported are base salaries and do not include, among other things, overtime.

I don't know if these numbers say something good or bad, but I think they're kind of interesting in light of the state's budget problems.

Before you union bashers, SUNY bashers, etc. start hollering, keep in mind that the state bestows hundreds of millions of dollars a year in tax breaks to corporations in the name of economic development, and that many companies fail to deliver the jobs they promised in order to qualify.

Add Empire Zones, IDAs and electric power discounts and you're approaching $1 billion a year. So far as I can tell, those programs remain untouched in the governor's package of cuts.

Sanity on subsidies?

David Paterson said something very interesting the other day regarding economic development in a meeting with The Buffalo News editorial board.

"Rather than throwing a billion dollars at some company to come in and create a certain amount of jobs, what we have to do is lower the business taxes and create the kind of environment in which business will flourish. and at that point the market will take over.

"That is not as enticing to public servants as these companies that come in and basically seduce you into giving taxpayer dollars away."

Maybe, just maybe, that foretells an effort to reform the myriad of susbsidy programs. Here in WNY they involve hundreds of millions of dollars a year in tax breaks, tax credits and discounted power. Not that the local economy has taken off as a result.

Reform would affect more than just economic development policy. There's a fiscal element, too. The Empire Zone program alone costs the state $600 million a year. That's no small consideration, given the state's fiscal condition.

Ready to sue

Call them what you want: subsidies, incentives, grants. Lee Bordeleau calls them unconstitutional.

The Lockport stockbroker has gotten 40 people in pony up $100 each to launch a lawsuit challenging the legality of grants, discounts, tax breaks and the like made by state and local government in the name of economic development.

"Any kind of welfare, I'm against," he said.

Bordeleau got noticed last year when he paid for a billboard on Route 78 in Lockport calling attention to Niagara County's status at the time as the highest-taxed county in the nation based on a percentage of housing value. In recent months, he's been working the media in an effort to find people willing to invest in the lawsuit. His goal was 40. Mission accomplished.

"We're going to do it, we're going forward," he said. "This is something that needs to be done."

Bordeleau said he expects the suit to be filed by the middle of July. James Ostrowski, the self-described lawyer, writer and anti-politican, is his attorney.

Stay tuned.

Missing in action

There's been a lot of talk about business the State Legislature didn't take care of this session: IDA reform, stricter laws for teen drivers, property tax relief.

Let me add this to the list.

A lot of people in the know, including many local economic development officials, have been saying for a couple of years that there's a need to modify the criteria used to determine how the New York Power Authority allocates low-cost electricity to local industry. I did an investigative project 14 months ago that documented how the power is being squandered, and followed up with a piece in September that outlined how it could be put to better use.

The criteria is established by the Legislature, and thus far, no one has submitted a bill, much less gotten it acted on.

Several weeks ago I detailed how the Power Authority is selling low-cost hydropower earmarked for local industry and making a big buck off it. Very little of the money comes back to Western New York. There's hardly a peep out of our local delegation, much less legislative action to change things.

A couple of years back, a commission put together by then Gov. George Pataki and legislative leaders made a series of sweeping recommendations on how to make better use of nine power programs administered by NYPA to promote economic development across the state. The Legislature -- you guessed it -- has done nothing with the report.

Albany's inaction on economic develop reform extends to the state's two other major programs.

IDA reform again stalled this session. Reform of the Empire Zone program hasn't gotten past the talk stage, despite a series of investigations over the past five years by The News and Syracuse Post-Standard.

These subsidy programs involve hundreds of millions of dollars a year in Western New York alone. Alone, they're not going to revive the upstate economy. But used well, they could help.

Which begs the question -- where is our local delegation on all this?

Aside from Sam Hoyt pushing for IDA reform, they have shown no initiative. A year ago, the excuse, for hydro, anyway, was that the Legislature was waiting on Gov. Eliot Spitzer to present a comprehensive bill. Two sessions and another governor later, they're still waiting.

Western New York is in the eye of the subsidy storm. We've got six IDAs in Erie County alone, more than any county in the state. Buffalo, in terms of geography, has more acres of Empire Zones than any city in the state. And the region's share of discounted hydropower may represent the richest subsidy program in the entire state.

Isn't this reason enough for our delegation to show some initiative? In fact, given that these programs are rooted in state law, isn't it their job?

   

   

Your tax dollars at work

The developers working to renovate the Dulski Building held a press conference Monday to draw attention to their project. Let me do my part.

The first seven floors of the 15-story office building on Delaware Avenue will be an Embassy Suites hotel, which will compete with the taxpayer-subsidized Hampton Inn on Delaware Avenue, which competes with the taxpayer-subsidized Comfort Suites a couple of blocks away on Main Street. They all compete with the Hyatt Regency Buffalo, which has been getting subsidies since Jimmy Griffin was mayor.

Floors eight through 12 will be offices, two floors of which will be occupied by the law firm of Damon & Morey, which will move from taxpayer-subsidized space on Main Street, presumably adding to a downtown office vacancy rate of 10 percent.

The top three floors will be condos, selling for $350,000 to $1 million.The project -- which developers on Monday renamed "Avant," French for forward -- costs $71.4 million. Taxpayers are footing a significant portion of the bill.

The state has pledged a $7 million grant. The developer has also submitted a $19.2 million package of property, sales and mortgage tax waivers to the Erie County Industrial Development Agency. There's also an application pending for Empire Zone benefits; the developers won't say how much it is worth. I wouldn't be surprised if the total package tops $40 million.

Redeveloping the Dulski Building is a good thing. It was a vacant hulk. The question is whether the nation's second-poorest city should use its economic development resources to help build million-dollar condos and a well-heeled law firm jump from one subsidized building to another. Another question: Do developers need subsidies of this order to make projects work?

What do you think?

Rally For Reform

This is supposed to be the year to reform the state law governing how industrial development agencies operate. There's just two weeks left in this year's legislative session and about 40 community and labor activists rallied this morning in front of the downtown offices of the Erie County IDA calling on lawmakers to reach a deal.

The Assembly is already on board working off this bill. The Senate and Gov. David Paterson haven't come out with a position.

Something is likely to happen because of the giant game of chicken that's being played. Construction projects, including non-profits, are on hold until a deal is struck because authorization to use IDA benefits has expired. That means the Senate won't be able to simply not act on a reform bill.

Speakers at today's rally touched on a lot of points, but the one that stuck with me is their call to link IDA benefits to the creation of jobs that pay of living wages - something on the order of $9 an hour with benefits or $11 without in Buffalo.

Their argument - public subsidies should not be used to help create jobs that pay poverty wages. That will do nothing to help lift Buffalo out of its current predicament as the nation's second-poorest city, they say.

"Not just any damn job will do," declared Maria Whyte, majority leader of the Erie County Legislature.

"We want good jobs, not just any old job" said Alison Duwe, executive director of the Coalition For Economic Justice, which organized the rally.

IDAs and their critics have each produced studies to support their points of view on the overall effectivness of the program, which involes about $400 million a year in tax breaks statewide. Take your pick of studies.

But, looking at the bigger picture, is there much argument that economic development policy in general is not producing results for upstate, Western New York in particular?  And IDAs, along with Empire Zones and energy subsidy programs run by the New York Power Authority, are the state's major economic development programs.

Bob Wilmers as economic czar

In 2003, a colleague, Patrick Lakamp, and I did an investigation of the state Empire Zone program, the state's major economic development program. We found that a program intended to promote investment and job creation in distressed areas, including inner-city neighborhoods, had instead been used in Buffalo largely as a tax-abatement program for downtown business interests.

One could make an argument that the misuse of the Empire Zone program has helped make Buffalo the second-poorest city in America.

The list of companies cashing in reads like a who's who of corporate Buffalo. Rich Products. HSBC Bank. Delaware North. The biggest beneficiary was M&T Bank, which, by our calculations back in 2003, was scheduled to enjoy some $17 million in assorted tax breaks and tax credits over a 10-year period. According to more-recent data, the bank enjoyed $1.3 in Empire Zone benefits in 2006, the last year for which data is available.

I bring all this up because Bob Wilmers, M&T chairman and CEO, was announced Thursday as the new chairman of the Empire State Development Corp.

On one hand, this is good news, to have someone from the region heading up the state's economic development arm. And make no mistake, Wilmers and M&T have been strong advocates for the region and, in many ways, good corporate citizens.

Wilmers and his bank added hundreds of jobs downtown, bolstering confidence at an important time. They've given money to worthy community causes, from the Westminster Charter School to Shea's Buffalo. And Wilmers has been a leading spokesman for changes in the state's tax and business climate, many of which are on target. Not everyone is thrilled with him - municipal unions, in particular - but you can't say he hasn't hasn't been civically engaged.

But the appointment begs some questions:

-- Does his appointment pose a conflict of interest, as he will now head the agency that dispenses tax breaks to his company? For that matter, do his business and political entanglements with business executives and politicains permit him to be an honest broker among the many interests competing for state assistance?

-- He's been a major power in the Buffalo Niagara Partnership for years, an organization whose mission includes promoting economic growth in the region. Given the state of the local economy, does the Partnership's track record make Wilmers worthy of a promotion to oversee the entire state economy?

-- Are we better off with a banker or a seasoned economic development professional like the departed Dan Gundersen?

People, weigh in.

Why no action on hydropower reform?

Lots has been made of what the state Legislature did not accomplish this recently concluded session. IDA reform. Property tax relief. Tighter restrictions on teen drivers.

Let me add to the list.

There's widespread agreement among local economic development officials that changes ought to be made in the criteria that determines which local industries get low-cost hydropower from the New York Power Authority. I did an investigation a year ago that documented the problem, and followed up with a piece that outlined solutions. Two legislative sessions later, I'm not aware of so much as a bill being introduced by anyone from our local delegation that addresses the substantive issues.

As I reported a couple of weeks ago, low-cost power earmarked for use by local industry that has begging for customers has instead been sold by the Power Authority at a big markup and used for programs that, for the most part, have little to do with Western New York. Again, there's been no legislation introduced to change this. Barely a voice raised in outrage, actually.

There's been talk for years that the state needs to rethink all its power programs geared towards promoting economic development statewide. Gov. George Pataki and the Legislature enpaneled Temporary Commission on the Future of New York State Power Programs For Economic Development to tackle the issue, and the commission issued a series of recommendations in December 2005. The governor and Legislature hasn't done anything with it.

It's not just power programs. The News and Syracuse Post-Standard have done a number of investigations into the Empire Zone program over the past five years. State pols follow by making promises to clean up the program. The talk never translates into legislation, however.

Proponents of IDA reform have gotten further - at least they've introduced legislation and gotten it approved by the Assembly. But nothing has passed the Senate, so reform remains at square one.

Upstate isn't going to dig its way out of its economic malaise through subsidy programs alone. But intelligent use of them can help.

It's a fair question to ask members of our local delegation - starting with George Maziarz, Dale Volker, Sam Hoyt and Robin Schimminger - why they have not taken up these issues. Hoyt gets a pass on IDA reform - he has tried - but on the balance, he and the others have not taken the initiative.

A subsidy in pinstripes

I was in New York City over the weekend and took in a game at Yankee Stadium. The new ballpark is going up across the street and looks impressive. I was one of the many Yankee fans (OK, I realize that phrase just cost me with some readers), opposed to abandoning the stadium- hallowed ground, such as it is - but watching three games over the past two years has sobered me to the shortcomings of the ballpark. In a lot of ways, it is grimy and outdated.

Just what does all this have to do with a blog about subsidies? Plenty.

The new Yankee Stadium is going to cost $1.3 billion. Yes, billion.  That's more than the price tag of program to renovate Buffalo's public schools - with four-hundred-million left over.

Now, if this was George Steinbrenner's money, who cares? But the stadium is highly subsidized.

The politic ans who put the deal together put the subsidy figure at $400 million. Good Jobs First of New York has calculated the cost at nearly $800 million. The city, state and feds are all kicking in. Here's a report and another report detailing the history of the project.

Public costs continue to climb. The new stadium is being built on public park land and The New York Times recently reported:

"The price of the new small parks — which are to replace tennis and basketball courts, a running track and baseball and soccer fields eliminated to make way for the new stadium — is now projected to be $174 million, almost one-seventh the cost of the $1.3 billion stadium itself. The original estimate had been $95.5 million."

If you're interested in what the new stadium is looking like, a blog called Sliding Into Home has these photos.

Dishing out the discounts

Almost lost in the news last week about the huge hydopower allocation to Globe Metals to reopen its Niagara Falls plant was the awarding of cheap electrity to three other Niagara Falls companies.

Keep in mind that the discount per job averaged about $4,200 when I calucated it a year ago, and that allocations made since January 2006 have leveraged about $14,000 in private investment per kilowatt.

Here are the new allocations approved by the New York Power Authority's governing board last week:

Saint-Gobain Cermaics, already one of the larger cheap hydropower recipients, got an extra 700 KW. The company says it will use the power to expand its plant, investing $5.8 million and adding 14 jobs.

• Annual energy savings: $276,105 (all calculations are mine)
• Cost per job: $19,722
• Investment per KW: $8,286

Ceres Crystal Industries gets 2,000 KWH for a $5.43 million expansion to double its workforce from 50 to 100 jobs.

• Annual energy savings: $515,272
• Cost per job: $10,305
• Investment per KW: $2,715

Ashland Advanced Materials is a startup that gets 3,500 KW. It plans to invest $8.5 million and create 75 jobs. The company is seeking additional subsidies from the state and county IDA.

• Annual energy savings: $596,226
• Cost per job: $7,590
• Investment per KW: $2,429

Questions worth considering

I've exchanged several e-mails, and had a long phone conversation, with Greg LeRoy of Good Jobs First about the Globe Metals project announced earlier in the week. He's more on top of subsidy deals than anyone in the country, and he offered a couple of interesting perspectives I wasn't able to weave into my story in Thursday's News.

LeRoy is not keen on the Globe project, calling it "a very pricey deal," because of energy discounts and tax breaks that will run as high as $360,000 per job over 10 years. He said the deal "begs common-sense questions."

-- Did the company say it needed all of the multiple subsidies -- on top of the cheap power -- to succeed?

-- Is there a plan to wean the facility from some of the subsidies after it takes off?

-- Will the New York customers of the discounted silicon also get multiple subsidies?

-- If the market for this product really is growing 30 to 40 percent a year, shouldn't successful companies be able to pay their fair taxes in a few years?

All good questions. I wonder if state officials asked them before striking the deal.

LeRoy has issues with the new set of subsidies that are being enacted at the federal level and elsewhere to promote renewal energies, green collar jobs, etc. He outlined his concerns in a recent piece for Grist, a very good environmental Web site.

"Some green-jobs policy proposals call for new economic development subsidies to promote the construction of manufacturing facilities for making renewable energy products. However, the average state already has more than 30 different economic development subsidy programs, and companies routinely get 8 or 10 subsidies in a single deal.

"Manufacturing has long been the most coveted kind of jobs investment. Build a windmill gearbox factory in a major industrial state in America today and it will be showered with so many corporate income tax credits, it will generate a negative income tax bill (i.e., net loss carry-forwards) for years. It will pay $0 or sharply reduced property taxes for 10 to 20 years. It will not pay any inventory tax or sales taxes on its building materials or machinery and equipment. It will receive tax-free loans that will greatly reduce its cost of capital. It will be offered subsidies on its land price, new-hire wages, and training. Ironically, it may even receive discounted electricity."

LeRoy suggests an alternative.

"Let's use some of those existing 30-odd job subsidies per state as leverage to get companies to reduce their carbon footprints. Let's use the winning frames honed by progressives as they have won other economic development reforms.

"These reforms include job quality standards (requiring companies that receive subsidies to pay good wages and health-care benefits), clawbacks (enabling government to recapture some or all of the money spent on subsidies if a company falls short on job creation), and disclosure (requiring government to disclose on the web company-specific costs and benefits). Half or more of the states and lots of cities and counties now have such safeguards.

"Shorthand, let's say: 'Every office building that wants a property tax abatement must go LEED or LEED-EB first," or, 'Any factory or warehouse seeking an investment tax credit must meet best-practice emissions and workplace safety standards.' You get the idea.

"If rules such as these were phased in for existing recipients and required of new ones, I believe two things would happen. Most companies would move to clean up their act, creating millions of new green jobs. And a minority of companies (the low-roaders) would refuse and start losing some tax breaks. That would be a win-win for taxpayers: more tax revenue from the new paychecks and new revenue from the polluters."

An interesting take. What do you think?

Costing the Globe deal

Some thoughts on the Globe Metals deal I cost out today in The News.

From a purely green economic development perspective, this is great news. Adding some 500  good-paying green-collar jobs in the emerging solar industry is big. And setting aside 25 percent of the silicon produced at the plant for solar panel manufacturers the state hopes to attract shows forward thinking on the part of the Empire State Development Corp., which negotiated the deal.

Enthused Bill Nowak of the Green Gold Development Corp.:

"This is a very good foundation to build on. If there is going to be a public subsidy, this is the kind of business it should be directed to. We're building for the future with this."

But the public subsidies involved are staggering.

Discounts on hydropower alone approach $30,000 per job, per year. There are big tax breaks through the Empire Zone program that state officials have yet to fully calculate, and and tax credits will reduce, if not if not eliminate, Globe's corporate tax bill to the state for years. I imagine there are federal tax breaks to be had, as well, although I could not confirm that in time for today's story.

By my calculations, Globe, for its $60 million investment, will get power discounts and state tax breaks worth $155 million to $180 million over 10 years. That works out to, ballpark, $310,000 to $360,000 per job.

Greg LeRoy of Good Jobs First, the smartest guy I know on subsidies, is not as cranked on the project as Nowak. Said LeRoy:

"It's poetic that power from moving water will help capture power from the sun while creating jobs in a community that needs them. This is a real "poster-child" story, the kind of story that public officials are prone to overspend for."

I'd really like to hear from readers on this, especially green activists and economic developers. And all you taxpayers, of course. It would be nice if posters used their real name -- I'm getting tired of snippy comments by those who use pen names. I put my name to my words, and think readers should do likewise.

I'm also including an online poll below that I'll keep open through the long weekend. One vote per person.