Rebuilding the Upstate Economy

For many years, Upstate New York was treated like a second class citizen, forced to watch Downstate thrive as the Upstate economy dwindled. Upstate was literally losing population and jobs - and maybe most importantly, it was losing hope. Much of this was a function of the changing economy, which shifted manufacturing to overseas. Also, some people left Upstate New York for warmer climates in what has become a more mobile society. But it is just as true that the state's policies contributed to the decline and the state did little to assist in Upstate's transition to a new economy.

Four years ago we embarked on what many considered was a fool's errand, trying to rebuild the Upstate economy. When I first announced our plans, the media and our citizens viewed the intention and possibility cynically. We carried on nonetheless. Today any objective source would admit significant progress has been made. Even the skeptics are startled.

We started on the toughest economic terrain, Buffalo. Today, evidence of a Buffalo renaissance is irrefutable. Just yesterday the Buffalo News Editorial Board said, "While Buffalonians have never been accused of being wildly optimistic, especially since the end of the heyday of Bethlehem Steel, even the most jaded has to admit change is in the air."

But it's not just Buffalo. Rochester's future is lighting up with advancements in the photonics industry. According to The Democrat & Chronicle, "economic development officials and insiders are bordering on euphoric." Utica scored a big win in attracting nanotechnology companies and securing 2,500 high paying jobs. One of the companies moving to Utica is General Electric. General Electric had left Utica decades before, leaving for greener economic pastures. General Electric's exit was devastating to Utica. Today General Electric is coming home to Utica, bringing 500 jobs. It is a perfect metaphor for Upstate's rebirth.

This progress did not come easily or inexpensively. Nor is the economic trajectory certain or uniform; regional performance varies. Most notably, the Southern Tier is still lagging. There is no reason to rest on our laurels. It is an ongoing process. We have worked tirelessly and invested millions for the progress we have achieved thus far. Our efforts were strategic and informed. I had spent eight years in Washington heading the Department of Housing and Urban Development and had invested billions in economic development all across the country. I have seen what worked and what didn't work, and we brought the best examples of success to New York State. We pursued a five-point plan.

1. We have dramatically reduced state taxes. We've reduced income taxes, corporate taxes and manufacturing taxes to the lowest level in decades. We also controlled the growth of the tax which is most oppressive to Upstate New York - the property tax - with our property tax cap, while we aggressively promoted government consolidation and efficiency.



2. We invested state funds in building sustainable, regional, private sector economies, rather than the past practice of spending funds to slow the inevitable insolvency of failing governments that were losing their tax base. Our strategy is to build jobs, build businesses, keep our young people, attract newcomers and create a tax base that will allow local government to be sustainable. The state's past theory of trying to prop up local governments would only necessitate the state to further increase its taxes, which would actually accelerate the decline of Upstate and its tax base. Our strategy of incentivizing the growth of private sector jobs is the best way to help a local government because with a sustained tax base, the local governments can support themselves.



3. We stopped the Albany based, top-down political decision making and invested in job growth by decentralizing decision making from Albany to the ten distinct economic regions in the state and engaging the local elected, business and academic leadership in designing plans for their region.



4. We injected a statewide competition into the allocation of our economic resources. This was new and controversial. Local governments and regions didn't want to have to compete for funds. They wanted a state allocation handed to them. I understand fully their feeling, but I disagree. During the Clinton Administration, the federal government moved from entitlements to competitions and performance grants. There is little incentive for local governments to be efficient or effective with taxpayer funds. Government, unlike the private sector, has few performance benchmarks. I believe competition increases the level of attention and accountability. The past four years have seen the state's ten regions compete against each other for resources. I have seen the competition work to increase the performance of all regions; the taxpayers are getting their money's worth and the regions have plans that are stronger with a greater chance of success. The competition also helped forge alliances within the region. One of the challenges is to get local business leaders, politicians and academic leaders to unify and develop a joint and cooperative plan rather than the usual jousting with each other for the economic crumbs generated by their regional economies. One of the factors in a region's success is the level of political and business collaboration. Infighting hinders economic progress dramatically. This spirit of competition with other regions actually provided a common goal that helped unify the local participants.



5. I firmly believe the state shortchanged Upstate New York for many years, and I believe it was shortsighted. When New York City had financial trouble in the 1970's, Upstate bailed it out because at the end of the day we are one state, one community and one balance sheet. Now, we have modified the state's funding priorities and have invested billions in Upstate New York. From the Buffalo Billion to the Regional Economic Development Council Awards to this year's1.5 billion Urban Revitalization Initiative, the state has invested more in Upstate New York than at any time since construction of the Erie Canal.

The applications for the state's economic development funding will be due in early fall. The Regional Economic Development Councils all across the state are actively in the midst of preparing their business plans for submission. The stakes are very high with $500 million going to the regions with the best economic development plans. Everyone involved in the process has been asking me the same question: "How do we win?" Here are my tips:

• There is no "build it and they will come" economic theory. We want actual and specific business agreements and transactions that will result in the creation of actual jobs. For example, for a region to be successful in securing funding, it must have a tentative agreement to partner with a specific company to bring or produce x-number of jobs in that region. This is not a theoretical exercise. We seek propositions for actual pending transactions.



• Business development plans are best when focused on synergistic economic clusters. Clusters are a number of businesses that are involved in the same general enterprise, usually including research and development, manufacturing or related supply chain companies. Clusters often occur in concert with an institution of higher learning. The new economic clusters often build from that region's existing assets. For example, Rochester, which has a long history of engineering and academics coming from the Kodak and Xerox era, is now developing a cluster economy in the photonics area. Often, the key to the future is found in updating the past.



• This is not a political ("small p") process. The regions are devising a business plan. You cannot make everyone happy in development of a viable business plan. This is not the preparation of a Christmas list. Even with a500 million capital infusion, a region cannot develop more than two or three clusters effectively. "Spreading out the funding" so that everyone gets something is not an economic strategy. It placates members of a committee during the application process, but only until the announcement day, when they find out they are not winners.



• "No copycat economic blueprints." What works for one region may not necessarily work for another region. For example, Buffalo's success cannot be duplicated by copying Buffalo's plan. What made the Buffalo plan successful was that it was custom-designed, building on Buffalo's assets. A region's cluster strategy is built on that region's assets, institutions and advantages. This state does not have one economy. It truly has ten regional economies and each region can do better or worse depending on the efforts of the local leadership. There is no statewide economic tide. Each region must paddle to move forward.



• "Swing for the fences." Start by looking for a business opportunity that would make the region competitive not just statewide, but nationally or internationally. Also, explore the opportunity for government reform: consolidation, shared resources, equipment cooperatives, et cetera. The enemy of Upstate business development is high property taxes. Property taxes are a function of local government. The state has capped the growth at two percent and assumed the greatest cost (growth in Medicaid). We need and welcome local initiative to find creative ways to reduce the cost of local government.



• The competition calls for "regional" plans - provide them. We understand the economic engine of a central city, but we also understand that the economy has to work for the entire region and the plans that address the region comprehensively are the most competitive.



• Consult everyone, including all elected officials. Strive for consensus but don't achieve consensus by sacrificing the plan's integrity and intelligence. Forge consensus by developing the best plan to succeed and then get the entire community to buy-in, unified and motivated by the hope of a better future.



• Develop a plan that can be implemented even if you don't win the competition. It is a function of collaboration and partnership that is accelerated by a500 million capital investment. But the plan should be viable even without the investment, albeit harder and probably slower to achieve.



• Get the community excited. Only communities that believe they have a future actually have a future. It's the taxi driver and waitress story. Everyone needs to communicate optimism. The way consumer confidence is a national indicator of economic success, I believe that likewise, resident confidence or citizen confidence is a predictor of a locality's success. Residents who believe in the economic future of their region will purchase homes, improve the homes they have, invest in their business, tell their children to remain in the community and attract others to the community. Residents emanate confidence which affects the business community. Call it economic karma: believe in your success.



• Plans are not dreams. These plans must be detailed blueprints that are feasible and capable of implementation with identifiable timelines. We don't want projects that are feasible in concept, we want projects that are feasible in practice. Local governmental approvals, if necessary, should be in place. Zoning must be in place. If a project requires other means of financing, those must be identified. The state is effectively functioning as an investment banker and will only commit to projects that are ready to go.

The Upstate Revitalization Initiative is a major opportunity to extend the growth of Upstate New York. One thing is certain: we have proven that there is no reason for despair in Upstate New York. Communities that are committed, unified, and capably led can achieve remarkable progress in a relatively short period of time. I understand the roots of the economic distress of Upstate New York. There have been decades of decline and a parade of politicians promising help that never materialized. It's hard to believe in the future again after so much disappointment. On the other hand, the evidence of rebirth is overwhelming and economic optimism is necessary to make revitalization possible. I believe in Upstate New York and, more importantly, Upstate New Yorkers should believe too, because the best is yet to be.

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