Tuesday, November 27, 2012

Promises of a reset

News Analysis

WNY Economy 2.0?


Trying for a paradigm shift, again: The Western New York Regional Economic Development Council moves closer to a plan for the governor’s promised $1 billion.

When we think about regional economic development, we are ever-hopeful that somehow, some way, the big changes in the outside world can be managed, if not trumped, by our local virtue, gumption, and smarts. Yet it is true that capital long since has been internationalized. The top profit-earning American corporations are oil companies, financial-service firms, and marketing entities that do all their manufacturing in China and won’t be manufacturing in Upstate New York any time soon.
A new study by two non-partisan economists suggests that there is a new normal called the “jobless recovery,” which rings true around here, where overall employment since the 2008 crash is still down: The number of non-farm jobs in September 2012 in the Buffalo-Niagara Falls area is 546,000, compared to 557,000 in September 2008.
Another study finds that there are few job opportunities for new entrants to the middle class, such that America tomorrow will consist of a few investors, some high-wage workers and entrepreneurs, tens of millions of low-wage workers, and an ever-shrinking middle class that consists principally of public-sector workers under political attack from every other cohort. If this is the new America, our corner of which has been a post-industrial playground for rent-seekers, what difference can Governor Andrew Cuomo’s $1 billion pledge to Buffalo make in our diverse $45 billion regional economy?
That was a sensible question well before Hurricane Sandy hit the New York City area, whose strong and growing economy—now disrupted and needing more than $30 billion just to get back to normal—supplies the subsidies that rain down on Upstate New York. The mega-trends of the US economy present UB president Satish Tripathi and Larkinville entrepreneur Howard Zemsky, Cuomo’s volunteer leaders of the Western New York Regional Economic Development Council, with a daunting enough task. After Hurricane Sandy, the damage wrought by climate change to the functioning New York metro economy seems a much more urgent issue than figuring out how to deal with the perennial challenge of what to do about faraway, needy, never-quite-right Buffalo. After all, the national Bureau of Economic Analysis says our gross metropolitan product grew, despite the 2008 crash, from $41.7 billion in 2007 to $45.1 billion in 2010. We may be losing population and jobs, but the numbers are still positive.
That’s in part because the Albany cornucopia still burgeons in an ongoing building boom that drove Harvard economist Ed Glaeser in 2007 to conclude that more billions in outside money won’t help the place, and that “the best scenario would be for Buffalo to become a much smaller but more vibrant community—shrinking to greatness, in effect.”

Governors and messaging

Trade, demographic, and technological megatrends keep adding challenges, yet yesterday’s commitments are still on the books. Albany is investing tens to hundreds of millions of dollars in new buildings for a new medical campus, after having spent tens to hundreds of millions of dollars in new buildings for the old medical campus, even while the mega-trend cluster of information technology, genomics, and telemedicine could make monkeys of the people who sign off on all those long-term bonds for buildings that fewer and fewer patients will ever have to visit.
But Andrew Cuomo is like his predecessor governors, Mario Cuomo, George Pataki, and Eliot Spitzer: He has enlisted smart helpers to make something change here, because Buffalo’s reputation is still—in significant part because of the negativity of the Buffalo Niagara Partnership’s campaigning—so, well, negative.
This community supports two professional sports teams, gets international kudos for its architecture and for its arts, and somehow ekes out actual GDP growth—and yet governors pledge transformation. George Pataki was in the transformation business when he set up “centers of excellence” in Albany, Syracuse, Rochester, and Buffalo, each tailored to the hoped-for specific strength of each area, each intended to provide the next regional economic driver. Albany got the center for nanotechnology, which by all reports seems to have succeeded, if at great expense. Syracuse got its center for new manufacturing; the self-aware, reality-checking regional business organization there seems still to be effective in agglomerating export-oriented strength from small manufacturers, though employment in the Syracuse metro is still down 10,000 since 2008. Rochester doubled down on its imaging technology, just as Kodak entered its death throes, getting a Center of Excellence in Photonics, but tech-oriented employment has been strong nonetheless, and the Rochester metro, which had 519,300 jobs in September 2008, had 517,700 jobs in September 2012. Buffalo got Pataki’s Center of Excellence in Bioinformatics. See above for regional job numbers.
And now Cuomo has his Regional Economic Development Councils. The good news about the one in Western New York is that there is some hard reality-checking going on. Co-chairs Tripathi and Zemsky have asked for advice from people with sterling credentials, including the Brookings Institution’s Bruce Katz and Amy Liu, as well as the international business consulting firm McKinsey and Company. Hundreds of volunteers have spent thousands of hours conferring. There isn’t a final report yet from the consultants, but the word so far is that the targets for the mixed bag of state subsidies, tax incentives, and infrastructure inputs will be these: advanced manufacturing, life sciences, and tourism.
There will allegedly also be a new item: something like the Pittsburgh model of an annual business-plan competition that will include, as they do in Pittsburgh and elsewhere, some ongoing technical and financial support. The biggest, fondest hope is to commercialize some of the intellectual property created at the Buffalo Niagara Medical Campus.

The current paradigm

Here’s what Tripathi and Zemsky and Brookings and McKinsey and all those volunteers are up against: the Buffalo-Niagara Falls political economy that has, for a generation, steered billions of public dollars into projects that don’t arrest population decline, don’t raise household income, don’t clean up the water, don’t change or even mention income polarization, don’t address suburban sprawl, and yet keep a small group of business-class insiders very flush indeed. The community is awaiting the economic development solution that will come with great community buy-in, sterling Ivy credentials, and precisely engineered deliverables.
Cuomo is well briefed on what’s in place in Western New York. The evidence of his own unscripted statements is that he knows what other historically aware leaders have known, which is that economic and political change are connected.
It’s not a matter of money: Annually, the Buffalo area still gets at least $1 billion more in New York State tax dollars than it ships to Albany. In addition to salaries for SUNY employees, state troopers, the court system’s staff, and various other public employees, there is all that revenue-sharing—matching money to Erie County for much of what it does in social services, and extra funds to Buffalo for what it can’t do for itself given its radically overburdened tax base.
And then there are project funds, hundreds of millions already. There is highway-maintenance money. There are the SUNY 2020 funds going into rebuilding the medical school downtown—the one that was just rebuilt about 10 years ago on the South Campus of UB. The Buffalo Public Schools just finished spending more than $1 billion in state money on refurbishing buildings inside Buffalo.
We do not need to count the $153 million of New York State Power Authority relicensing money that was just sunk into the system of replica canals downtown. Many West Siders hope and pray that they won’t have to count the tens of millions that state officials would use for a diesel-exhaust concentration facility at the Peace Bridge. There are brand-new dorms and buildings and technology at Buffalo State College, which cost $300 million in state funds, and brand-new structures at UB, too. If the ill-considered $30 million building approved for the north campus of Erie Community College goes forward there rather than downtown, where the college should be consolidated, at least half the funds will come from New York state—the generous, reliable, locally reviled state that just now has Hurricane Sandy to clean up after.
Armchair economic development strategists will pick apart whatever program gets delivered after New York State spent $2.8 million on McKinsey’s consultancy. That’s inevitable and appropriate. But one wonders if some of the enduring challenges here, and some new ones, will make it into the final document.

What we won’t get, what we should get

We know that the political part won’t make it in. The lack of regional land-use planning to restrict the ongoing construction of housing and commercial space far outside the central urbanized region creates expensive externalities—like high utility costs and infrastructure over-build—that somebody beside the Regional Economic Development Council will have to address. Neither should we expect to see anybody who talks about job-creation strategies and business-plan competitions address the guaranteed ongoing failure of the Buffalo Public School system, more than 77 percent of whose students are from low-income households. (Since the 1966 Coleman study, replicated in 2010 in Buffalo by Ryan Keem, analysts have known that there is a .77 correlation between achievement and household income.) Regional school integration by household income is a crushing economic issue, but do not expect this to make the final report.
Nor can we expect climate-change issues, like the new preciousness of Great Lakes water, and especially the new preciousness of Western New York’s bountiful rainfall and exemption from the 2012 drought that hit 40 states, to drive the economic-development recommendation that now, right now, is the time to turn our infrastructure budget away from roads and toward cleaning up the water.
One worries that the report will trot out the old, discredited numbers about the millions and millions of alleged visitors to Niagara Falls, New York, who actually work out to be about two million people, mainly from here and around Upstate and Ohio, the rest of the numbers being an artifact of the repeat trade that the Seneca Gaming Corporation casino in the Falls gets—85 percent of whom are from here.
It will be enough that this report will endorse a programmatic alternative to the post-industrial, real-estate-centered norm here, so that maybe Buffalo will have a chance to be again what it was before it became a headquarters town, then a branch-office town, and then a dependency of Gotham—namely, an entrepreneurs’ town. During Buffalo’s age of heavy industry, as former University at Buffalo scholar David Perry pointed out in his landmark 1987 paper, ours was a headquarters town because of the peculiar geography of grain, steel, and victory in the Civil War. Then, even before World War II, the owners sold off their enterprises, and leadership here shifted mainly to bankers, lawyers, financial-service people, and people connected with real-estate development—not wealth-creators in the sense that the industrialists are, but wealth-managers and rent-seekers.
In the 1950s, whole industries started leaving, beginning with the defense complex and culminating with the end of the steel era in the early 1980s. Peak manufacturing employment here came in 1954, according to an old M & T Bank study, when there were 225,000 jobs in that sector out of a workforce of about half a million. Now, less than a quarter of the 546,000 workforce here is in “goods-producing” activities, and that includes things like food-processing for local needs, and not the hoped-for export-oriented manufacturing that brings other people’s money here.
When the economic development plan comes, the community should hope that it will get something it hasn’t had before: not a recipe for yet another tactical handout for yet another blockbuster public expenditure that will be built by today’s insiders, financed by today’s insiders, and targeted to today’s shrinking population, but rather a strategy, a long-term, nose-to-the-grindstone strategy, for incremental paradigm change for a smaller, closer, greener tomorrow.
Cuomo’s presidential ambitions will be best-served by the latter. If only the political revolution—for income-integrated schools, clean water, and sprawl’s end—were part of the package, too.
Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book isBorderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.

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  • MaxPlanck
    I liked Glaeser's quote, "shrinking to greatness." Buffalo, like  other Eastern and Midwest cities generally, is struggling with an urban footprint based on an economy that's moved on and won't be returning and thankfully the discussions in Buffalo are about what will be as opposed to pursuing a Quixotic pursuit of what has been. 

Thursday, May 3, 2012

Old port, new park?

Buffalo's Toronto Islands?

by Bruce Fisher

Why Western New York needs a green front yard in the Outer Harbor

Back before anybody knew that giving the New York Power Authority a new license could bring a couple of hundred million dollars for waterfront development, there was a pretty good consensus about what to do with the 120 acres of brownfield-spotted landfill that used to be the Port of Buffalo—namely, that we should ask New York State to make it a park.

Back in 2003, then-Assemblyman Brian Higgins was keen for the State of New York take over Gallagher Beach. Then-Erie County Executive Joel Giambra had cut the ribbon with then-Congressman Jack Quinn on the Times Beach Nature Preserve. Giambra had paved a bike path from the gates of the Coast Guard enclosure on the Buffalo River all the way to the Union Ship Canal. And golf-addicted Giambra spoke to anyone who would listen about covering up the brownfields of the former Bethlehem Steel property with a Scottish links-style golf course, flanked by the Laird Robertson wind turbines on that high Bethlehem Steel “dune” of inert slag, so that the formerly industrial and commercial waterfront would be green, public, and accessible all the way from Lackawanna to Tonawanda Creek.

Then came the money, and it was the developers’ turn to churn out plans for how to take the public’s money and its land, too. One developer wanted to “invest” several tens of millions of public dollars and slice the Outer Harbor into boat slips, so that the land between the Bell Slip and Times Beach could become a replica of the townhouse colony that graces Erie Basin Marina. That plan got shelved when it became clear that brownfield remediation, plus new utilities, and the structural problem of the land there not being land at all but rather landfill, were too costly impediments even in a community accustomed to massive handouts of public funds for developers. Our region’s shrinking, aging population, where the median household income is $10,000 below the state median, and where a quarter of that income comes from transfer payments, also provides no identifiable demand for more million-dollar condos and townhouses than those already for sale in Montante’s Avant, Paladino’s Pasquale, and soon enough, potentially more coming in Croce’s Statler Towers and Termini’s Lafayette Hotel.

Nor did a developer duo’s plan for the Freezer Queen building bear fruit, theirs being a plan to give Buffalo a publicly subsidized waterfront hotel overlooking the Small Boat Harbor on one side and the former Ford assembly plant, yet to be re-purposed beyond warehousing, on the other.

Now the former Port of Buffalo land is once again being discussed as green space, and with the same good reasons that a few current and many former elected officials, including former Erie County Legislator Joan Bozer, have long noted. The park option is cheaper and more achievable than any handout-driven developer scheme, to be sure. But the true value of green space for a depopulating Rust Belt region is that it’s the most sensible option for land that once had a critical economic function, but that lacks such a function now.

The regional real estate market offers no rationale for adding housing units or office space on the city's waterfront.

More wallet than wit

The various development plans for the Outer Harbor have not included any wealth-creation components, such as, say, restoring the former Port of Buffalo to functionality as an actual port. There have been no plans advanced to reclaim the land for industrial use, say, for a manufacturer of wind-turbines, or for any other product. None of the plans for the land have included any proposal to construct an office campus for a prospective tenant that would employ people, either current residents or newcomers, in any income-producing jobs. Instead, every plan has been about wealth-absorption, either as a taxpayer-subsidized housing development or as a taxpayer-subsidized recreation zone.

It’s a given that money is no obstacle, so long as Albany can send the money to any of the real-estate developers that fund the political machine here. As both the Buffalo State College Center for Economic and Policy Studies and Albany’s Rockefeller Institute have shown, Western New York is a dependency of Albany, routinely receiving a billion dollars a year more than we pay into the state till. Any project that has a political upside is bound to get funded, so long as a developer gets a piece.

In the lull before some new developer-driven wealth-absorbing scheme is presented, advocates of a public park should move quickly to get their arguments marshaled. Here are the strongest points to emphasize to Albany:

• The place works fine as it is. The NFTA approved and completed a $12 million project to create the Outer Harbor Greenbelt. There is now a bike path, a 95-foot-wide green area around the path, a repaired shoreline, and much-improved spawning habitat at the Bell Slip for muskellunge and other native fish species. The public does not know much about this, but much of the old debris has been removed, and the place is quiet, pretty, and accessible. My trip from downtown to this breezy place of wildflowers, birds and peace took four minutes and 30 seconds over the Skyway, and along the way, I got a look at the south coast of Canada, and counted up another half-dozen Laird Robertson turbines, and glimpsed faraway lake freighters headed to Port Colborne and the soft hills of the southtowns.

• Toronto Island works for Toronto. This is ours. The kind of development that user-fee-paying users are clamoring for is soccer fields. Parents of young children might like to take the four-and-one-half-minute drive from downtown Buffalo, rather than the two-hour drive to Toronto, to take their pint-sized kids to a seasonal kiddie amusement park like Centreville. Or not. See point #1, above, with the possible caveat that we could do worse than to plant a hedge maze.

• We already have too many houses and commercial buildings. There is a looming two-million-square-foot surplus of commercial space in the Central Business District in downtown Buffalo. The City of Buffalo owns almost 6,000 vacant parcels. The US Post Office keeps track of more than 20,000 undeliverable addresses inside Buffalo alone and a growing number in both Tonawanda and Cheektowaga. There is no market rationale whatsoever for increasing the supply of either housing units or commercial office space.

• Until industry returns, wildlife and greenspace are good branding. The Outer Harbor used to produce wealth. Since the end of the 140-year era of Buffalo’s predominance as eastern Lake Erie’s waterborne freight destination, the Outer Harbor has had limited economic relevance. There are important new freight-transfer activities on the 1,200-acre Bethlehem Steel site, including the multimodal facility for Canadian lumber exports at the south end of the site, and some new freight-transshipment-oriented activity at the north end of the site. The long-delayed movement of rail lines and demolition of decrepit steelworks will open up the Bethlehem Steel site for more of that work, and the site also has a major protected slip able to accommodate four lake freighters, which have not docked there for thirty years. In sum, there are the stirrings of new commercial activity on the sites to the south of the Outer Harbor, but still insufficient demand even for the sites with established rail access, so banking the Outer Harbor as a clay-sealed and thus, green, wildlife-friendly, walkable, passive park makes much economic sense until there’s an economic rationale for doing something else.

• There is a $500 million bill awaiting us. The federal Environmental Protection Agency set a deadline of April 30, 2012, for the Buffalo Sewer Authority to submit its plan to deal with the 52 combined sewer overflow outlets that annually discharge four billion gallons of raw sewage into the Buffalo River, Scajacuada Creek, Buffalo Harbor, the Black Rock Canal, and the Niagara River. The EPA warned, in its March 15, 2012 statement, that an acceptable plan may cost as much as $500 million and take 15 years to implement. After Albany sends Buffalo a $1 billion check for economic development, somebody, probably including Albany, is going to have to pay for the sewer system reboot. Unless there is some demonstrable economic return for a new Albany investment in the Outer Harbor, one expects that it will soon get bumped down the agenda once again.

Outer Harbor park advocates have already gained a nod from Congressman Brian Higgins. Their next job is to convince the major media in Buffalo to stop referring to the Outer Harbor as inaccessible. Perhaps if a timed YouTube video of the actual trip from Niagara Square to Fuhrmann Boulevard could be set to music, the reality of our existing waterfront green zone might go viral, and end the developer-speak that still convinces many of our developer-funded politicians that our own version of Toronto Islands needs condos, townhomes, office buildings or canals. It doesn’t.

Friday, April 27, 2012

Fund the Bills or the Bulls?

Lose the Bills, Help UB

by Bruce Fisher

How Western New York collegiate athletics could thrive again if we stopped subsidizing the NFL

   The Buffalo Bills won’t leave Buffalo for Los Angeles, no matter how small or how large the shakedown the team manages to get from terrified local officials, because there are three other National Football League cities for which Los Angeles is a more credible threat—to the extent that LA or any other alternative venue is a credible threat at all. The State of California is in structural fiscal crisis and is unlikely to support public funding of any stadiums or arenas, but even within the state’s boundaries, the name of America’s second-largest media market is waved before the noses of cowering officials as a threat to get more money from them for subsidies for professional sports. That’s currently the case in Sacramento, California’s state capitol, where the question is whether a new $400 million arena for the National Basketball Association’s Kings franchise will be delivered on time to the family that owns the team, or whether that team will move instead to Anaheim, which is in the Los Angeles megapolitan area. Los Angeles is currently the threatened destination for the Minnesota Vikings, too, just as it is for the struggling franchises in Jacksonville and New Orleans. If taxpayers in St. Louis don’t come up with money for stadium improvements, the media there say, then Los Angeles could get its Rams franchise back.

     Don’t believe the LA threat. Whether or not Erie County and New York State pony up another $200 million handout to the Buffalo Bills so that “our” NFL franchise can export tens of millions of dollars a year to the Detroit owner and to the non-resident athletes who perform here a dozen times a year, Buffalo will remain a prime site for pro football. That’s because Buffalo has a fan base that stretches far beyond its media market—a media market that is huge, if understated, because it catches most of Upstate New York and Southern Ontario. The actual viewing audience of the licensed television stations here encompasses Toronto, Hamilton, and Niagara Falls, as well as Rochester and northern Pennsylvania, making this market, with more than two million viewers of analog and digital TV signals, number 11 among North American markets. By the numbers, the Buffalo media market is bigger than those of Phoenix, Detroit, Seattle, Minneapolis, Tampa, Miami, Denver, Cleveland, San Diego, Charlotte, Baltimore, Indianapolis, and Pittsburgh, to name just a few NFL cities.

     Across the US, easily bamboozled politicians may be waking up to the emptiness of the threat of relocation. Or maybe not. Two weeks ago, state legislators in Minnesota voted against a $975 million package that would build a new stadium for the Minnesota Vikings NFL franchise, a deal that includes the team’s owner pledging $427 million to the project. The downtown Minneapolis stadium would require city residents to pay $188 million in operation and maintenance over the next two decades over and above the $150 million in up-front, city-funded construction. But thriftier and more populist suburban Republican state legislators and a handful of progressive Democrats—angry that the usual citywide referendum rule was waived for this deal—teamed up to vote against the handout on a roll-call vote. Predictably, after the franchise owners began to mutter publicly about Los Angeles, the legislature is expected to cave by Friday. They will take more voice votes rather calling the roll, in the hope that the voice vote will shield members from voter anger over the giveaway.

     Back in Sacramento, which has a Designated Market Area that delivers 1.4 million viewers (half a million less than see Channel 2, 4, or 7 in the Buffalo-Toronto-Rochester-Jamestown viewing area), the shakedown is for a basketball team. But Sacramento is at or near the epicenter of the mortgage-default crisis zone. Sacramento has 12 percent unemployment in a state with a multi-billion-dollar structural deficit. Anybody who believes that an NFL team is going to go to a non-NFL market in California is not paying attention to the crisis in municipal finance that is worse in that state than in any other, but that is widespread across the US.

     Meanwhile, in the very healthy economy of Portland, Oregon, which is not in financial crisis, and which in fact is a metro that continues to grow in both population and wealth, there is an example of a fairly large media market that has only one major-league sport franchise, the NBA’s Trailblazers. Portland has never had a National Football League franchise. Portland has also never had a Major League Baseball franchise.

     How can Portland survive with a single major-league pro sport team? The answer seems to be that amateur sports, particularly collegiate sports, fill the bill in Portlandia—and in many other medium-sized and small markets. And the evidence is that the markets without the major league franchises get a much larger economic return on their public investment when the taxpayer dollar goes into college sports rather than into the pockets of pro sports athletes and owners.

College sports enrich regions

     The University of Wisconsin football team, the Badgers, plays in a stadium that seats 80,321 and has 72 suites, 337 club seats, and 590 varsity indoor seats. In 2005, the stadium attendance record was set when Wisconsin played Minnesota before more than 83,000 fans. There are more than 69,000 season-ticket holders for Badgers football.

     There is no professional football team in Madison, where the Badgers play. There is no professional football team in Columbus, where the Ohio State Buckeyes play. There is no professional football team in Urbana-Champaign, Illinois, or in the entire state of Oregon, or in many of the rest of the college towns where Big Ten, PAC-10, and Southeast Conference college football teams play.

     The economic impact of college football has been measured over and over again, and has been found, by both business reporters and by academics, to be huge. In a seminal and often-cited 2000 study for the Journal of Sports Management, University of Kentucky economist Brian Goff found that “evidence indicates that success, and at times merely participation, in college athletics provides several benefits including direct financial gain and such indirect benefits as increased university exposure and, in turn, increased financial contributions and increased student applications and enrollment.”

     Forbes magazine looked at the cash flows of the 20 top-grossing college football programs and found that they are cash cows for their host universities. The Wisconsin Badgers delivered a $20 million profit to the University of Wisconsin in 2009 on $43 million in revenue. The Ohio State Buckeyes “franchise” was worth $78 million based on 2009 revenue of $61 million and profit of $26 million. The Michigan Wolverines in Ann Arbor brought home a profit of $47 million and the Michigan State Spartans a profit of $28 million, and the story is repeated everywhere from Nebraska to Iowa to Pennsylvania to South Carolina, everywhere that big public universities put forward an entertainment product without having to compete against publicly subsidized National Football League franchises.

     Even when collegiate athletics merely break even, there is a large body of evidence that a college football program that dominates in its media market is a net winner to the host community. Fans who are loyal to the college team are prime donors to the college. Fans who attend home games spend their money at home. Rather than an out-of-town owner and non-resident players and staff exporting revenues to their homes elsewhere, college athletics bring outside money in, and keep it in. Even in small markets, there is big money. The latest numbers for Syracuse University are that Orange basketball brought in $10 million in profit to the University on $18 million in revenue.

     That revenue, even for small programs, stands to grow. The National Collegiate Athletic Association last year concluded a revenue-sharing agreement for televised games, and the numbers that have become public are staggering. The average per-team revenue sharing from televised games for Big 10 schools has been calculated on Kristi Dosh and Alicia Jessop’s the Business of College Sports website (businessofcollegesports.com) to be $17.6 million apiece—over and above the proceeds from ticket sales at the home stadiums. Universities in the Pacific and the Southeast conferences stand to get similar numbers, with the smaller conferences getting less money, but money in the millions estimated from $1.1 to $5.3 million a year for as long as broadcasting continues.

     The key contrast between professional sports money and collegiate sports money is this: In pro sports, the taxpayer-funded stadium subsidies and operating expenditures enhance the profits of private owners, whereas in collegiate sports, the taxpayer money returns to taxpayer-supported educational institutions.

If the Bills go, could college sports here grow?

     Someone should ask the State of New York to do an economic-impact analysis of what would happen were the $200+ million that the Buffalo Bills franchise seems to be demanding of taxpayers were to be redirected into the University at Buffalo so that its collegiate athletics could grow to the size, prominence and market-share of Ohio State, Michigan State, Wisconsin, Oregon or any number of other major southern, Midwestern or western public universities.

     Doubtless, there is some value to having a professional football franchise in Buffalo—but the consensus among academic economists is that that value cannot be measured in actual dollars, as the Buffalo Bills do not add economic value to the regional economy, but rather subtract value, and export it. Any economic analysis should include the impact of the ticket-buying fans spending somewhat less on collegiate sports tickets—a season ticket to the Wisconsin Badgers costs $294 for the seven-game home season, compared to $320 to $640 for a lower-level outdoor eight-game Buffalo Bills season ticket. Such an analysis should also collate the numbers when fans, and non-fans alike, spend many tens of millions of dollars less on annual subsidies to the professional sports franchise. Slightly fewer sales tax dollars would be generated if 80,000 tickets were each sold for seven college football games compared to eight professional football games and the odd pre-season game, but then all the revenue from concessions, parking, jerseys with team insignia and other sources would go to the University and not to out-of-state owners were the fans to turn out for UB rather than the Bills. The substitution effect is pretty straightforward: in markets without pro football, football fans buy college football. And then some of them stick around to support basketball, and then other sports, too.
     The obstacle that keeps the University of Buffalo’s Division I football team from becoming a popular, profitable, well-known attractor of new donations to a major research university is simply that there is a taxpayer-funded competitor in the media market called the Buffalo Bills. Apparently, there simply isn’t enough taxpayer money in the community to support both the college sports product and the professional sports product.

     But the studies show that the college or university that sponsors the team delivers a return to the host community. This is because whatever public money is required to run the stadium, pay the coaches, and to equip and subsidize the athletes, is overwhelmingly overmatched by the income—including alumni and corporate support—that the university gets in return. Where college football programs fail to deliver big profits to their hometowns is in markets dominated by the National Football League. Compare the Big 10 teams in Wisconsin, Iowa, central Illinois, Nebraska and Indiana to Northwestern University. Everybody profits, but Northwestern brings in far less money in a media market dominated by Da Bears.

     The University of Wisconsin Badgers play in a stadium known as Camp Randall, named for the Civil War-era mustering point from which Wisconsin volunteers went forth to conquer the Confederacy and rescue the Union. In 2005, the University of Wisconsin finished a $109.5 million renovation of the stadium that made the place a palace for collegiate athletics. The ongoing stream of profits from the Badgers helps to fund one of the most comprehensive athletics programs in the country on a university campus that is at once an intellectual and research powerhouse, a major employer, and a country club for its 42,500 students. Among public universities in 2009, the University of Wisconsin ranks fourth in federally funded research, second in total science and engineering research, and second in overall research expenditures, and brings in over $479 million in federal research grants to add to the $209 million in gifts it obtained just for research.

     One can only wonder what would happen if our politicians decided that the next dollar of stadium-upgrade financing for luxury suites, indoor seating, locker rooms, practice fields, and associated construction would go to a sports franchise already owned by the taxpayers—a franchise that puts money back into the regional economy rather than draining it.

     It’s pie-in-the-sky to expect that the UB Bulls could quickly build a program as profitable as the University of Texas Longhorns, which in 2011 produced a profit of $68.3 million on revenue of $93.9 million. But Syracuse University earned over $3 million in profit from its football team last year. And except for the money spent on materials imported from outside the Syracuse region, the $19 million in revenues stayed inside the Syracuse region.

     The question the NFL would like taxpayers here to ask is how much we intend to give to the NFL for the privilege of keeping the Bills. The question we should ask ourselves is something quite different: What prevents college sports from doing for UB, Buffalo State, Canisius, and the other Catholic colleges what college sports do for the Big Ten schools, for Syracuse, and for all those other schools that thrive on the revenue, the institutional PR, and the buzz of non-professional sports? The answer is not one that the NFL wants you to hear, which is that in a medium-sized market like Buffalo, it makes no economic sense to subsidize professional sports when professional sports probably starves collegiate athletics.

Wednesday, April 25, 2012

NFL Shakedown

Buffalo, The NFL, and Deja Vu

by Bruce Fisher

Another $200 million for football but not for ECC?

     Back when there were 17 of them, Greg Olma was one of only two Erie County legislators to vote against former Erie County Executive Dennis Gorski’s $202 million subsidy deal with the Buffalo Bills. Gorski’s 1997 deal guaranteed Ralph Wilson’s house, which means that Wilson would receive all the money he’d get from selling all his seats whether or not his firm actually filled all the seats in the county-owned stadium. Gorski also “negotiated” free public safety for the Buffalo Bills provided by the Erie County Sheriff, plus frequent stadium improvements, plus all the parking and game-day refreshment revenue generated there. The deal has been an uncontested part of each Erie County budget since then, as durable as any bond covenant; back in 2005 when the Legislature wouldn’t give the county executive the revenue his budget required, everything but bond payments and the Buffalo Bills got cut. Gorski’s deal has been a boon to the television stations and to the daily newspaper, too, which have given the Buffalo Bills almost daily coverage, relying as they do on the advertising revenue they generate by delivering their audiences of sports fans. Current County Executive Mark Poloncarz hired Gorski’s staff to negotiate the new long-term Buffalo Bills lease deal. The question today is not whether the new county executive will offer up the equivalent of an entire year’s Erie County property tax to the Buffalo Bills just as Gorski did, but whether the new county executive will offer up even more public money than Gorski did.

     Looking at the current Erie County Legislature, which has shrunk by six seats, it’s hard to imagine any legislator, even one with a pro-labor, pro-environment, and pro-urban voting record, challenging the idea that the citizens of Erie County should continue to give one elderly Detroit-area businessman more than $14 million a year for the next 15 years, as Gorski and his team did for the past 15 years, in return for that Detroit-area businessman keeping his business here.

     The only challenge to the multi-billion-dollar international practice of handouts to privately owned professional sports franchises comes from a handful of academic economists who speak truth to all that power in journals and on websites like the Sports Economist (thesportseconomist.com).    Summing up their findings is pretty easy, because they pretty much all conclude that public subsidies for these private enterprises create no new jobs and add no additional regional economic growth in the regions where they operate, nor do they add net wage increases for workers in the hospitality and food-service industries that serve them, nor meaningful additional value to real estate near the stadiums and arenas where professional athletes play. The economists concede that the subsidies do indeed pump some money into construction for as long as it takes to build or augment a stadium or arena, but, then, so does every other kind of construction.

     What is also true, though, is that fans who purchase tickets to professional sports games spend less on restaurants and other entertainment. Economists call this the “substitution effect,” meaning, in plain English, that people who have limited disposable income make choices, and that when they choose one set of amusements on which to spend their money, they don’t have the wherewithal to buy another set of amusements.

     In sum, whether or not you like professional football, you and everybody else in the Buffalo metro region help to write that annual check of about $14 million directly to Ralph Wilson and his Buffalo Bills, even after the stadium where his team plays received almost $70 million in state-funded improvements—mainly so that Wilson’s organization could lease luxury boxes starting at around $30,000 per year, plus the price of tickets, paid by area businesses big enough to buy them.

     And your elected county executive, and his colleagues in the Erie County Legislature, will soon sign you up for another 15 years of sending checks to Ralph Wilson, or to whomsoever succeeds him should he not be able to personally accept your money.

     This annual cash transfer to Ralph Wilson is more than twice what you spend to subsidize the zoo, plus the orchestra, plus the historical and science museums, plus the art galleries and plus 30 or so theaters, dance troupes, bands, and other arts and cultural organizations, none of which is a protected monopoly, and all of whose employees live and pay taxes here in this community. Actually, the football franchise gets almost three times what all those arts and cultural organizations receive from taxpayers combined.

     This is how the National Football League likes it. But this arrangement doesn’t happen everywhere the NFL has a franchise. In other markets, owners have to pitch in. In some big places, they and their fans are the ones who actually have to foot their own bills.

Big money from state, city—and owner

     This very week in Minnesota, home of the Minnesota Vikings professional football franchise, a Democratic governor is trying to get his state legislature to enact a $975 million deal that would see about $550 million in public funds and $427 million from the owner’s wallet going toward building a new Vikings stadium. But state legislators are balking. A Republican asked, at a hearing this past Monday evening, the following question: “Why should the state of Minnesota contribute to a stadium for a billionaire” owner?

     A committee of the Minnesota state legislature ultimately voted the package down, with both Republicans and Democrats concluding that it was a bad deal for taxpayers.

     But in the small- and medium-sized metros around the country, the answer from the politicians has so far been, mainly, yes—except when it gets too rich. What galled the Minnesota legislators most was a requirement that the citizens of Minneapolis give up their right to a referendum on the big new public construction. And even though the NFL and the Vikings franchise owner were going to kick in $427 million of the $975 million cost, the proposed deal would have committed taxpayers of the city of Minneapolis to about $188 million in operating costs over the next 30 years.

     Predictably, Vikings spokesmen are rumbling about the team leaving.

     But where would they go? Perhaps to Los Angeles, where proponents of a new football stadium know that there is no way that the politicians will provide taxpayer money, and where stadium backers nevertheless are arranging private financing. There was no taxpayer funding for the new $1.6 billion Meadowlands stadium for the New York Giants and Jets. The San Francisco 49ers’ planned $1.02 billion stadium includes zero taxpayer subsidy.

     In smaller markets, however, professional sports teams routinely go to the political class for taxpayer money. And they get it. Jacksonville, Cincinnati, Tampa Bay, St. Louis, and Baltimore taxpayers all paid more than 85 percent of the cost of their new or improved football stadiums. In the eight smallest markets, at least 80 percent of the cost of stadiums has been borne by taxpayers. Buffalo is the second-smallest media market, and taxpayers will pick up the tab.

What money can buy

     One senior business leader here told me that he likes the idea of spending more money to keep the Bills here because “football keeps the social classes together.” He thinks it’s insane, however, to go all-out and build a Minneapolis-style domed stadium on the NFTA’s 120 acres of waterfront brownfields that politicians relentlessly exclaim are the key to Buffalo’s economic future. Somewhere between the domed stadium that would consume Governor Andrew Cuomo’s entire $1 billion pledge to Buffalo and the $202 million that Dennis Gorski gave Ralph Wilson and the Buffalo Bills lies the number that politicians will endorse on our behalf.

     Meanwhile, however, Erie County policymakers have stated in public meetings that the county does not have the money to build a new, consolidated Erie Community College campus downtown, even though the 15-year capital cost of maintaining three separate campuses would cost about the same as a new consolidated campus—and less than handing the Buffalo Bills a reprise of the deal Dennis Gorski gave them.

     The new Regional Economic Development Council, headed by UB President Satish Tripathi and businessman Howard Zemsky, issued a detailed set of recommendations for the first $75 million installment of Albany’s economic development assistance to Western New York, and were adamant that money needed to be focused on worker-retraining programs located where displaced workers are most numerous, and most in need, i.e., inside the city limits of Buffalo, where public transit access is quickest and most readily available.

     The economists who criticize subsidies to NFL franchises will be ignored here just as they are everywhere else. Hundreds of millions of dollars will almost certainly keep flowing to Detroit from Erie County taxpayers, and not just from people who purchase tickets to Buffalo Bills games. Were the Buffalo Bills franchise no longer here, however, the substitution effect in terms of disposable, discretionary income would kick in, redirecting the money currently shipped out-of-market to where the Buffalo Bills team is owned into other entertainment options here.

     Taxpayer money, however, isn’t subject to that same sort of automatic substitution effect. The $14 million a year that is sent by Erie County government to an individual out-of-town business owner wouldn’t necessarily get reprogrammed into fixing a broken worker-training system, or even into a construction project that could bring 12,000 or more new faculty, staff, and students—mainly training-hungry adult workers—into downtown Buffalo on a daily basis. Investing public money so that it serves the regional economy won’t happen without a reasoned decision to change that money’s destination.

     But if there’s entertainment money enough to send to Detroit for the next 15 years, then the least we should ask ourselves is whether we can afford training money for Buffalo, too, for the next 15 years.

 Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.

The business of College Sports

Check out this link to a blog run by two attorneys who follow the money:

Thursday, April 12, 2012

Cold War won, isn't it?

Redefining Victory

by Bruce Fisher

The Higgins plan: running in 2012 on the peace dividend

Congressman Brian Higgins has it just about right with his endorsement of the New America Foundation’s $1 trillion infrastructure investment program. He is endorsing what centrists and progressives of an earlier era called the “peace dividend,” which we were supposed to give ourselves as a reward for having won the Cold War. Higgins’s bill is good policy and it’s good politics, too. The American Society of Civil Engineers uses the same input-output models that the economists at Moody’s Investor Services uses, and that we use at the Center for Economic and Policy Studies, to show which investments leverage what economic results. The input-output models show that expensive but small-scale wars, tax cuts targeted to investors, and fiscal austerity that undermines the safety net are policies that make economies shrink. Infrastructure investment not only stops that bleeding but stimulates demand, lubricates commerce, makes polluted shorelines habitable, speeds transit, and has an observable, quantifiable “multiplier effect.”
Ever since Ronald Reagan grabbed hold of the deficit issue, however, the rhetoric of austerity has had a ferocious power. Reagan himself raised taxes even while over-spending year after year after year, ever blaming Congress for enacting the unbalanced budgets he kept sending them. Reagan created deficits while demonizing domestic spending.

That’s why Higgins’s rhetoric on this $1 trillion infrastructure plan is correct, too. With luck, Higgins and his buildup plan could become the national counter to Congressman Paul Ryan of Wisconsin, the pro-plutocrat Republican who hornswoggled his gullible House majority colleagues into voting for a budget that guts Medicare, Medicaid, and health and safety regulation; threatens middle-income tax breaks without naming them; and explicitly endorses higher defense spending and more tax relief for oil companies and the investor class.

It’s the long-delayed peace dividend versus Marie Antoinette. It’s Ike’s plan to build the interstate highway system without the salesmanship of saying it’s for national defense. Higgins’s endorsement of the New America Foundation program is just straight-up, unreconstructed New Deal, Fair Deal, New Frontier, Great Society policy. If the punditocracy starts talking about Higgins on the Sunday morning chat shows, the gesture could help this election season become the most ideologically clear discussion since Harry Truman squeaked to victory over Tom Dewey in 1948.
At the moment, though, progressive Congressional Democrats have the same problem that our progressive president has—namely, that the plutocrats control the rhetoric. And there’s an important sideshow underway, too, as the predictably partisan United States Supreme Court deliberates Obamacare rather in the way that Justice Rehnquist “deliberated” whether to allow metropolitan-wide school desegregation in 1974, or the way that the court “deliberated” Al Gore’s presidential victory, and “deliberated” giving unlimited political messaging power to the most profitable corporations in history in Citizens United.

The Supreme Court has always reflected the zeitgeist of the nation’s elite. To study American constitutional law in any historical depth is to be given a long course in the preferences of the men, mainly, who are least likely to question a social order that most resembles the hierarchy in a British country house, a la Brideshead Revisited, Gosford Park, or Downton Abbey.

Healthcare: a proxy fight
Soon, certainly before summer, the Supreme Court of the United States will deliver a decision about the Health Care and Education Reconciliation Act of 2010, i.e., Obamacare. The story may be set in 2012, but the terms of that story were set way back during the early years of the Cold War, when Harry Truman floated the idea of a nationalized healthcare system paid for with public money, and saw himself and his allies vilified as communists.
That’s the lesson of a very fine book by Pamela Behan called Solving the Health Care Problem: How Other Nations Succeeded and Why the United States Has Not. If people who can remember the Korean War are feeling a certain sense of déjà vu, there’s no surprise: Many of the arguments trotted out against Truman have been dusted off and re-used against Obama’s far less ambitious plan to incrementally extend the private insurance system, and to broaden Medicaid coverage, in an effort to prevent 14 million people from falling through the cracks. Slightly younger adults who may recall the fight that Lyndon Johnson fought for Medicare and Medicaid in 1965 probably feel that same sense of been there, done that.
Behan’s analysis isn’t particularly safe or comforting. She wrote her story before Obamacare was enacted. Canada, Australia, Britain, and Europe all have versions of national healthcare systems that have become consensus policies that even the Conservatives in those countries stick with, because the contrast with the American system is the contrast between universal systems that cost about 10 percent of gross domestic product and the American way, which will soon cost us double that.
The best part of Behan’s book is her explanation of how our slave-owning, land-accumulating, and wealthy American aristos’ revolution against royal tyranny was so complete that the American version of the executive hardly ever gets a chance to make big changes. Our presidents are castrati compared to prime ministers fortunate enough to command enduring parliamentary majorities, in which the majority party not only legislates but acts as the executive once it takes power. As progressives know too well, it has been a very rare occurrence in American history that our Congress and our president and our Supreme Court all concur on acts of liberation. Only when crisis is upon us do we make big changes.
Unfortunately for this country, the last crisis we faced was on November 9, 1989, when we won the Cold War. It was the day we were supposed to start enjoying the “peace dividend.” Instead, it turned out to be inauguration day for the era of the plutocracy.
The triumph of the plutocrat
The reason that we face the Paul Ryan budget, the 26-state effort to destroy the “individual mandate” in the healthcare-reform act, clearly insane concealed-weapon statutes, another Scopes trial ahead in Tennessee, zero action on regional school desegregation by income groups, no chance of a national policy in favor of the fast trains that other countries have had for decades, much less climate change or greenhouse gas emissions control, is because the end of the Cold War removed all the restraints on the financial elite in the United States.
During the Cold War, the US was in a difficult competition for the hearts and minds of the rest of the world. Our consensus, until the Reagan victory in 1980, was that progressive taxes were needed to restrain the rich so that we could invest in the rest. The public investment Brian Higgins advocates today was Nelson Rockefeller’s idea, and Earl Warren’s when he was governor of California: Public works were a bipartisan consensus item when we were proving to the world that we were strong and getting stronger. The Soviets entertained themselves with “socialist realism” novels like Gladkov’s Cement, but we were the world’s leaders in pouring it.
Our plutocrats were part of the national fabric, not self-isolating in gated communities, all through the Cold War era when the United States was required to prove itself not only as a military power but also as a global social innovator. For the duration of the Cold War, our civilization was in competition with the Communist world’s narrative. We had to prove that our ruling elites were under control, subject to the rule of law. Conspicuous displays of personal wealth were nothing compared to conspicuous displays of philanthropy and of public wealth. All those new nations arising out of the British, French, Belgian, Dutch, and Portuguese empires in the 1950s and 1960s were looking for a champion, an ally, and a model, which is why we had to get shut of our old segregated self and participate, if grudgingly, in the war against South African apartheid. We also had to get going on empowering women, and to stop treating our waterways as sewers, and we had to work harder, longer, and smarter, much smarter, than the Soviet Union’s scientific and technical people, because the Soviet Union’s best and brightest were matching us and sometimes overmatching us, very visibly, in many fields. The rest of the world kept watch to see who was ahead in the space program, who was advancing basic human rights (defined radically differently, of course), and which of the powers were leading in advancing a standard of living that working people could credibly hope to achieve.
Then, abruptly, the competition ended on November 9, 1989, when the ordinary working folks of East Berlin reacted to a verbal stumble by an East German official, breached Checkpoint Charlie, and started hacking down the Berlin Wall. Our side, suddenly, had won. Since that day, the world’s scramble has not been for justice but for money—and now there is no competing vision of what constitutes human freedom that stands a chance against what has become the American version, except, here and there, the Taliban’s.
A muscular Left in 2012?
Emmanuel Saez’s numbers on how the top one percent have garnered 93 percent of all the income gains since 2008 are already old news. Since the Berkeley economist published last month, former Texas Senator Phil Gramm has come forth with a full-throated call for ending tax progressivity in the United States, claiming that had it not been for George W. Bush’s major tax reductions for investors, the rich wouldn’t have made nearly as much money as they have, and thus wouldn’t be paying nearly as much of the overall tax burden as they are—and that therefore, it’s high time America started charging investors even less, and demanding that the middle class pay more.
It’s a breathtaking argument, and it includes that old saw of the Right in America—that no country ever got rich by growing its government. Beleaguered Elizabeth Warren, the Harvard law prof who should have been an Obama recess appointment to the new post of consumer fiscal watchdog, isn’t doing very well with her Senate campaign based on her truthful narrative about how we Americans are all in it together. She might have been reading another Harvard lawyer’s words, spoken 150 years ago by Oliver Wendell Holmes, when he was a member of the Supreme Court. They’re inscribed over the portico of the Department of Justice in Washington, DC: “Taxes are the price we pay for a civilized society.” Today’s members of the Supreme Court evidently deliberate otherwise.
As we no longer have the need for a world-leading national narrative about justice, as we did in the Cold War, we may, in 2012, have to articulate a new narrative about fairness to ourselves, but in the tougher terms than the Occupy movement and other progressives find comfy. A country that has been reorganized to favor investors over new workers, only 53 percent of whom today are covered by employer-paid healthcare plans (compared to over 79 percent of workers before 2008), should not be at peace with itself.
The Left should start to muscle up to rebut the Gramms and the Ryans. When that ilk complain about the mildly progressive US income tax, it’s time to remind them of the regressive payroll tax, and also of the almost universally regressive state and local tax systems, especially in places like Texas, Louisiana, and Washington State, where steeply regressive sales taxes devour five to eight times the share of incomes of the bottom 40 percent of households compared to the top one percent. A comprehensive look at the shares of income paid in taxes by each income group, from the poorest to the richest one percent, shows precisely the opposite of what Gramm says: the US does not practice progressive taxation when you add it all up. And when you compare who gets versus who pays, the nervous, whipsawed, ideologically confused $60,000 to $120,000 households should be the most angry at the holiday the rich have had since we won the Cold War, since it is the children of the middle class whom Mitt Romney, Paul Ryan, and their allies say, quite explicitly, are worth neither infrastructure investment nor help for college.
It’s time for a robust rebuttal of the plutocracy’s most fraudulent claims. It is time, at last, for a peace dividend. The Cold War ended some time ago. There is indeed a lot of nation-building to do, starting in the Rust Belt. But the infrastructure part is only the beginning.
Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His new book is Borderland: Essays from the US-Canada Divide, available at bookstores or at www.sunypress.edu.

Wednesday, March 28, 2012

A question of interests

Why our democracy keeps giving us economic royalism

by Bruce Fisher

The latest Buffalo pro football sensation is the player with the $50 million contract in a town that’s been told to plug another $100 million into Ralph Wilson Stadium. The $50 million for the player will come out of the regional economy and get shipped off to wherever the player is domiciled, less some New York State income taxes and some local charity. The $100 million will come from Erie County taxpayers, just as today’s $7 million-plus annual Buffalo Bills subsidy comes from Erie County taxpayers.
Serious analysts have for years pointed out that pro sports franchises, with their footloose mercenary players and their faraway owners, take more than they add to local economies—especially in markets where taxpayers buy the stadiums, the scoreboards, the traffic cops, and the maintenance, and forgo the parking and logo revenues, as we do here. Local arts groups, by contrast, recirculate subsidies because their oboists and set designers live locally. Amateur sports keep spending local. Ditto college sports. A Detroit-based team with California, Texas, Memphis, and New York players exports Buffalo money, just as the Omaha-owned daily newspaper does.
But with a regional economy worth about $45 billion, and with adjusted gross income in Erie County coming in at about $18 billion for 2008, the last year for which we have records, a couple more million bucks spent on spectator sports won’t kill anybody, though the money might as well be burned in a trash barrel for all the good it’s doing the region.
That said, ours being a region where over 70 percent of the households report less than $50,000 in annual income, and over three-quarters of households bring in less than the New York State median income, any big public outlays for anything that doesn’t raise those incomes should get a hard look. Income inequality has been a reality forever, of course. But reading Emmanuel Saez’s updated version of his study “Striking it richer: the evolution of top incomes in the United States,” it’s very hard to feel good about our regional conversation, much less our national one, in which support for spending tax dollars for college tuition, teacher pay, clean water, and public transit takes amazing political courage, while no politicians, and thus not very many taxpayers, dare question the subsidies for team owners and their star performers.
Saez’s new findings should simply piss you off if you live in a place like Buffalo and make less than $350,000 a year, which is the cutoff for membership in the top one percent today. Saez’s new study found not only that the top one percent have always had an outsize share of total national income. He also found that, in the first year of America’s recovery from the global financial crisis of 2008, the top one percent captured 93 percent of all the income gains.
That has left crumbs for the 99 percent. Stated another way, American incomes went up about 2.5 percent in the first year of recovery. The top one percent gobbled up all but 0.2 percent of that gain. And it turns out that most of those remaining crumbs went not to the median-income households like the few here that are actually at the median income, but rather, to the near-rich—the almost one percenters. The one-percenter wannabes.
Around here, we are a bit constrained by the age of our data. But we do know that in 2008, of the 410,000 income tax returns that were filed in Erie County, New York State data (which are organized a bit differently than the IRS data) show that there were about 5,500 filers who claimed incomes over $250,000, which means that a little over one percent of our neighbors took in one out of seven dollars of income around here. What’s eye-catching, though, is that there are the merely prosperous—the folks who make between $250,000 and $500,000—and then there are the much-more-than-prosperous: the ones who make more than $500,000 a year. The 1,682 tax-return filers who reported incomes over $500,000 in 2008 made almost twice as much as the people reporting more than $250,000 but less than $500,000. And the over-$500,000 group is not even half the size of the $250,000 to $500,000 group.
Saez’s study of what happened in 2009 and 2010 is part of a much bigger historical work that shows the income-concentration trends of the George Bush and Barack Obama presidencies as eerily, creepily similar to the Warren Harding-Calvin Coolidge-Herbert Hoover era, which ended abruptly with the Crash of 1929 and then the Great Depression.
Nowadays, though, other voices tell us not to worry. The stock market has doubled its gains in the past year. Apple declared a dividend after rising from $85 a share three years ago to $600 today. The Gross Domestic Product is inching upward. But Saez’s analysis is precisely the cold water that should chasten the upper-middle class that thinks that it, too, is doing fine. I have always marveled at the macro-economists who get giddy when Gross Domestic Product blips up—because they seldom concern themselves with who it is that is getting the dough. Who gets, and who doesn’t, matters. That’s why back in 1985, when Citizens for Tax Justice sought to explain the need for taxing what we then thought were the outrageous untaxed sums that speculators and major corporations were taking in, we handed out easy-to-understand facts, in button form, that explained it simply. In 1985, we wore buttons that said “I pay more taxes than General Electric.” In 2012, Warren Buffett said it simply, too: that his tax rate is lower than his secretary’s. The upper-middle class used to understand this stuff, which is one of the reasons why they broke from George Bush and embraced Bill Clinton.
But here’s the trend: The richest one percent took in 45 percent of all the Clinton-era gains, 66 percent of all the Bush-era gains, and 93 percent of all the Obama-era gains. And under Obama, there are 15,600 households—the richest one-tenth of one percent—that took in almost four out of every 10 new dollars of income, leaving only five for the rest of the one percent, and less than one of every 10 new dollars for the 99 percent. That’s bad, but it could get much worse if the Bush-era Republican ethos of cutting or eliminating the estate tax is empowered in the 2012 elections. The estate tax is the one remaining bulwark against the reconstitution of a permanent or at least multi-generational economic royalty, and our new political consensus—unless somehow labor-supporting Democrats retake the House of Representatives and the Senate both—seems to be that that would be okay. Much more likely in 2012: that Republicans and Republican-oriented Democrats will get elected again. And that may well occur because the near-rich, here and all around the rest of America, are evidently still feeling like they’re almost there with the big guys.

Truth that doesn’t liberate

The mere fact of Saez’s analysis getting so much media attention is no guarantee of his analysis becoming politically relevant. And Saez is neither unique nor new in his focus. The Congressional Budget Office used to show their data only in “quintiles,” which means whacking up Americans into five groups. In the early 1980s, at the insistence of some wonks who started seeing some households getting hugely richer than even the top fifth, the CBO and the other Congressional committees started asking their staff to get a little more specific. The top 20 percent got broken into pieces: the top one percent, the top two percent, the top five percent, the top 10 percent. Suddenly, differentiating between the truly, super, uber-rich and the merely prosperous began showing how different the outcomes were, not only of tax policy, but of every other government action (or inaction) as well.
Policy got shaped because of that analysis. There was a recognition in 1985 that most of the income of the top one percent came not from wages or salaries, but from capital gains—the profits one makes on the sale of stocks or other assets. There was a long-standing Democratic tradition of progressivity (it used to be a bipartisan consensus, until shortly before Ronald Reagan became president) that people whose incomes were higher should pay taxes at a higher rate. Thus in the Tax Reform Act of 1986, even though the top tax rates were much lower than before, it was a crucial, monumental change when capital gains were taxed at the same rates as income from work. It was as if Teddy Roosevelt’s version of Progressive-era Republicanism was briefly reborn. Riches weren’t being punished, not with a top tax rate of 28 percent compared to previous years, when the top marginal rate was generally well over 50 percent. But an older notion of equity was, briefly, re-established.
But the tax issues were soon marginalized, because strange new forces were at work, making old notions of equity not only inoperative, but politically ridiculous. All during the 1990s, Kevin Phillips wrote books like The Politics of Rich and Poor and Arrogant Capital and others describing the pernicious effect of the new, accelerating income polarization that huge CEO salaries, globalization and financial speculation were making happen. David Cay Johnston won a Pulitzer Prize writing about the tax-policy outrages that Citizens for Tax Justice had exposed, and also about the breathtakingly bold theft of public resources by tycoons savvy enough to buy the right lobbyists. Paul Krugman, the Nobel Prize-winning author of Conscience of a Liberal, began hammering away on these issues in his twice-weekly New York Times column. And since then, a whole cohort of liberal chatterers like Ed Schulz, Rachel Maddow, Stephanie Miller, and Dylan Ratigan daily echo and amplify these Phillips and Krugman and Saez studies. Liberal critics of the new economics of the one percent are now themselves best-selling authors and highly compensated talkers.
But notwithstanding all that talk, the trendlines in American household incomes haven’t changed. That’s because the American political class of both parties has not only not changed American tax policy, but has also dramatically tilted the board to favor financial speculators, and a few favored professions, over everybody else.
It was Bill Clinton and Democratic leaders who signed off on everything that CTJ, Phillips, Johnston, Krugman, and the talk-ocracy criticize, including, in Clinton’s last year in office, the dismemberment of the Glass-Steagall Act of 1933 that had previously prevented banks from becoming speculators. Democrats are complicit with Republicans in having erected a political economy that empowers the top one percent. And to do it, they’ve needed the political help and the ideological buy-in of Americans not only of the one percent, but also, and most critically, of that slice of the public that is just under the one percent—the people whom Saez seems to be referring to when he uses the phrase “the working rich.”
This new class is indeed a political innovation. The consensus that joined 20th Century Democrats Roosevelt, Truman, Kennedy, Johnson, and Carter, and Republicans Eisenhower, Nixon, and Ford, was all overturned by Ronald Reagan and his follow-on version of what Bob Kuttner called “the revolt of the haves.” Arguably the most potent aspect of the Reagan Revolution was to make conspicuous consumption culturally acceptable, thus dooming old WASP behaviors that exalted herringbone, weathered cottages, and unflashy Detroit cars in favor of a new consumerism of McMansions, German iron, and designer labels. The cognitive elite of these hard-working “near-rich” may eschew bling, but it’s impossible not to see the radical sorting that has occurred even within the professional classes, and with it, an ideological sorting. The new phenomenon is that the cognitive elite—the physician specialists who make $400,000 a year, the senior professors who make $150,000 and have unimaginably big pension funds, the senior attorneys pulling down $300,000 in partnership income and corporate board fees, plus, of course, the fast-food franchisers, the car dealers and the endless species of the genus Consultant—all now imagine that their interests, and America’s, are the same as those of the one percent.
And it’s the consumption patterns of the near-rich that sets the tone for the middle class.
What’s so striking about Emmanuel Saez’s analysis is that those folks, those near-rich, are shown to be, well, losers just like the rest of the 99 percent. The real constituency for the Rick Santorum message of Reaganism Reborn, as it is for Mitt Romney’s message of economic “competence,” is the folks who feel that Obama’s very, very timid attempt to channel the FDR-Ike-LBJ-Nixon consensus is not only not for them, but that it’s a problem for them. The physicians whose skills give them some fleeting bargaining power with insurance companies tut-tut about unions in a curious echo of Jazz Age business sentiments, and applaud Caterpillar’s decision to build a new plant in right-to-work Indiana where they can pay non-union workers $12 an hour, as if an impoverished working class is preferable to one with health insurance, pension security and some prospect of purchasing an occasional ticket to an NFL game.
Pity, that. There are so very many smart lawyers and high-earning doctors and learned professors who simply do not understand that scholars like Saez are describing a trend that has gone very, very much farther than even the critics of the Bush era complained about. Even if Obama is re-elected, the prospect of more and more widespread defeat of expectations for the 99 percent is growing. Too many of the jobs in the post-2010 economic recovery are temporary and provisional jobs—in an election year that will see two of the rare pro-worker laws ending, as both extended unemployment insurance coverage and the miniscule payroll tax cut both expire at the end of 2012. But will the Bush-era tax cuts on high-income individuals be allowed to expire? Will Obama’s proposed surcharge on millionaires be enacted? Don’t count on either. Do, however, count on the willingness of the near-rich to continue to believe that they are immune from what ails the 99 percent. That’s why it is very unlikely that any tax policy, any trade policy, any regulatory policy, or any policy on income support, health insurance, or worker training will vary much farther than the way that the near-reach can imagine it today. No single-payer system, no permanent income-guarantees, no European-style social safety net is possible so long as the near-rich remain confused about who their allies are.