Tuesday, April 15, 2014

November 7, 2013

Handout Town

What will, and what won’t, get Western New York off the dole

Assemblyman Sean Ryan of Buffalo is absolutely correct, but it doesn’t matter. Mayor Rob Ford of Toronto is an international embarrassment, but it doesn’t matter.
Neither Sean Ryan’s probity about the proposed Uniland-Delaware North handout nor Rob Ford’s oafish behavior will interrupt economic outcomes in the Buffalo and Toronto metros, respectively. One is set up to decline, the other to thrive, and unless fundamental structures change, with Buffalo becoming more like Toronto and vice-versa, the trajectory of neither will change.
Let us not trouble ourselves too much with Toronto’s plight, as no matter whether Porky Pig or Wonder Warthog is mayor there, Toronto’s only challenge is how best to manage its attractiveness as an international destination for human and financial capital. The effective corporate and personal tax rates there are far higher than here; government’s share of GDP is far higher; there is only one arbiter of land-use plans for a region 10 times the total area of the Buffalo metro; and utilities cost more, too, for both business and consumers. Yet the Toronto area’s population is growing, its universities are truly world-competitive, its immigration profile is robust, its per capita income is growing, its banks are heavily regulated and therefore stable, and even with a condominium construction boom, its housing prices are affordable despite there being no (zero) mortgage-interest deduction.
All those positive trends and circumstances were enabled by a three-stage restructuring of local government, so that the city and its suburbs are “stapled together,” in the phrase of former Hamilton metro executive Terry Cooke, by a metropolitan-wide government. The question in Toronto today goes something like this: Shall we have a cross-town subway and streetcars and bike lanes and new parks and new condos, or shall we have streetcars and bike lanes and new parks and new condos and also a cross-town subway? Not even Mayor Bluto, the stupor-loving occasional crackhead Rob Ford, can thwart growth in population, sophistication, entrepreneurship, and every other measure that matters.
Here?
Metro government is a non-starter. There’s no regional planning. City and suburbs go it alone, with a patchwork of governance structures left over from the pre-technology era, and a subsidy-loving culture that rewards rent-seekers and empowers them, despite occasional brave protests. Despite endowments of rich design in our built landscape, despite the many human strengths ancient and current here, it’s a maddening muddle of dependency. We are structured to stumble, no matter how much more public money gushes in—and gush in it does.
As presented to the New York Economic Association in 2010, our study of where the New York State taxpayer money comes from and flows to showed that, every year from 2000 to 2008, more than $1 billion more came to Erie County than people here paid in the New York State taxes. Money is absolutely not our shortage. We confirmed the trend first identified by Rochester’s Center for Governmental Research in its 2004 report, when the numbers were smaller but the message the same: New York City and its metro area pays far more into the Albany kitty than they take out, leaving Upstate, and especially us, over-subsidized. Fast forward to 2012, when the Rockefeller Institute did its own study confirming our findings: New York City and its suburbs pay about 75 percent of the taxes but take in at most 59 percent of state spending by RI’s reckoning, while we in Upstate (not including the Capitol region) pay only 24 percent of the taxes and gobble up almost 35 percent of the spending.
No wonder the developers here milk the subsidy cow. Population decline, projects that produce nothing, more infrastructure than we have users for, yet yawning gaps in maintenance notwithstanding, the money keeps a-coming. It is like the mythical cornucopia, like Cuchulain’s ever-full cup, like the flow from a magical spring. We keep eating the handouts, and shrinking.
But we just had an election, and all that will change. Right?

Addicted to handouts

Sean Ryan, and now Carl Paladino, too, agree: There is no economic benefit to be gained by New York State handing out $10 million to a private developer so that it can knock down a building, construct a new building, and empty out a nearby, nearly new building just to give a shiny new office to a tenant who’s here already—and who only a 15 years ago moved all the way from the corner of Main and Court streets thanks to the last big handout of public funds.
The tenant can be forgiven for wondering why they, of all people, shouldn’t get the same kind of handouts they got last time they moved—handouts that routinely go to other politically active companies here. New York State handed out $35 million to Benderson Development Corporation so that Buffalo’s biggest law firm could move a couple of hundred yards from the former HSBC tower to what was, until recently, a perfectly adequate New York State office building. This year, the City of Buffalo joined New York State and Erie County in handing out millions to move the headquarters of a not-for-profit hospital system from one part of Buffalo to another—a hospital system that was never going to be headquartered anywhere but here, where its business is. Why would government subsidize the abandonment of one set of local structures and the construction of new?
But wait—we barely have time to ask that question before noticing that New York State taxpayers (i.e., New Yorkers from New York) will soon transfer a couple of hundred million dollars north and west to Buffalo so that Kaleida can move Children’s Hospital all of six blocks south and east of its current location—not resulting in a doubling of the size of said hospital, not resulting in the hiring of dozens of additional new doctors or dozens of additional staff, but rather, just, simply, moving it.
Remembering our elementary school math, we may double, quadruple, or endlessly multiply the zero benefit to either the local or the regional economy of abandoning the old federal courthouse on Niagara Square in favor of building a brand-new courthouse on Niagara Square, and we’ll still get zero. Zero is the number we’ll get in return for spending $500,000 of Erie County taxpayer funds on a redundant study of a new proposed taxpayer-funded convention center—zero minus $500,000, that is. Ditto the impact of a new taxpayer-funded cluster of medical office buildings to replace existing, functional office buildings elsewhere within the city.
Public officials here act as if there is money to burn.
Apparently there is. One wonders if anyone will ever get around to mentioning this to New Yorkers, who, unlike Upstaters, are growing in number.

Getting unstuck

Sean Ryan has been consistent in complaining about subsidies to developers. So have most property owners in downtown Buffalo, folks who every day face the reality that the HSBC tower is going to be empty soon, with 800,000 square feet of available space and a landlord hungry to fill those empty offices with rent-paying tenants in a central business district that already has over a million square feet of unfilled office space—and the largest land-area devoted to surface parking of any city east of hollowed-out Toledo. Given the normal concepts of supply and demand, the last thing that anybody of sound mind would do, in this glutted marketplace, is increase the supply in a place that already has at least two million square feet of vacant space on or about to go on the market. But oversupply here is what we experience every day.
Buffalo just finished what was supposed to have been a $1 billion school rehabilitation and reconstruction project; it actually cost north of $1.4 billion. When public officials began the project, there were 45,000 Buffalo Public School students and high hopes that the investment would be part of what we called regional regeneration—making those buildings the magnet for bussing suburban kids into sparkling new facilities. Today, there are around 30,000 Buffalo school kids, and the number is falling, and no suburban school districts, which are also shrinking, have followed up by partnering with Buffalo to utilize that particular Buffalo Billion. The city now has an oversupply of beautifully refurbished structures equipped with the latest educational technology—and a rapidly shrinking marketplace that could grow, but, like little Oskar in The Tin Drum, loudly refuses to.
Ditto housing. Within the next few years, because of a low birth rate, a steady death rate, a low in-migration rate, and a low rate of new household formation, Western New York will experience an even greater glut in the supply of housing than we already experience today. Estimates of the number of vacant and abandoned housing just within the 40.5 square miles of the City of Buffalo vary, but it is at least 20,000 units of 93,000 properties. Vacancies are creeping upward in Cheektowaga and Tonawanda, too. West Seneca, where almost 30 percent of homeowners are eligible for the STAR exemption—meaning that the homeowners are over 65 years old—will soon follow. There is a very small appetite for some types of 1950s- and 1960s-era housing in these first-ring suburbs, in part because tastes have changed, but mainly because there is a demographic gap: The next generation of first-home buyers is smaller than the generation of home-sellers. Expect an oversupply to keep housing prices here depressed, just the way they are in most of the rest of the Rust Belt.
Demography, destiny—can you spot the link? College planners can. Enrollments in all of the Northeast are dropping and will keep dropping, except in the New York City metro area, which still attracts immigrants, talent, and capital. Colleges here that fish for students in shrinking Upstate are not fishing where the fish are.
What will change these dynamics? What will make more babies and more house-buyers for five, 10, and 20 years from now, when the demographers at Cornell University and at the US Census say that Erie County’s population will shrink from today’s 900,000 to 800,000 or less?

Electing change agents

Interestingly, the reality chorus here may be catching on—just as fundamental economic challenges grow stronger than ever. Economic fundamentals that we are beginning to face up to: a mismatch of skills to jobs, depressed household incomes, persistent concentrated poverty inside city limits.
But are we really facing up?
Precisely one candidate for Erie County Legislature actively campaigned on the proposal to site the taxpayer-funded worker-training facility close to where underemployed, underskilled, low-income, and displaced workers are—in the city. The mayor of Buffalo was re-elected without ever having to address his challenger’s earnest if clumsy complaints about unemployment, poor school outcomes, and low-wage jobs amidst another billion-dollar, taxpayer-funded construction boom. Nobody’s running on the issue of how to stop the outer suburbs from sprawling, how to stop the inner suburbs from following the abandonment path of the eastern half of Buffalo, or whether there is any alternative to spending the Albany handouts differently than we’ve been spending them all these years.
The public voice about transformative public policy is mute. Instead, we have a regional economic development council charged with discussing the next, newest, additional Buffalo Billion—a council consisting of everybody except elected officials whose job it is to make public policy.
Toronto, just up the road a piece, wasn’t magically transformed from a backwater to a dynamic metropolis. Good elected officials, good private-sector leadership, and good and absolutely relentless, unstoppable immigrant diversity all helped. But so did the structural changes that New York City and Toronto, and other successful mega-cities, had the wisdom, the courage, and the penny-pinching common sense to undertake.
There may be a moment of opportunity dawning. Noteworthy about the chorus of denunciations of the proposed Uniland project that would move Delaware North two blocks west on Chippewa Street was who joined progressive city Democrat Sean Ryan. The most detailed critique was penned by none other than subsidy-gobbling veteran developer Carl Paladino, who emailed hundreds his point-by-point explanation of how the developers at Uniland would go about obtaining $10 million or more in public benefits for itself and its client. Other developers chimed in, too—and Howard Zemsky, the head of the regional economic development council, closed the purse with the new Buffalo Billion in it.
That was a risible event. The real investment in change here, however, will not take money. The coin of the next realm we’d like to get to isn’t going to be legal tender. What we need is a structure strong enough to withstand our own versions of the inevitable Rob Ford. The beefy buffoons, ever in greater supply than the truth-to-power Sean Ryans, can’t thwart a structure that outlasts personalities, who will always come, and go, or maybe even stay.
Bruce Fisher is director of the the Center for Economic and Policy Studies at Buffalo State College. His recent book, Borderland: Essays from the US-Canada Divide, is available at bookstores or atwww.sunypress.edu.

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