Economic development is VERY expensive

When World War II ended and America got back to the business of business – building cars instead of tanks – government units like industrial development agencies had not been created. I don’t believe that big tax incentives to lure manufacturers and other businesses from one community to another with tax incentives were very common back then either. Factories built in the early twentieth century were already in place and the workforce to operate them had returned from military service.

But then international competition changed the world of manufacturing. Pre-war plants were old and inefficient. The economic development games began.

Those games were pretty rough on communities like Buffalo and other mid-sized cities in the mid-west, the area that became known as the “rust belt.” Many of us can remember the punch in the gut when the shutdown of Bethlehem Steel was announced in 1977, followed by others, taking away thousands of good-paying jobs in one fell swoop. The aftershocks of that tragedy continued for more than two decades on a community and personal level.

Things are better now. Our local economy, more service-based, is on a better footing. It is more diverse and less susceptible to major disruptions. New Era shutting down their Derby plant and putting more than 200 people out of work is a big hit, but it is a mostly isolated hit.

The business of economic development in the 21st century is about how much money can be thrown at large corporations and smaller businesses which are more than happy to play one community against another. What is the creation of one job really worth?

The big issue at the moment concerns the decision of Amazon to locate one of its two new mini-headquarters, with 25,000 jobs promised, in Queens County, New York City. A second mini-HQ will be located in Arlington County, Virginia.

The deal in New York, announced by Governor Andrew Cuomo and Mayor Bill DeBlasio, would in various forms amount to tax incentives and related financial benefits from the state and city totaling up to three billion dollars. Amazon reported that the average job in the city would pay about $150,000, which even for New York City is really good.

New York being New York, the announcement didn’t sit well with many local politicians in the city. Arguments have been raised about giving tax subsidies to a trillion-dollar company; about Amazon’s non-union workforce and its level of pay for the operational folks who won’t be drawing $150k per year; about how Amazon hurts small businesses; about what a development of the size that is planned – 4 million square feet of space – will do to the community where it will be located. Oh yeah, and Amazon CEO Jeff Bezos wants a helipad to go with it.

By splitting what was originally advertised as one “headquarters” between two metropolitan areas – New York City and Washington D.C. – the richest man in the world doubled the incentives he could get.  Half the jobs did not result in half the proposed incentives.  And real cynics have stated that both new “headquarters” are within seven miles of one of his homes.

Those involved calculate the cost per job created in New York City in relation to the cost of the tax incentives to be in the range of $48,000 to $61,000. I guess that seems like a lot of money to some folks in New York City.

They have surely heard about the “Buffalo Billion,” the project to create a massive 1.2 million square foot $750 million manufacturing facility along the Buffalo River. For New Yorkers horrified by the Amazon deal, they might want to ponder the comparative costs in Buffalo.

The Tesla plant operators recently said that there are about 800 people currently working there, and they claim that they will reach the 1,400 jobs total within the two-year timetable provided in the company’s agreement with the state.   Charlotte Keith of the Investigative Post recently estimated the cost per job at the Tesla plant at $150,000. Those New York City guys are such whiners. What a deal they are getting for $3 billion.

It should also be noted that the average Amazon salaries that are projected in New York City, which undoubtedly will factor in thousands of employees who will make much closer to poverty-level wages than to $150,000 annually, will nonetheless dwarf the jobs in the Tesla facility, many of which reportedly are paying not a whole lot more than minimum wage.

Reporters who recently toured the Buffalo plant have noted vast areas in the building that are totally empty.

Another point noted by Assemblyman Sean Ryan: the lack of spin-off business activities of the Tesla project, referring to the projected “economic ripple” of related suppliers of products used at the plant.

As a side note, soon-to-be-former Wisconsin Governor Scott Walker bragged about a manufacturing project in that state which amounted to $346,000 or more per job. Donald Trump thought that was a great deal too.

How does a community break away from such corporate welfare? Does an officeholder get saluted for bringing jobs to his or her community whatever the subsidy, or do they get ostracized for challenging tax giveaways for potential businesses? Note some of the opposition that County Executive Mark Poloncarz has generated from time-to-time when he has challenged tax incentives for certain fairly small local projects where the economic impact is questionable or non-existent.

The State of New York’s economic development activities seem focused on big hit projects, promised to create tons of jobs. Think Buffalo Billion, or that film industry boondoggle in Syracuse, or now, Amazon. Assemblymen Robin Schimminger and Ray Walter have frequently criticized the cost and actual impact of the state’s economic development work.

Economic development projects cannot be expected to bat 1.000; there will be successes as well as failures. But the gambles on big ticket projects get highlighted, and failures there can far outweigh some other successes.

Consider also Start-UpNY, the project offering big incentives to companies (and the companies’ employees) that can find some link to local college campuses. Tens of millions of dollars were spent advertising the program, which has mostly been a flop. The state doesn’t even report on job creation anymore because it was so poor.

The state Economic Development Councils annually announce the winners of their competition for grants from the state. The Councils are comprised of local people, but all the real decisions are made in Albany. Are the Council activities any different than the type of financing of local projects that has gone on for many years under different labels? Where is the follow-up and the accounting of their work? How is the value of the investments determined?

It is hard for political leaders at this time to demonstrate their interest in promoting job creation without involving the state and the local communities in the “let’s make a deal” competition for who can offer the biggest corporate welfare incentives. The results are almost always not what were promised. The value to the communities involved is often negligible. It just doesn’t seem like the best use of a community’s resources.