Truth or consequences: the current and future economy

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As highlighted by the headline on colleague Will Astor’s post about the Jan. 28 Rochester Beacon Economic Forecast Forum, attendees challenged the presenters to talk more about the positives in Rochester’s economy (which are abundant). We accomplish little, however, if we talk about potential without acknowledging that Upstate New York’s economy has languished by most measures.

I led off the forum with a discussion of the global economy and implications for the U.S. My forecast for 2019 is for more of what we experienced in 2018: slowly rising employment, labor force participation and earnings. The economy certainly looks strong today, but there are many risks to that forecast, which I enumerated.

E.J. McMahon

The Empire Center for Public Policy’s E.J. McMahon, charged with discussing statewide and metro economic conditions, delivered a series of frankly cheerless charts. The factual account of upstate’s economic performance is disappointing—in terms of GDP growth, New York underperformed the nation in six of the last eight years, ranking 44th out of the 50 states in the most recent figures. Upstate has consistently underperformed both downstate and our Great Lakes Basin competitors.

The other panelists—Kate Washington, CEO of OWN Rochester; Don Levy, director of the Siena College Research Institute; and Heather Briccetti, president and CEO of the Business Council of New York State—provided additional perspectives on the upstate economy.

Overreacting to ‘happy talk?’

After the presentations, we were challenged by questioners to spend more time talking about Rochester’s assets instead of our deficits. Perhaps some of us on the panel were overreacting to the steady diet of self-serving “happy talk” coming from our elected officials. Gov. Andrew Cuomo never tires of bragging about the achievements of his administration. Ribbon cuttings and triumphant announcements of new business sitings or expansions are the daily food and drink of his administration. Local public officials follow suit.

To be sure, our elected officials are expected to serve as cheerleaders, applauding when our firms and communities achieve important milestones. Yet the good news patter can also dull the frustration we should feel when our communities underperform and blunt our resolve to do better.

Remarkable Rochester assets

Rochester can be proud that our economy stayed on an even keel through the shrinkage of the Big Three: Kodak, Xerox and Bausch & Lomb. Few communities could have absorbed the loss of 60,000 high-paying jobs at Kodak without suffering a deep, localized recession.

Our old industrial pillars still contribute to the local economy and have been joined by many successful firms in the technology space like LSI Solutions, Optimax, iCardiac and Sydor Instruments, and in a number of other sectors, such as food processing and distribution. Take a look at the firms on the Greater Rochester Chamber of Commerce’s 2018 Top 100 list, many of which (like America’s No. 1 grocery chain!) have been growing steadily and appear on the list year after year.

Our largest sector, however, is higher education. Led by the University of Rochester and Rochester Institute of Technology, our colleges and universities provide a stable foundation for the local economy, both “importing” bright young people to our community and providing the technological foundation for many of our firms.

The higher-ed sector also feeds Rochester’s distinctive cultural sector. Often forgotten by the economic development community, arts and culture serve as a powerful magnet for talent. Richard Florida’s “The Rise of the Creative Class” predicted that the world of economic development would be stood on its head—instead of workers being attracted by companies, the companies would go in search of creative workers.

Few cities come close to the cultural density that makes Rochester special. This is part of what helped Rochester stem the tide during Kodak’s shrinkage. Generous retraining grants from the company, coupled with a broad array of educational opportunities, also helped workers stay in the community they loved.

What’s the public sector’s role?

We need to do better at creating opportunities for our residents, however. Can our economic development efforts be more effective?

A succession of governors and Empire State Development officials have been seduced by the apparent success of SUNY Polytechnic Institute’s Albany NanoTech Complex and its first-born child, GlobalFoundries’ Fab 8 factory in Saratoga County. Set in motion by then Gov. George Pataki and economic development policymakers during the early 2000s, Albany NanoTech is a form of state-based industrial policy. Placing big bets on individual industries, the goal is to catalyze self-reinforcing private job creation in the targeted sector.

Alain Kaloyeros speaks in Rochester at the 2015 announcement of the Integrated Photonics Institute for Manufacturing Innovation.

Key to the success of SUNY Poly/Albany NanoTech was New York’s technology super-salesman, Alain Kaloyeros (yes, the same guy recently sentenced to a prison term on corruption charges). His “build it and they will come” approach met the state’s outsized expectations exactly once—in Albany. Nor has the end of that story been written as GlobalFoundries, owned by an Abu Dhabi private equity fund, has yet to turn a profit.

The state’s Centers of Excellence, also begun under Pataki, may have been good for the universities involved but have hardly been job-creation machines. Subsequent administrations have followed the same path, with the Syracuse Film Hub and Tesla’s Solar City manufacturing facility in Buffalo and AIM Photonics as examples of the Cuomo administration’s application of this model.

While the state places big bets on individual industries (often through marquee firms like GlobalFoundries and Tesla), Monroe County’s approach seems scattershot in comparison. Simply by asking, many firms secure a tax reduction when building, renovating or relocating. Monroe County is, indeed, “open for business,” if that means tax breaks.

Although some excellent projects are supported by Imagine Monroe, many fail the “but for” test: i.e. but for the incentive, the company would not build or expand or might move away. A few years ago, I reviewed several years of hotel/motel projects in the county and found that every single one benefited from a county-given tax break. Just last year, Imagine Monroe conferred a tax break on LA Fitness, hardly a business that attracts cash from outside the region.

Job creation is the work of the private sector, regardless of what our elected officials say. The public sector creates the conditions within which private firms across all sectors can be established and prosper. New York’s giveaways to the film industry or vast subsidies to Elon Musk’s solar venture either take resources away from the state’s core mission or raise taxes for the rest of us.

The “no tax increase” mantra of Monroe County’s Republicans, when combined with abundant tax breaks for individual firms, shortchanges the physical and human service infrastructure investment that is the fundamental role of government.

I support ROC the Riverway, by contrast, because it will enhance Rochester’s appeal to new and expanding firms, and encourage individuals to come and stay. The Genesee River’s potential has been squandered for too long.

I also endorse spending public money on brownfield sites, such as the Vacuum Oil property along the Genesee south of downtown. As blight is contagious, these sites are likely to be left undeveloped without help from the state and localities.

I’m also cautiously supportive of investments in innovation, such as the Luminate Rochester competition to identify promising startups. As always, it is important that the program be evaluated annually with an eye to vetting the claims of the winners and the program’s boosters.

Rochester’s cultural sector also relies on public support. An investment in Rochester’s “magnetic” cultural sector will support the rest of the economy by attracting and retaining Florida’s creative-class workers.

Let’s focus on results, not promises. We should ban press conferences about plans and forecasts, and abolish groundbreakings with their silver shovels. Our leaders should take credit for achievements, not aspirations; for actual jobs, not “committed” jobs. Green eyeshade fact checkers like my colleague McMahon will keep us honest.

3 thoughts on “Truth or consequences: the current and future economy

  1. Bravo, Kent. A very realistic look at what works, what is needed, and what has fallen short with respect to our tax incentives ROI.

  2. I not only share Kent Gardner’s reasoning but am greatly relieved to see my ”negativity” expressed by a respected voice in the community. Rochester has too long lolled in the comforting bubble of happy talk. Let’s get real, folks.

  3. I think this is a fair assessment of the event. As for Roc the Riverway, I agree that this is not a boondoggle, it is critical to the perception that Rochester is more than snow and ice! Fortunately I’m not seeing the usual naysayers coming out of the woodwork- perhaps they’ve finally retired…
    As for Luminate and similar programs (disclosure: I taught the Launchpad program at HTR, now Nextcorps), there needs to be a measurable path to revenue that companies are held to, rather than a blind faith in private sector equity investment. A path to revenue is the only measure of a sustainable business in a city like Rochester. Tax breaks and VC pipe dreams seldom make much difference.

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