TO: Members of the Assembly Standing Committees on Ways and Means; Economic Development, Job Creation, Commerce & Industry; and Small Business

FROM: Brian McMahon, Executive Director

RE: An agenda for revitalizing New York’s upstate economy

The New York State Economic Development Council (NYSEDC) which represents 900 local economic development professionals, bond counsels, underwriters, contractors, bankers, utilities, consultants, chambers of commerce, and businesses, is pleased to provide comments to the above Assembly standing committees on revitalizing New York’s upstate economy.

Since 1992, New York’s upstate private sector employment has grown by nearly 8 percent. During the same time period however, private sector employment for the nation as a whole grew by 20 percent, or nearly three times as much as New York’s upstate economy grew, although in the last two years, upstate has kept pace with the nation. While the growth trend is positive for upstate, the rate needs to be increased.

Manufacturing accounts for 14 percent of upstate’s private workforce, compared to 10.5 percent for the nation. Because of this abnormally high reliance on manufacturing, it is critical that state AND local policy focus on making upstate more competitive for manufacturing. Manufacturing jobs have a higher multiplier than other jobs, and they pay more and provide greater benefits than service and retail sector jobs.

While the focus of these hearings is on what the state should do to facilitate growth in upstate, it is important to understand that much of what needs to be done can only be accomplished at the local level. There are many success stories in upstate New York. Several communities and counties are attracting significant new business investment and high paying jobs because of actions they have taken at the local level. They leveraged the business climate enhancements enacted by the state into a broad consensus for growth among community leaders. Then they developed an action plan to attract investment and jobs that is supported by these leaders. Saratoga and Fulton Counties, and the Towns of Wilton and Johnstown are great examples of this.

In order to revitalize the upstate economy, NYSEDC believes the state and its localities must emphasize economic development fundamentals. Most important of these is reducing state and locally-imposed costs on employers. In this regard, the state has done a better job than have local governments. Since 1994, New York has reduced taxes by a cumulative total of nearly $100 billion. However, according to the Public Policy Institute of New York, local taxes rose by more than 53 percent during the 1990s.

This year, more than $290 million in business tax cuts are scheduled to take effect. They must be implemented. The early 1990s demonstrated what happens when New York delays or repeals business tax cuts to meet budget gaps. The result was that New York found itself last or near the bottom in economic growth for many years until new business tax cuts were enacted in the middle of the decade. Failure to implement these tax cuts would signal businesses that the state is once again ready to close budget shortfalls on their backs. A more prudent way to meet budget gaps is to control spending.

Additionally, the state has an obligation to remove obstacles, such as mandates it requires local governments to pay in order to make it possible for communities to ease the local tax burden on people and businesses. The state’s record in this regard has been less than stellar. Requirements such as prevailing wages and the Wicks Law are just two examples of mandates the state imposes on local governments that are expensive and paid by local tax payers.

Sustainable growth means something different to almost everyone. But, one thing is certain, for any growth to be sustained - no matter where it is located - it must be supported by a foundation of quality infrastructure services. Ten years ago, those services included sewer, water, electric and telephone lines, roads, and sometimes rail access. Today, bandwidth is just as critical to the competitiveness of any business/organizational enterprise as any other infrastructure component.

Unfortunately, a "digital divide" exists in many areas in upstate New York. Telecommunications companies have focused most of their initial broadband optical fiber, cellular, and satellite dish investments in the most populated areas of the state where the return on that investment is greatest. Consequently, tier 2, 3,and 4 communities, where population density is much less - have not, in most cases, been connected with even first generation high speed internet access technology. Copper wire remains their primary connective communications link.

Communities that do not have high speed access to the internet will be left out of the technology and telecommunications revolution. The internet has spawned an era of unprecedented prosperity in the United States and in New York. And while the technology sectors of the economy have suffered in the last 18 months, they fueled the unprecedented growth of the last nine years and will be the pace setter as the national economy rebounds from its recent recession.

Regions and communities that are "digital" ready will capture the lions share of new growth in the future.

The copper wire, which connects virtually all New York households to the telephone, is capable of transmitting only a trickle of information at relatively low speed (56,000 bit of information per second (56 kilobits/second). This speed supports telephone service and slow e-mail and fax transmissions, but does not support business requirements for accessing the internet and other services that will come on line in the future. New York and local governments MUST make closing the "digital divide" a top priority so that all regions of the state will prosper from new business investment.

Unfortunately, no one knows where high speed internet access exists in New York State. Infrastructure providers are not required to report to any single source where they have made infrastructure investments. Consequently, it is left to individual jurisdictions to do their own telecommunication assessments to determine where high speed internet access exists and where it doesn’t. A few counties, Dutchess and Ontario, - through their economic development offices - have begun this process. This type of telecommunications inventory is an essential first step to know where infrastructure investments need to be made in the future.

Recommendations: To facilitate this activity, NYSEDC believes that $2 million should be added to the State Budget to create a match-based program so that county-level economic development organizations can expedite the process of assessing their current high speed internet capabilities.

We also believe that a two-tiered investment tax credit should be established to encourage telecommunications companies to deploy high speed infrastructure where it currently doesn’t exist. Specifically, we recommend providing a 10 percent tax credit for "last mile" high speed infrastructure investments for current generation technology (infrastructure that transmits data at 1.5mbps), and a 20 percent tax credit for "last mile" investments in next generation technology (22mbps or faster).

If we know anything about the 21^st century economy it is that high speed communications is a business requirement. Those states and communities that can meet or exceed those requirements will succeed in attracting capital investment and jobs. Those that fail to meet these standards will be relegated to the caboose of the information super highway.

The failure of New York to enact an effective policy for remediating and developing brownfield sites is a significant shortcoming in the State’s economic development and environmental record. Failure means that hundreds of sights from Niagara Falls to Glens Falls remain contaminated and therefore cannot be put back into productive use.

Many of these sites are located in urban settings where businesses have fled to the suburbs to take advantage of less expensive construction costs, newer infrastructure, and a more pleasant work environment for their employees. Urban sites that could provide thousands of good jobs and millions in tax revenues lie unused because of the stalemate over brownfield reform. Urban areas especially, are being denied significant economic development opportunities because of state inaction.

NYSEDC strongly supports the Governor’s proposal to create a Brownfield tax incentive program. His proposal would:

a.) Extend Empire Zone incentives to all upstate brownfields of 10 or more acres.

b.) Create a new statewide brownfield renewal tax credit. This proposal would extend to individuals or corporations, and would be equal to a portion of their costs to clean up a contaminated site.

In addition to this initiative, New York must act to approve a comprehensive brownfield redevelopment program which should include the following components:

A risk-based approach to site remediation should be adopted, with risk assessments based on the future use of a site and other generally accepted risk factors.

Responsible parties that complete a state-approved cleanup plan should receive a release from future liability – with only limited "reopeners." Non-responsible parties – including municipalities, lenders, and entities doing "voluntary" cleanups at brownfield sites – should be protected from future liability for contamination they did not cause.

NYSEDC supports an expansion of economic development incentives to encourage private sector businesses to remediate and develop existing brownfield sites.

NYSEDC supports requiring the state (DEC) to benchmark itself with the best practices in other states with regard to the brownfield remediation process. Several states, including Pennsylvania, Massachusettes, and Ohio have operated successful brownfield programs longer than New York. DEC should identify practices that allow brownfield sites in those states to be remediated and developed in a more expedited manner than similar sites in New York.

The bottom line is that New York does not have a program in place now to encourage private sector investors to clean-up and redevelop existing brownfield sites. Any program the state eventually implements must succeed in attracting private investment. If it fails to achieve this objective, it will fail.

Empire Zones have become important economic development tools. Because of the expansion of incentives adopted two years ago, and because of the flexibility with which county-level Zone boundaries can be located, Empire Zones have become an essential component of state and local economic development efforts.

The current state budget authorized the creation of an additional 8 Empire Zones. Even with this expansion however, many upstate counties, such as Madison, Genesee, Livingston, Wayne, and Delaware Counties to name a few are without a Zone. As such, their ability to compete for new capital investment and jobs is severely compromised. This should be corrected immediately by extending Zones to all counties that currently don’t have one.

Further, NYSEDC strongly urges the legislature to close a loophole in the law which allows a business to qualify for Zone benefits simply by establishing a new corporation and employing enough existing workers in the new entity to enable it to qualify for Empire Zone benefits. In this scenario, no new jobs need be created, yet benefits could be extended to the business. This is not what the program was intended to accomplish, and its occurrence should be eliminated in statute.

Industrial Development Agencies are the nexus between the private and public sectors for economic development throughout New York State. IDA staff provide technical, financial, and marketing resources which attract and secure new capital investment and jobs. Such resources are provided to attract investment by commercial, industrial, and tourism businesses, and not-for-profit institutions.

The law which authorizes IDAs to assist not-for-profit institutions such as hospitals, colleges and universities, senior living centers, YMCAs, Centers for the Disabled, and many more, will sunset on July 1, 2002 unless extended or made permanent by the legislature and Governor.

Without IDA authority to assist them, not-for-profit institutions would be limited to the Dormitory Authority for tax-exempt financing for capital projects. IDAs provide a more cost-effective and timely alternative to DASNY. Also, funds generated because of IDA assistance, such as IDA fees, get recycled into the community in the form of assistance for other economic development projects.

Finally, because the planning lead time for NFP capital projects is usually more than three years, NYSEDC urges the legislature to make this law permanent so such community-based organizations can be certain of their financing options when planning expansion or new projects.

Funding for business marketing must be increased beyond the $4.5 million that New York currently expends. Specifically, NYSEDC recommends that $5 million be added to fund a regional business marketing program that would allocate up to $500,000 to regional marketing coalitions in the 10 economic development regions of the state. A similar program has been introduced in legislation by Assemblyman Schimminger and Senator DeFrancisco, which we believe warrants approval.

Adoption of this measure would put funding of business marketing at slightly less than funding for tourism promotion. We believe funding of at least this level is justified because the benefits derived from a successful business marketing campaign (Attracting plant locations and jobs, for example) would be greater and more long term than the benefits of tourism promotion.

Business marketing on a regional basis makes sense because each region of the state has unique strengths which benefit different industry sectors. These attributes cannot all be promoted in a statewide advertising campaign. Therefore, NYSEDC recommends creation of a regional business marketing program to promote regional assets to potential business investors.

Four of the existing eight Regional Revolving Loan Funds in the state were established in 1987. The last two were established in 1995. Each was capitalized with a state appropriation. The RRLFs were established in the following regions, and are administered by Local Development Corporations in those regions.

Capital District Mohawk Valley

Central New York North Country

Finger Lakes Southern Tier

Mid-Hudson Western New York

The following summary reflects activity from April, 1987 to March, 98.

Amount of state funds appropriated to RRLF corporations: $5.32 M

Number of loans by RRLFs: 183

Average loan amount: $45,952

Amount of loan disbursements (includes repayments): $8,409,288

Number of jobs created: 3,306

Amount of state funds per job created: $1,609

Total dollars invested in RRLF projects: $76.476 M

Ratio of state dollars invested to total dollars invested: 9:1

Clearly, this is an excellent record for any lending program. It succeeds for many reasons, the most important of which is that the funds are administered by professionals with considerable experience in credit analysis and risk evaluation. Also, loan decisions are made locally for projects in the region served by the loan fund. Lending decisions are NOT being made in New York City or Albany for a project in Rochester.

Many of the RRLFs have drawn down on their accounts (Accounts have been established in ESDC for each RRLF which are drawn down whenever the RRLF makes a loan.) because of increased lending activity. However, unless they are re-capitalized, that activity will be substantially curtailed for some time while loan repayments accrue.

These RRLFs should be recapitalized so they can again become important sources of capital for upstate small businesses.

Upstate New York led the world in the Industrial Revolution, and it can lead again in the development of new technologies and businesses processes that will define the 21^st century. The above recommendations would mostly benefit upstate regions of the state, and their implementation would provide a more solid foundation from which the upstate economy could prosper.

The members and Board of Directors of NYSEDC stand ready to work cooperatively with all members of the Assembly to make this blue print for a revitalized upstate economy a reality.