WHY FIXING UPSTATE IS SUCH A STRUGGLE

This is a great opionion peice from The Buffalo News. I have posted it in its entireity in case they archive it later. It really is a great peice!

Downstate controls two-thirds of Legislature and city-centric attitude rules

By DAVID SHAFFER
Special to The News
7/9/2006

The candidates for governor promise to give top priority to fixing the moribund upstate economy. Which is nice. But we won't begin to learn until January whether we have a new governor with the program, the will and the firepower to do what has to be done to turn upstate around.

It's going to be hard. Getting upstate back on its competitive feet will require taking on two of the fundamental, structural underpinnings of New York State's political system - and one of its most persistent, pig-headed ideas. Those underpinnings are the dominance of government employee unions in making state policy and the persistent priority given to the needs and thinking of downstate New York, where two-thirds of the votes are. Those two factors, in turn, buttress Albany's key, wrong-headed idea - the notion that high costs of government, of regulation and of doing business don't really do us any harm.

Upstaters, of course, know better. They read just last month that New York is, once again, the nation's highest-taxed state. And they see the connection to the upstate economy: a growth rate that's anemic not only in comparison to the nation, but also in comparison to older, manufacturing-based Rust Belt states that have similar economies and demographics. Over the last 15 years, upstate grew jobs by only 4.2 percent, compared to 21.9 percent for the nation as a whole, 26.8 percent in Minnesota, 23.9 percent in Wisconsin, 11.2 percent in Ohio and 10.4 percent in Michigan. Michigan. There's no good reason we should be so far behind.

Upstate New York has an excellent work force, innovative companies, world-class research universities, abundant natural resources and all the other key elements of economic growth. Our problem isn't our assets, it's our politics - Albany politics.

Loss of manufacturing jobs

In Albany, a two-thirds numerical majority in each house of the Legislature comes from a downstate region where the world looks very different. While upstate crawls along, having gained only one-tenth of 1 percent in jobs in the last year, New York City has grown jobs at 1.6 percent, beating the national growth rate of 1.4 percent from May 2005 to May 2006.

Downstate politicos hear upstaters complain about taxes, workers' compensation costs, energy costs and other high costs of doing business. But they figure that costs are, if anything, even higher in the downstate region, yet it's doing OK. So why should upstaters be worrying about these costs?

If Albany politicians ever think about tackling the high cost of taxes and government spending in New York, the government unions have the muscle to push them back into line. Just last month, for example, New York State United Teachers announced that its political action fund had collected a record $5.6 million in 2005 - note: a non-election year.

And downstate politicians see upstate through different eyes than its residents do. They are, quite properly, focused most acutely on the problems of their own communities. Then they hop on the Thruway to drive north, and the scenery is beautiful. Mostly they only get as far as Albany, which is doing relatively well economically compared to the rest of upstate - thanks in substantial part to money extracted from taxpayers elsewhere.

When these downstaters get off the Thruway, they find that traffic is light, people are nice, and hey, see, things aren't so bad up here.

This perception gap is compounded by the older economic history of New York. Because for most of the post-World War II era, upstate did in fact do better economically than downstate. Between 1970 and 1990, upstate grew its job base by almost 30 percent, compared to growth of less than 8 percent downstate.

But the situation changed utterly in 1990. The nation went into a manufacturing-led recession, just as globalization was beginning to put intense new competitive pressures on U.S. companies. Manufacturers cut first and hardest in the places with the highest costs - and New York was at or near the top of that list, again and again. The recession ended, but international competition did not. So manufacturers carefully put as much as possible of their new investment and growth only in the most cost-competitive places - and New York was rarely on that list.

Consequently, upstate lost 182,800 manufacturing jobs from 1990 through 2005 - a loss of 40 percent, double the national rate of loss. Manufacturing plummeted from almost 18 percent of upstate jobs to only about 11 percent, a huge blow to a region where each manufacturing job supports two or three jobs in other sectors.

Detrimental policies

Lose job growth, and you lose people. The 2000 Census found that upstate's cohort of people ages 20 to 35 had dropped by almost one-quarter.

At the same time, globalization was having precisely the opposite effect downstate. More than ever, New York City and its suburbs became the location that businesses from around the world simply had to have. The globalization of finance made Wall Street wealthier than ever before. And timely policy changes by Mayor Rudolph Giuliani, who made New York City more livable, and by Gov. George E. Pataki, who cut taxes on the high-income earners so vital to Wall Street, helped the city keep its new gains.

The city's population - including young people - grew at a healthy rate.

So when upstaters and downstaters talk today about the need to cut costs to grow the economy, it's as though they're living in two different worlds. And time and time again, high costs and poor economic conditions upstate are caused by made-in-Albany policies that are, in turn, driven by downstate ways of thinking.

Donn Esmonde of The News recently reported on a good example - Albany's prolonged delays in acting on legislation that would strengthen incentives for restoring downtown buildings ("Speed up the revival of downtown," June 2). Legislators from New York City worried that the bill might lead to the "yuppie-fication" of some of the city's ethnic neighborhoods. Upstate cities, of course, would die for a little yuppie-fication.

These policies pop up everywhere you turn. If you want to add a one-story garage to a machine shop in Cheektowaga, your construction costs are inflated. Why? Because of the cost of insurance under Albany's "ladder law," a measure designed around the hazards of work on tall buildings in Manhattan.

Try to buy health insurance for your employees, and there's a surcharge that Albany tacked on to appease New York City hospital union boss Dennis Rivera.

Fed up with paying tolls on the Thruway when you're commuting to work? Politicians from the subway capital of the world maneuvered to keep those tolls in place even after the Thruway bonds were paid off in the 1990s.

If you're a small, Western New York manufacturer, you're probably fed up with the state's workers' compensation system, which has among the highest costs - and the lowest maximum benefits - in the country. Your local state legislators support cost-saving workers' comp reform. But they can't persuade their statewide colleagues, particularly in the Assembly, to go along with them.

On the other hand, the downstaters repeatedly ask your local legislators to support costly proposals, such as a recent bill that adds 52,000 day-care providers to the state payroll, adding tens of millions to the bill for taxpayers. Most upstate representatives voted "yes" on that one.

Thinking about redeveloping an abandoned industrial site in Utica? An Albany law will impose huge costs and liabilities on you for cleaning up the previous owners' waste problems. The law was designed with the scarce and expensive developable properties in New York City in mind - but it just doesn't compute upstate, where inexpensive, never-developed sites are available in the sprawling towns outside the city limits.

To the extent Albany is aware of upstate's economic problems, its answer has been to throw money at them. Fully two-thirds of the job growth in upstate New York in the last 15 years has been in jobs funded by the taxpayers, 88,200 out of 127,000 net new jobs.

But that "solution" just means more taxes to pay for the declining share of jobs that aren't taxpayer funded. And because every new government job means more money deducted from paychecks for government unions to put to work in politics, the bigger government gets, the harder it is to cut.

Upstate overall now has some 75,000 more local government employees than it would have, if it matched the national ratio of employees to population served. That alone costs upstate taxpayers an extra $3 billion to $4 billion a year. Our higher-than-average pay and benefits for government workers add about $1 billion more.

But if you're a hard-pressed local government trying to cut your taxpayers' burden by consolidating services, or by matching your union contracts to the pay raises your regular citizens are (not) getting, or even by holding down the soaring cost of health insurance for government employees, well, then you run up against Albany's Taylor Law.

It gives the unions the upper hand in contract negotiations, regardless of what the municipality can afford to pay. It even keeps their pay scales, their raises and their benefits in place when a contract has expired - so the leverage is all one-sided, against the taxpayer.

That's the picture. The chains holding down upstate all lead back to Albany. No wonder the Buffalo Niagara Partnership and other business groups from Rochester, Syracuse, Utica, Chautauqua County and many other communities around the region have formed a coalition demanding that Albany "Unshackle Upstate."

That's exactly the right solution. Let's hope our new governor has the brains and the guts to take them up on it.

David Shaffer is president of the Public Policy Institute, a research affiliate of the Business Council of New York State.