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Uncertainty at Empire State Development Corp Continues

by David King, Mar 01, 2011
 
NYDEV
Photo (cc) beanhead4529
Atlantic Yards, now under construction in Brooklyn, is one of the Empire State Development Corp.'s more controversial projects.

From 2000 to 2010 New York's spending on economic development tripled and yet private sector employment dipped by 2.1 percent during the same time period.

Now Gov, Andrew Cuomo wants to reverse both trends. In his budget speech he stressed the need to expand the state's economy. "We need jobs and we need revenue," he said "Longterm, it's jobs, jobs, jobs."

In the same speech in January, though, Cuomo called for reducing capital spending on economic development and for cutting the operations budget as well.

To accomplish this, Cuomo has set out a few broad strokes, such as improving the business climate and cutting taxes. He has named former Business Council CEO Ken Adams as the new head of the Empire State Development Corp., which is charged with overseeing economic development across the state.

Cuomo has outlined a number of proposals that he says will get the organization back on track toward creating jobs and attracting and fostering new businesses. Past that, it is unclear if Adams or even the Cuomo administration knows what, exactly, they are going to do to turn around the corporation, which has been seen in recent years as ineffective, scattered and bloated.

Neither Cuomo nor officials at the Empire State Development Corp. would comment for this story.

Going Local

Legislators are anxious to find out what Cuomo has in store. In particular, they want more information about Cuomo's plan to create 10 Regional Economic Development Councils staffed by representatives of local businesses, government and academic institutions. The administration describes the councils as a "one-stop shop" for all the state's economic development programs. The councils are expected to initially receive $200 million in funding.

According to the Cuomo administration, these councils will put an end to the trend that saw state spending on economic development increase from $448 million in 2000 to $1.6 billion in 2010 while private sector employment decreased. According to Cuomo's administration, programs like the Empire Zone program, which gave tax credits and other benefits to lure projects into the state, did not have to account for whether they created job. While the state tried to create jobs on one hand, some in the administration says, Albany's mandates were cumbersome to business and ignored the realities of different parts of the state.

But legislators and economic development experts alike remain unsure exactly how the planned councils will function -- which programs they will bring together, how they will do it, how their success will be measured and where the power will lie in overseeing them.

"We don't have the information," said Sen. Bill Perkins, who sits on the authorities committee. "What are these regions? What is the plan? I am curious. I won't say suspicious, but when someone withholds information I have to wonder 'why?'"

Brian Sampson of Unshackle Upstate, who once worked for ESDC, said he thinks the councils will bring everyone together and improve efficiency "so that businesses in New York can grow faster. There won't be that 6- to 10 -month wait while things get sorted out. You will have the people with local knowledge at the table."

Development for Whom?

Development covers a wide variety of projects and endeavors, from enticing Jet Blue to expand its operations in the city, to boosting downtown Rochester, to helping cutting edge entrepreneurs -- and to building a basketball arena and luxury housing development in downtown Brooklyn.

As to which type of project he might favor, Adams, who has yet to be confirmed as ESDC chairman, remains a question mark. legislators and the business community think he is friendly to big business and supportive of Cuomo's desire to reduce the burden of doing business in the state by cutting taxes and red tape.

"There are those of us who believe that job creation and opportunity are best handled by small businesses, and I don't know if Ken really comes from that background," said Perkins.

"I think Ken was appointed as a signal to the business community that New York wants to create a pro-business environment. I don't think Ken would embrace something called the millionaire's tax," Perkins added. Neither does Cuomo.

Lt. Gov. Robert Duffy has been assigned to oversee the development councils, but they also are supposed to be part of the ESDC, making it unclear who will be in charge of what. Duffy has been traveling the state with Adams to "find the key decision makers for each region," as he told the Long Island Business News.

"Ken Adams is a great guy, but the question is, 'What is his role?'"said Andrew Rudnick, CEO of the Buffalo Niagara Partnership. Rudnick has worked with Adams before as both represent business organizations.

"We have an ESDC board chair who has yet to be named, and initially we heard before Ken Adams was named that the ESDC would be lesser in some way. So you have to know how will the responsibility be spread out between the regional councils and ESDC central. You don't know if he is the right man for the job until you know what it is."

ESDC's Record

To appreciate why changes to the ESDC matter so much you have to understand what the ESDC has done up until this point, but many experts say that, too, is hard to quantify.

The ESDC was created in 1968 primarily to oversee the construction of subsidized housing projects. As an authority, the ESDC can issue bonds to fund major projects without voter approval, and it also has the ability to use eminent domain. That has been a hot topic because of the Atlantic Yards project in Brooklyn.

In 1975, after nearly entering bankruptcy because of mismanaged projects, the ESDC was retooled to fund general economic development projects across the state. Gov. Mario Cuomo used the corporation to finance the building of 30 prisons, doubling New York's prison system.

The ESDC's mission is largely determined by the legislature. The Senate and Assembly approve plans to provide incentives to lure business to certain areas and then the ESDC has to carry out the plans. The ESDC also works on major projects like Atlantic Yards where business organizations come to the corporation and ask for assistance with a major project.

The ESDC has been involved in other major landmark projects across the state, projects such as the revitalization of Niagara Falls and the planned construction of a new Pennsylvania Station, the Javits convention center, and the planned work on Governors Island. It has also been in charge of federal funds to rebuild Battery Park.

The ESDC has come under major criticism in its role for Atlantic Yards. Homeowners and property rights advocates say the organization justified the project and seized to benefit one major company rather than the many small businesses that have been forced to relocate to make way for the project.

In its other role -- overseeing programs created by the legislature -- the ESDC has faced major criticism for its handling of the Empire Zones, a program developed to attract companies to upstate. It isn't clear that any of the major tax breaks and funds it handed out led to any significant job creation. Republican gubernatorial candidate Carl Paladino, who was staunchly anti-big government, famously received $3 million in tax breaks from the state but only created 25 jobs.

Over the years, as happened at a number of other state authorities, the development corporation's independence led to unchecked expansion and inner chaos. An audit by then State Comptroller Alan Hevesi found 70 ESDC subsidiaries.

The last several years have been particularly difficult for the ESDC. The agency has had six heads in the last four years, largely a result of the turmoil in the governor's mansion.

This, Rudnick says, has hurt the ESDC. "The last few years have been tumultuous," he said. "The ESDC's impact has been limited by the revolving door in the state government and ESDC heads, and by budgetary problems at the state. The ESDC has been limited by having its directives given by the budget office."

He explained that budget concerns have led to tax breaks being limited or rescinded, and other programs being altered.

The corporation's efforts have been described as scattered at best. "I worked for the Urban Development Corporation, and [former Gov. George] Pataki changed it over to the ESDC," said Sen. Kevin Parker, "but I think they could have saved the cost on printing new letterhead and just called it the Upstate Development Corp. As it relates to my district, I haven't seen any benefits from the ESDC -- the state's biggest, flagship economic development corporation. Their goal should be creating stable jobs with benefits, but I think the resources are going upstate, and yet I don't see very much being created upstate either."

To do that, Parker said, ESDC should focus on smaller companies. "They haven't focused on small businesses," he said. "Businesses that have 100 and less employees create 80 percent of the jobs."

Sampson agrees that the ESDC has ignored small businesses. 'I think the ESDC has focused on chasing larger companies, the same companies that everyone else is going after and that, honestly, Tennessee, Texas and other states have a better chance at getting because they have a better business climate." The ESDC has landed some big companies tech companies like the chipmaking company Global Foundaries upstate.

Helping small business, according to Rudnick, simply has not been part of the development corporation's objective. "I don't think ESDC has been tasked with helping small businesses," said Rudnick. "Small businesses need start up money, and the state hasn't been in that role -- they issue bonds for capital projects. There are smaller, local agencies to help small businesses."

Moving Forward

Rudnick does believe, though, that the ESDC needs to refocus its values and core mission. "The ESDC needs new criteria. Most economic development experts would tell you that they no longer use the standard of how many jobs are created, which is what the ESDC uses. Instead, you look at quality of job, investment opportunities, the scope of a project and the potential for using green technology," he said.

Rudnick, Parker and Sampson all share a similar hope for the agency's future -- that the new regional zones will allow businesses all over the state to be better served, to bring people with local knowledge together to help them figure out how to grow.

"We need to get all different agencies speaking the same language," said Rudnick. "I've not seen one project that required just the ESDC. They may need energy or workforce development funding, and it's like the United Nations: Each agency speaks a different language about incentives. They are all saying something different and we need them to be on the same page."

Parker hopes Cuomo's new approach will get the agency on track. "The realities in Brooklyn-- Bensonurst, and Bath -- are totally different, and I think that these commissions will reflect that and show how the agency works in different environments. The mission should be creating good jobs with benefits, and I haven't seen them do that."

Sampson would like to see the ESDC working with local universities to harness new business models and the green energy opportunities. Not surprisingly, he also wants to see ore focus on upstate.

"Legislators from downstate need to realize a vibrant economy upstate is important for the downstate economy," said Sampson. 'Upstate has so many resources: agriculture, skilled labor and universities. We need to work with the universities, partner with them to create jobs, to plant seeds."

While Parker is concerned about what the ESDC will do for downstate, he also has his eyes on upstate. "I want to see the ESDC get involved with the green economy, partner with upstate universities where green jobs are spilling out of the universities and into tech parks," said Parker. 'They need to look at investing in creating our own green technology. Not only creating solar panels, but the blades for windmills."

As to whether any of this is part of Cuomo's plan, no one knows. As Sampson said , "We think we will hear more details soon."


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