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UPSTATE: DOWNBOUND <br> ONCE PROUD AND PROSPEROUS, <br> REGION LOSES JOBS, RESIDENTS

Seven years into an unprecedented economic boom, America and its Rust Belt are much richer.

But upstate New York resembles another, poorer country.

Consider the contrasts:

The nation added 12.9 million jobs so far in this decade. Youngstown, Ohio -- subject of a Bruce Springsteen song about an unemployed steel worker praying to die -- won 17,700 of them.

Yet upstate New York never came back from the last recession. Despite modest recent job growth, the Buffalo area had 4,200 fewer jobs last year than it did in 1990. In those same years, Syracuse and Binghamton each lost 6,400 jobs. Poughkeepsie lost 14,600.

That's why you still see signs of economic torpor in unexpected places. For instance, Michael Margulis of New Buffalo Graphics, champion of the city's supposed comeback and creator of T-shirts that honor it, closed his store last month.

Green Bay, Wis., a tiny burg noted mostly for good football and bad weather, led the Rust Belt in job growth in the decade. Out of 50 metro areas, no upstate New York area ranked higher than 41st.

Green Bay also saw its population increase by a quarter -- while the Buffalo, Syracuse, Utica and Binghamton areas shrunk.

Nine years ago, Flint, Mich., was synonymous with job loss, thanks to "Roger and Me," a documentary that featured a woman who cooked her pet rabbits to make ends meet. But now Flint is coming back. Its housing prices skyrocketed 64 percent since 1990.

In Syracuse, Utica, Albany and Binghamton, houses lost value over the last seven years.

Those facts translate into pain all along the Thruway and beyond.

In Buffalo, they mean that Margulis is struggling to stay in business on the Internet.

In Rochester, they mean that Riley James and countless other former Eastman Kodak employees are looking to leave the state.

In Syracuse, they mean that Robert F. DeForest, a local home builder, must do business in Florida to stay profitable.

Granted, there are signs the pain is ebbing -- but very slowly.

Upstate recorded its best job growth of the decade in 1997. Employment in the 52-county upstate region increased 0.85 percent.

At that rate, though, upstate still lags behind much of the nation. Only one state -- Hawaii -- reported slower job growth than upstate New York did last year.

"There are very few regions of the country that are as depressed as upstate New York," said Mark Zandi, president of an economics consulting firm near Philadelphia.

Between today and Saturday, The Buffalo News will look at how upstate turned downbound.

In a nutshell, though, it all comes down to bad luck and bad mistakes.

The companies at the core of the upstate economy all passed their prime, all at once.

Then, a gluttonous gaggle of governments blocked the door on new jobs.

Gov. Pataki is trying to trim the fat now, but there's a lot to trim.

Over 35 years, New York's governments came to eat up more tax money than any state. And many of upstate's problems can be traced back to that one grotesque habit.

Jobs went elsewhere because of New York's state and local taxes.

Electric rates are among the nation's highest -- partly because of taxes.

Business people give up after being ensnared in red tape funded, of course, by high taxes.

And upstate's workers leave, seeking opportunities taxes drove away.

It all adds up to create an economic malaise that doesn't just hurt the guy who gets the pink slip. It touches nearly every one on every rung of the economic ladder, and it hurts for years -- and generations -- on end.

Margulis, for example, is thinking of moving his family out of state.

"It's too difficult here," said Margulis, whose sales shrunk by half since 1991. "You keep running into walls, either political or economic. It's a desperate situation."

How desperate is it?

If you disagree with Margulis, you may be looking at the wrong statistics.

You're probably looking at the unemployment rate, which hovers below 6 percent in many upstate markets.

Forget that number. It's misleading.

"The unemployment rate is low simply because, when people become unemployed, they leave," said Zandi, of Regional Financial Associates.

Economists say total employment is a better indicator. No matter how you look at those numbers, upstate lags.

Of the 50 largest markets in the Rust Belt, no upstate area ranked higher than 40th in job growth in the last four years of the Cuomo administration. Poughkeepsie ranks 28th in the Pataki years, but the other major upstate markets fill up the bottom six slots in that ranking.

Granted, metropolitan New York has staged a comeback lately, adding a net 62,200 jobs in 1997 alone, thanks to tourism and the financial industry.

"When the stock market booms the way it has the past few years, the Wall Street firms will hire thousands of people in just a few weeks," said Luke Rich, the state's top economic development official in Buffalo.

But the employers at the core of the upstate economy -- the manufacturers -- never hire that quickly.

Disappearing jobs

Ed Borecki of Cheektowaga learned that the hard way. He lost his job at a local Pratt & Lambert plant when it closed last fall.

The company that bought Pratt & Lambert offered him a job in South Carolina, but he couldn't go. A divorced father, he would lose custody of his two daughters if he left.

"I figured I would be out of work three or four weeks," said Borecki, 36.

He went jobless for five months. He found a job at another local factory last week at $9 an hour -- $6.33 an hour less than he used to make.

That illustrates another hard fact. Low job growth depresses wages.

While downstate workers got an 8 percent raise in 1996, upstaters averaged a 3 percent wage hike each year between 1992 and 1996, just matching the rate of inflation.

According to a report by the Federal Reserve Bank of New York, that's why so many stores close. People don't have extra money to spend.

You don't have to tell that to Ed Hennessy. He returned home in 1995 to look after his aging parents. He's been underemployed ever since.

In Miami, he had been director of sales at a telecommunications company. In Buffalo, he's an entry-level salesman.

"It's a great job for a 25- or 30-year-old, but I'm 44," said Hennessy, who's living in an apartment after owning a home in Miami. "There's no growth, and it means you're not making the income you should make."

Worse yet, the best-paying jobs are the ones that are disappearing.

Upstate's seven major metro areas lost 59,100 manufacturing jobs during the decade. And manufacturing jobs are good jobs, with an average annual pay in Buffalo in 1996 of $40,730.

As those jobs disappear, lower-paying "service sector" jobs replace them. For example, TeleTech, a telemarketing center in Niagara Falls, pays many workers about $23,000 a year.

Business leaders in Syracuse say they're trying to lure call centers because such companies aren't all that concerned about taxes and energy costs. Call centers don't take up as much highly taxed property or use as much power as factories do.

Yet those factors pose a huge burden on companies that actually make things, such as Kaufman's Bakery.

"Anyone who comes into this state who doesn't have to is foolish," said Bernard Rosenberg, president of the Buffalo bakery.

To understand why Rosenberg says that, imagine New York as a healthy 20-year-old back in 1957.

Imagine that strong youngster eating too much and too stupidly for 35 years. Now he's old and fat and prone to all sorts of ailments.

No doubt about it: Upstate's economy is old. Many of the nation's industrial giants -- Bethlehem Steel, General Motors, General Electric, Kodak, IBM -- have deep roots here.

One by one, starting in the early 1980s, those companies faltered.

Bethlehem cut 3,900 jobs in Lackawanna in 1983.

A decade later, GM closed a plant in Syracuse.

The Utica area lost a military base, and Binghamton and Poughkeepsie lost thousands of jobs as IBM and several defense contractors cut back.

In Schenectady, GE cut 4,325 jobs.

Finally, last fall, Kodak slashed 6,300 jobs in Rochester.

Those companies got hurt by foreign competition and their own mistakes. Others, such as Fisher-Price, fled for cheaper labor overseas.

"A lot of it is corporate greed," said John J. Kaczororski, president of the Buffalo AFL-CIO Council.

It's more than greed. Upstate's employers had to deal with a challenge competitors in other states didn't face: an insatiably tax-hungry government.

In 1957, the year before Gov. Nelson A. Rockefeller was elected, per-capita state and local taxes in New York were 36 percent above the national average, mostly because of health-care costs. Welfare cost 11 percent more than the norm.

Then Rockefeller built an empire.

The state created the nation's most generous Medicaid program. It built a vast array of social services and business regulations and foisted costs for
many programs onto localities.

By 1977, New York state and local taxes were 54 percent higher than the national average.

Then Gov. Mario M. Cuomo was elected in 1982 with a vision of New York as a "family."

By 1997, New York's taxes were 65 percent above the national average. That figure fell to 60 percent by 1994 -- but no other Rust Belt state was more than 12 percent out of line.

The reason for the gap: New York's welfare and Medicaid costs were 90 percent above the norm.

"The State Legislature put a societal agenda on virtually everything, paid for by the taxpayer," said Ronald W. Coan, executive director of the Erie County Industrial Development Agency. "And you want growth?"

If you do, go elsewhere.

In the five years before Rockefeller's election, the state beat the nation in private-sector job growth three times. Since 1958, it's happened only four times, the last coming in 1983.

Blame it on politics.

The downstate voters

Start counting voters, moving west from Long Island, and you'll have a state majority by the time you hit the Hudson River's Tappan Zee Bridge.

That majority, of course, caters to downstate interests, which include strong public employee unions and a huge underclass in New York City.

It takes a lot of tax money to pay for those big public union salaries and that generous Medicaid system for the poor. Yet those taxes don't matter so much to downstate economy. After all, Wall Street and the Statue of Liberty aren't about to move to North Carolina to escape the tax collector.

Manufacturers, which have dominated upstate for a century, are more likely to leave. Onondaga County lost 45 in the first five years of the decade.

"We're not as competitive as we once were," said Michael Wasylenko, an economics professor at Syracuse University.

Taxes fell under Pataki, and power rates will fall under deregulation plans.

But New York got so fat over 35 years that Pataki's three-year diet hasn't got the state back in shape.

"He's just starting to reverse the trend," Mayor Masiello said.

With the state facing such deep problems, many upstate residents fled.

The Buffalo area lost 24,619 residents in the first seven years of the 1990s. Utica lost 17,767.

Rochester grew a bit, but that could change after the Kodak layoffs.

"I'm thinking about North Carolina," said Riley James, who was shown the door after 26 years at Kodak.

How it hits home

If you have a good job, you might think all this doesn't affect you.

Just try selling your home.

With people leaving upstate, homes languish on the market. Often, sellers bail out at a loss.

On Lathrop Street, on Buffalo's East Side, Ted and Fran Zalewski sold their home in 1992 after a mugger attacked Zalewski with a brick. They got about $5,000 -- $2,000 less than they paid for it in 1950.

The place is boarded up now, as are many nearby homes.

"It's like a war zone," said Zalewski, 76, who remembers when the neighborhood was filled with steel workers and their families.

At least Zalewski sold his house.

Harvey Benatovich and his wife, Lorelei, put their Middlesex Avenue home on the market in 1992.

It's still there. Benatovich hasn't been able to find anyone willing to buy a $200,000 house in the city.

"I'll be here until the bank kicks me out," Benatovich said.

Not every home seller goes through what Benatovich went through, but most suffer because home values aren't going up much.

The typical Rust Belt home price rose more than 20 percent in the 1990s. But in Buffalo, it rose only 6.2 percent. And in four other upstate areas, it fell.

"It's because of depopulation," said Fred Flick, an economist at the National Association of Realtors.

Suburban housing suffers, too. DeForest, the home builder outside Syracuse, used to build 30 homes a year. Last year, he built 10.

That's why DeForest is starting an operation in Fort Myers, Fla.

"I can't make money here anymore," DeForest said. "I might as well go to Turning Stone Casino."

DeForest doesn't have to go south to cash in on the decade's boom.

He can go to Flint, Mich., which had the biggest gain -- 64 percent -- in Rust Belt housing prices.

"We got an onslaught of negative press with 'Roger and Me,' " said Larry Ford, president of the Flint Area Chamber of Commerce. "But I'm in the midst of a renaissance now."

Employment rose by 9,000 in this decade despite 5,000 more job cuts at GM. Detroit executives fuel the housing boom.

Similar things are happening all over the Rust Belt. Milwaukee added a net 69,600 jobs so far in the 1990s. Indianapolis added nearly 123,000 residents. Housing prices in the Cleveland area are up nearly 45 percent.

Those cities aren't far from Buffalo on the map, but they're a world apart in every other way.

"Once you're in the pit," Margulis said, "it's hard to get out of it.

MONDAY: New York to business: Get lost.

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