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BAD FOR BUSINESS
TAXES, REGULATIONS STRANGLE FIRMS

The economic forecasters agree. There's more bad weather ahead for the upstate New York economy -- because our leaders seeded the clouds years ago.

In rankings of the nation's best places to start a business, both the consulting firm Cognetics and POV magazine rank upstate markets among the worst.

Regional Financial Associates of Philadelphia, meanwhile, say no upstate area will rank higher than 93rd out of 100 top markets in job growth in the next four years.

And NPA Inc. of Washington says that, of the 100 largest areas in the country, no upstate area will rank higher than 69th in job growth through the year 2010.

They all rate upstate badly for the very same reason that Steve Silino's electrical contracting company shut down in Syracuse.

An anti-business mind-set -- which even pervades the business community -- helped to kill Silino's company. And it's killing upstate's prospects for a turnaround.

Silino's business fell as factories fled Syracuse, making it tough for him to withstand New York's torrent of taxes and fees.

"When the factories closed, I don't think the state reacted," he said.

Instead, in the early 1990s, our leaders stood still. Business groups didn't try to bring in jobs from out of state.

Government left in place a crazy quilt of economic development agencies and regulations that baffles the people who might want to move companies to the region.

And no one did anything about state and local taxes that place a burden on business that's by far the heaviest in the Rust Belt.

The State Legislature cut those taxes under Gov. Pataki, but change comes slowly.

That's why many experts think upstate New York will remain downbound for years to come.

"You have a poor entrepreneurial climate," said David Birch, president of Cognetics of Boston. "And to top it all off, you're not nice to anybody with the courage to stay. And you expect to be able to grow jobs?"

For proof that New York business leaders are anti-business, too, listen to Dennis J. Donovan.

Donovan helped Federal Express, Hughes Aircraft and other companies pick sites for new facilities elsewhere. Chamber of Commerce types from the Sun Belt always pound on his door, and Donovan -- a Buffalo native -- would be happy to see visitors from his home state.

His office is conveniently located 30 miles from the New York state line, in Morristown, N.J.

"But I have never seen a New York contingent in my office in 23 years in the business," said Donovan, a partner in the Wadley-Donovan Group, a site-selection consultant.

Companies don't know about upstate's assets, Donovan said. Upstate business groups "don't tell anybody, so companies eliminate it from consideration without even studying it."

While many metro areas spend $1 million a year reaching out to business, the Buffalo Niagara Partnership doesn't spend half that, and other upstate Chambers spend even less.

Partnership President Andrew J. Rudnick said the group is divided over whether such an effort is worthwhile, given the taxes and other obstacles the state puts in front of business.

In Syracuse, the Chamber of Commerce started a new marketing effort in 1996. It landed three major employers -- a sure sign that Syracuse should have sold itself better years ago, said David Cordeau, Chamber president.

"If we had been in the marketplace, we wouldn't be in the situation we're in now," he said.

B. William Dorsey, a consultant who helped Mercedes-Benz locate a plant in Alabama, offers further evidence that upstate business groups aren't really boosting business.

Dorsey helped a firm move 250 jobs out of upstate last year.

"The head of that firm was in the community for 20 years," Dorsey said. "When he made the decision to go, neither the Chamber nor the development people made a call on him."

Too many IDAs

Plenty of people could have made that call. Every upstate area has a Chamber of Commerce, along with countless government entities that are supposed to help create and save jobs.

Erie County's 1997 business assistance directory lists 24 agencies that companies can visit for financial aid. Six are industrial development agencies that offer low-cost bond financing.

That means the area's financial resources are so divided that it probably never could put together a package that could lure, say, a new auto plant.

"They need to pool resources if they want to make a splash," Dorsey said. "If you've got six IDAs, you've not going to make that splash."

Even with all those different funding sources, start-up companies aren't getting the financing they need. The accounting firm Price Waterhouse found that in the first nine months of last year, "venture capital" investments in such companies totaled $55.3 million.

That's a mere 0.6 percent of the total invested nationwide. In contrast, upstate is home to 2.6 percent of the nation's population.

"These are places that discourage entrepreneurs," said Birch, whose rankings of "entrepreneurial hot spots" placed Buffalo 45th and Rochester 49th out of 50 major markets. "There isn't really an openness to new ideas."

Development agencies aren't alone in befuddling entrepreneurs.

Jeffrey Evershed learned that the hard way. A former KeyCorp executive, he decided four years ago to start his own mortgage company in Albany.

"After two long sessions at the state capital, I still couldn't get incorporated," he said. "I still had a long checklist of things to do."

Frustrated, Evershed called the business licensing office in Oregon, where he used to live. An Oregon official faxed him a form and asked for his Visa number and vowed to get him licensed that day for $50 -- a 10th the cost in New York.

"That's what made me decide to go to Oregon," said Evershed, who now heads M&T Mortgage Corp.'s operation in Portland.

For a similar story, go down to Orlando, Fla., where Ray and Karen Gilbert plan to open a restaurant to replace RayJay's, the Cheektowaga bar and grill they are selling.

Taxes, red tape and the weak economy drove them away. After a fire destroyed RayJay's, the Gilberts rebuilt. It took forever, thanks to the town's endless permit requirements and a hassle with the state over redoing the parking lot.

"The government made it so difficult, I was ready to give up," Gilbert said.

New York is noted for red tape.

"New York State is one of the worst places to start a business," said Jonathan Lesser of POV magazine, whose list of "Best Cities to Start a Business" ranked Buffalo 74th out of 75 cities. "Everybody knows that."

It's not always great for existing businesses, either.

Silino said the worst thing about the red tape is it costs so much. He grumbles about workers' compensation.

Reforms initiated by Gov. Pataki cut the cost of workers' comp premiums by 30 percent. But that came too late for Silino's company, Simone Electrical Contractors, which paid $45,000 a year to cover its 24 employees against injury.

"We've decided we can't make money in central New York," Silino said. "I'm thinking about the North Carolina area."

Silino is by no means the only upstate businessman with his eye on the south. Frank Oldham decided last fall to move his saw-blade factory from Burt in Niagara County to Ashe County, N.C.

"North Carolina stepped up with a huge financial package, and they didn't tie us down with the inhibiting things that New York did," said Tom McClure, an Oldham spokesman.

Ann Criswell, who stands to lose her job because of the move, lists five good reasons for the Oldham Co.'s decision.

"Taxes, taxes, taxes, taxes, taxes," she said.

Granted, personal and corporate income taxes and many other levies have fallen under Pataki. State taxes per capita, which were 26 percent higher than the national average when Pataki was elected in 1994, were only 19 percent higher than the norm two years later.

But business isn't satisfied. In a survey of upstate high-tech leaders last fall, Price Waterhouse found that 81 percent thought state taxes hurt business prospects.

M&T Bank showed how taxes hurt in its new annual report. The bank -- which isn't planning to move -- said it could save $2.3 million a year in taxes if it were located in Ohio and $9.1 million if it were in North Carolina.

Local property taxes are the big burden. They were nearly twice as high in New York in 1994 than they were in Ohio. More recent comparisons are not available, but upstate property taxes again increased faster than inflation between 1994 and 1996.

Tax-reduction plan

Those taxes mean millions to firms that own a lot of property.

That's why some companies beg for tax breaks before staying in New York. Ford fought for and got a $1.4 million tax rebate and a 40 percent assessment reduction for its Woodlawn Stamping Plant. And Graphic Controls sought and got $9.45 million in property tax cuts to stay in Buffalo.

Of course, most companies struggle on without such tax breaks, paying property taxes that also make it difficult for them to lure good employees.

"People from outside the area don't believe the real estate taxes I'm telling them they have to pay," said Sal Alfiero, chairman of Mark IV Industries of Amherst, a thriving conglomerate with most of its operations outside the state. "Sometimes they think I'm talking about a mortgage payment."

Those numbers should fall under Pataki's STAR program, which will use state revenues to bring down local property tax rates.

But STAR doesn't touch business property taxes. And after it takes effect, New York's property taxes still will be higher than in most states, said David Shaffer, president of the business-oriented Public Policy Institute in Albany.

Others worry that STAR depends on taxes out of Wall Street, which account for 16 percent of state revenues.

"If the revenue projections aren't met, STAR will be difficult to sustain," state Comptroller H. Carl McCall said.

Pataki wants to cut more taxes, but politics could stand in his way. Richard A. Aubrecht, chairman of Moog Inc. in East Aurora, found that out when he told a top New York legislator that New York's taxes were 25 percent higher than in Illinois.

The legislator's response: "But we have a better quality of life."

To which Aubrecht said: "Are you telling me that our quality of life is 25 percent higher than in Illinois?"

Measured in job growth, it isn't. Illinois gained 484,300 jobs this decade. New York lost 185,100.

Many jobs left the state. A study by Dun & Bradstreet Corp. said New York led the nation in losing companies and jobs to other states between 1991 and 1995. The final toll: 3,561 lost companies and 83,469 lost jobs.

"The cost of doing business in South Atlantic states provided an attractive incentive, particularly when compared to the high cost of doing business in New York," said David T. Kresge, Dun & Bradstreet's chief economist.

That study doesn't look at what's happening now, but Silino said you can read all about it in the newspaper.

Holding up a front page that detailed the closing of a Rubbermaid plant in Cortland, Silino said: "This is what we see here every week."

TUESDAY: Electrocuting businesses.

Jerry Zremski's email address is: jzremski@erols.com.

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