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ELECTION IGNORES ROOTS OF UPSTATE PLIGHT, AREA LEADERS SAY

Robert G. Wilmers, president of M&T Bank Corp., sat in his 19th-floor office in downtown Buffalo a few days ago, thumbing through chart after chart showing an upstate New York economy he says is in "the pits."

"Look at this one," he said, pointing to a federal Bureau of Labor Statistics graph outlining private-sector job growth in Buffalo, Rochester and Syracuse -- virtually last among the 100 largest cities in the country.

"You look at the graphs, and you see things getting worse," Wilmers said. "In most fields, the worse things get, the harder they are to turn around."

In a year when a gaggle of gubernatorial candidates is screaming about the abysmal upstate economy, Wilmers and other business and municipal leaders say nobody is addressing the root causes: high local property taxes, repressive state mandates and special-interest influence.

"I don't think the economic problems of upstate are really that high on anybody's agenda," he said. "And I think they're serious."

Interviews with key business and government leaders reveal a general sense of disappointment over the election-year dialogue about upstate's economic dilemma. Virtually all credit Gov. Pataki with instituting fundamental changes in state government; others see merit in many plans advanced by his potential Democratic opponents.

But most also remain disappointed by the attention being given to "fringe issues" rather than to what causes high costs that stymie business here.

"It's incorrect to say nothing has changed," said Andrew J. Rudnick, president of the Buffalo Niagara Partnership. "But we're still way behind the curve of the changes made by our brother and sister states."

"There are all kinds of rhetorical themes," he added, "but they have not yet translated into commitments for specific changes. That's what we're waiting for and aggressively looking for."

Some of those concerns are:

Lack of plans to deal with high local property taxes, especially by reducing the state mandates that produce them.

In some cases, a reliance on government's role in stimulating the economy while bypassing core issues such as taxes.

The absence of significant plans to help government leaders contain Medicaid costs or streamline dealings with municipal unions -- measures executives such as Mayor Masiello say are vital to stemming Albany's annual budget bailouts.

To be sure, all six of the gubernatorial candidates -- running under the Republican, Democratic and Independence banners -- recognize the statistics that rank upstate at the bottom of key economic indicators: 49th in private sector job growth if upstate were considered a state in its own right; bottom-five ranking for Syracuse, Rochester and Buffalo for private-sector job growth among the 100 largest urban centers and near the bottom in population growth among top 100 cities.

Democrats, especially, are emphasizing the upstate economic quagmire.

New York City Council President Peter F. Vallone, for example, launched his gubernatorial bid from the steps of City Hall in Manhattan but devoted his speech to the upstate problem; Lt. Gov. Ross kicked off her campaign in Buffalo because of her perception that the area is lagging behind.

Business leaders taking the state's economic pulse say the region's doldrums require new and radical solutions -- some already adopted by competing states. Most say nobody is offering them because the downstate boom is still filling state coffers and not forcing the question.

As a result, they say, the core of upstate's problem still goes largely unrecognized.

"We haven't pushed the envelope on some key things -- like the property tax -- which flows from the cost of local government in this state," said David Shaffer, director of the Public Policy Institute of the State Business Council.

"There have been big, bold plans on how to cut the cost of state government," he added. "But it makes no nevermind as long as there's enough money there to say we don't have to do that."

Shaffer points out that New York's local property taxes are 109 percent more than the national per capita average, while state taxes are 25 percent higher. And they are mostly fueled by state mandates and regulations that make local government a major New York employer.

"There is no cost disparity so far out of line," Shaffer said. "That tells you there is a huge problem that must be focused on quickly: the cost of local government."

Shaffer is among the first to credit Pataki for major reforms in Albany. Welfare rolls have been reduced 27 percent; there are 20,000 fewer state workers today; and a host of state taxes has been significantly reduced.

But while programs like STAR reduced property taxes for some taxpayers, specifically senior citizens, Shaffer contends the state merely assumed the costs from local government. The actual costs were not reduced. That, he believes, must now be addressed.

"Pataki's record has been to use state money to relieve the tax burden, rather than using state authority to reduce costs," he said. "The big remaining cost problem we have is local governments, and we've got to have mandate relief to attack that. That's the big magilla."

Few in local government, such as Masiello, disagree. A former state senator who cast his share of votes for the mandates he now abhors, Masiello says the experience of running New York's second-largest city changed his thinking. The way to stimulate the upstate economy is to trim local government costs, he says, and that takes bold plans he has yet to hear.

Every year Masiello treks to Albany seeking action on bills allowing big cities to vote on school budgets -- just as the suburbs do. Every year he asks for legislation on residency requirements, reform of industrial development agency statutes that pit city against suburb and easing binding arbitration aspects of the Taylor Law regulating public employees.

And every year he returns empty-handed.

"The state has helped us in our revenue sharing, but absent that, they haven't done a heckuva lot," he said. "They have not dealt with the right problems. And I really don't believe people take us seriously."

Democrat Masiello supports Republican Pataki in a number of areas and even has hinted at backing the governor's re-election this year. But he says nobody talks about the problems that make local government so expensive and that, in turn, drive away business and industry.

"I'm disappointed," he said. "I have not seen on anybody's agenda the things that will make us stronger and more competitive -- about where cities are going in the next 10 years. I eat, sleep and live politics, but I don't know what they stand for."

Others, such as County Executive Gorski and Buffalo Comptroller Joel A. Giambra, agree. Giambra says Pataki has done a "yeoman's job" of cutting some taxes, but the property tax issue now must be addressed. Though Democrat Giambra has all but endorsed Pataki for re-election, he acknowledges the governor supported public employee unions against giving cities more flexibility in bargaining -- a major issue at City Hall.

"I believe the issue of the local property tax burden in New York State needs to be part of the discussion," Giambra said. "So far, it hasn't been."

Gorski, meanwhile, may irk some former Democratic Assembly colleagues by railing against New York's "panoply of benefits," such as the "Cadillac Medicaid system" constituting 62 percent of Erie County's real property tax levy.

Medicaid costs must be addressed even beyond Pataki's adjustments, Gorski said, and he's not hearing that discussion -- though he thinks it may yet take place.

To Pataki, the criticism is unfair. He points out he must operate in a political climate undergoing its first fundamental changes in 40 years. And he must deal with a Democratic Assembly that represents much of the state's political will.

Still, the governor's rosy television commercials tout the creation of more than 300,000 private-sector jobs -- though never saying that most are downstate. He points to initiatives cutting the income tax, reducing regulations, lowering workers' compensation rates, and the STAR program.

Stephen Kagann, the governor's chief economist, says nobody can blame Pataki for a problem caused by an ingrained political culture. Only once since 1957, he said, has the state's rate of private-sector job growth exceeded the national average.

"It takes time for things to occur, but we're seeing the results now," he said.

To buttress his claims, Pataki points to a new Chase Manhattan Bank report showing real estate gains that reflect an economic comeback -- with noticeable improvement along the Thruway corridor.

"We're changing the perception of reality, and I believe the message is getting out there," he said. "There's no question in my mind the policies we've put in place have changed things drastically, and will continue."

Still, there is little optimism that any gubernatorial candidate will address the concerns dominating the agenda of municipal leaders. Town of Tonawanda Supervisor Carl J. Calabrese says reforming cumbersome Civil Service work rules and easing binding arbitration procedures top his wish list. But political reality enters the picture.

"That's just not something that's going to be addressed in this election," he said. "There are certain groups in this state that hold tremendous influence, and that's not going to change.

"We have to live with that," Calabrese added. "But other states are all addressing these things."

Though business and government leaders point to a union hold on Albany as blocking frank discussions this election year, others say that influence is an important counterbalance to greedy corporations. Frank J. Mauro, director of the labor-backed Fiscal Policy Institute in Albany, says local taxes are just part of the problem, pointing to Federal Reserve studies finding taxes have little to do with business decisions about location or expansion.

He says the binding arbitration measures Masiello and Calabrese lament result from the Taylor Law's prohibition against public-employee strikes -- a fair trade-off for losing organized labor's ultimate tool. And he says the business community's goals do not necessarily mean the private-sector job growth charts will change.

"The job of business is not to increase employment, it's to maximize profits," he said, pointing to the wave of corporate downsizing. "We can't assume that because it's good for business, it's good for the economy as a whole."

Mauro says cities' financial problems result from the steady decrease of revenue-sharing funds originally designed to help them deal with tax-exempt properties and their roles as regional centers.

"Revenue sharing should be gradually ratcheted back up so the property tax can be frozen," he said.

And, without specific proposals for restoring state revenue sharing, and well aware of the state's political realities, Mauro says many candidates are offering reasoned and intelligent plans for stimulating the economy.

"To me, they all sound like they're thinking about the economy in a good way," he said.

Still, from the perspective of people who locate and expand businesses, the tax situation must be addressed.

Wilmers of M&T Bank says he is troubled by state budget spending hikes and growing debt, is distressed by the downward trends in his bank's territory and thinks the time has arrived to make some choices.

"You do that by drawing a hard line on mandates imposed by the State Legislature; that, in itself, will assist localities to reduce taxes," he said.

"In Ohio and Michigan and Pennsylvania -- states no different socioeconomically than New York -- they've made the changes and are economically stronger," added Rudnick of the Partnership. "The recent sessions of the State Legislature have dealt with the margins, but not the fundamental issues. If it had, the stats would be different."

Shaffer of the Business Council acknowledges any political candidate would be "crazy" to address the hard solutions that are required. In a state where public employment is 36 percent above the national average for local government, public employee unions hold an awful lot of sway.

But Shaffer says the time may come when budget realities force all involved to face the situation.

"One factor is that union leaders are very cognizant of what happened to the size of state and city work forces because of money problems," he said. "If you bankrupt the tax-paying side of the economy, sooner or later you cause problems for the tax-spending side.

"Even the slowest learners realize that."

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