August 2006

Eye from Albany

Time for real Erie Canal like investments
by Paul M. Bray

If you haven't guessed already, I am a "tax and spend liberal" and proud of
it. As such, I have been so demonized by Republicans that now you are probably
completely turned off to what I am going to write. Please, give me a chance.

Let me suggest that government led by Democrats, Republicans or anyone else
is all about taxing and spending. Using the tax and spend liberal epithet is
nothing more than a cover for serious discourse on the true nature of the
spending being made and who is going to pay the bill whether it is through a
progressive income tax or regressive sales and property taxes.

This year's legislative session was a "spending orgy". Comptroller Hevesi
reports that overall spending in the budget was up 10 percent more than last
year, or three times the rate of inflation. Some of this will be paid for out of a
current surplus in the state's coffers, but you know that down the line as
surplus turns to deficit some taxes are going to go up.

Lets take a look at the spending orgy and especially at $1.5 billion for an
Advanced Micro Devices (AMD) chip fab plant to be built in Saratoga County.
This is big money and turns the State into a venture capitalist and commercial
banker when the private sector is not willing to bear the risk.

$500 million of the $1.5 will go to AMD for development of a semiconductor
manufacturing facility "including but not limited to the construction, purchase
and installation of equipment". An additional $150,000 goes to the
manufacturer for research and development costs. Another $500 million is earmarked for
infrastructure and utility upgrades. The remainder of the $1.5 billion appears
to be for refunding AMD's property tax payments and, I assume, paying for other
tax benefits it will get.

The State has become a silent partner in the development of a manufacturing
facility but without holding the paper as a lender would or having a
shareholder's interest in the company. The pay-off for the State is presented as being
1,200 jobs at the chip fab plant, 2,000 to 3,000 construction jobs and a
projected 3,600 jobs (3:1 ratio) created by companies doing business with ADM.

The Times Union in Albany ran an interesting exchange of viewpoints on the
AMD subsidy between a past and present Chairmen of MapInfo, one of the few very
successful home grown tech ventures in the Albany metro area. MapInfo started
as a class project at RPI.

Co-founder and chairman emeritus, Michael D. Marvin, strongly questioned the
worth of spending $1.2 billion to attract AMD.

Marvin points out "We are not getting a corporate headquarters that would
provide leadership and growth. We are getting a factory. We are not getting the
latest incremental changes to a process that has been going on for decades."
Chip fabs are used for as few as 3 years to up to 20 years. It is likely to end
up as "one very large concrete tombstone in our region with no other possible
use. It is a special purpose building, and it will have contained many
chemicals."

Marvin's most powerful argument against the AMD pay out relates to whether
there are better ways for the State to spend taxpayer's money. How about using
it to reduce our taxes, Marvin asks. Or, how about using the money to for a
public good like a regional light rail system "that would attract many business,
reduce reliance on the nonrenewable energy sources (i.e. oil), and improve the
quality of life of all of its residents?" Marvin also suggests using the
money for high-speed rail service to New York City "to better unite our state's
workforce" or for an investment fund for renewable energy companies
headquartered in the State. Marvin is big on the value of home grown businesses
headquartered in New York State who have a stronger investment in their base state.

Current MapInfo Chairman John C. Cavalier wrote a rah rah piece of economic
development cheer leading for spending the $1.2 billion for the AMD chip fab.
He said "We are investing in the economy of a major region of New York,
bringing thousands of jobs and billions in investment to Tech Valley."

Cavalier missed Marvin's point when he wrote "We should consider the AMD
investment in the broad context of the Erie Canal, not in the narrow confines of a
regional rail link or energy efficient buildings as a potential tourist
attraction." First of all, the Erie Canal is the exemplar of a public good that
ignited the growth of New York City, opened the door to the west and supported
the development of upstate New York from Albany to Buffalo. It is a gift that
has kept on giving and even as its commercial value declined, it has become a
significant public recreational resource. Business subsidies rarely have that
kind of shelf life or economic effect.

We, the state's taxpayers, need debates like Marvin v. Cavalier by candidates
for statewide and state legislative positions over how the state can best
spend public money. State money is going to get spent, that is what state
government does whether led by republicans or democrats. The only question is whether
it goes for long-term public goods or facilities likely to end up as cement
tombstones.

We need a benchmark on where the state money should go. For example, studies
have shown that while business subsidies initially create jobs, over the long
term spending, for example, on preschool education has a larger positive
impact on creating jobs. Twenty years down the road a dollar spend on preschool and
other education will look a lot better than a dollar given to an out of state
corporation to build a facility likely to have a short shelf life.

Instead of pay outs to out-of-state businesses to attract a factory, we
should be making Erie Canal type investments that will give us long term
intellectual and physical infrastructure like high speed rail to make New York State a
must place to do business preferably home grown businesses. MapInfo is an
example of what is good.

Meanwhile as his term as Governor winds down, "fiscally conservative"
Governor Pataki is going around like a drunken sailor passing out money like $20
million for a conference center in Lake Placid. An official told me on the day of
the announcement they didn't know how much the State was going to kick in for
the project. Expectations were for $6 to $8 million so the $20 came as quite a
surprise we are going to pay for in the years to come.

Hopefully, the next state administration will be more inclined to confine
it's spending to productive public goods and apply the resulting taxes more
fairly.

 

 

 

 

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Paul M. Bray is President of P.M.Bray LLC, a planning and environmental law
firm in Albany, New York. His e-mail is pmbray@aol.com.