Time for real Erie Canal like investments

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Eye from Albany
August 2006

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.

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.