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Ailing in Upstate: part two 

That's the finding of Losing Ground: Income and Poverty in Upstate New York, 1980-2000, a Brookings Institution report released earlier this fall by Cornell University City and Regional Planning Professors Rolf Pendall and Susan Christopherson. The pair found that taxes and other basic costs are rising here, while wages fail to reach national averages. Poverty is becoming entrenched, the report states, and strategies to boost the region's economy have seen only mediocre results.

In the first part of our conversation (available at Christopherson and Pendall discussed the effects of sprawl on the Upstate economy, the concentration of high levels of poverty in urban centers, and how municipalities are competing with their neighbors. When we left off they were explaining that state legislation could help ease this competition. We continue that conversation in the following edited transcript:

City:You've said companies can use competition between municipalities to get tax breaks without creating new jobs. They just shuffle from one community to another. What kind of legislation could stop that kind of competition and promote cooperation?

Christopherson: Well, the state passed legislation to encourage inter-jurisdictional competition. For example, they set-up industrial development agencies and Empire Zones. They could also pass legislation to encourage industrial development agencies to make cooperation a priority instead of smokestack chasing. I think Monroe County's done a pretty good job of trying to work on job creation, but if you look at the situation between Ontario County and Monroe County you see exactly these kinds of problems.

Pendall: And why should Ontario and Monroe Counties be at each other's throats? Why, for that matter, is it so necessary that Syracuse and Rochester compete with each other? They really are within the same economic region. The fate of Syracuse is the fate of Rochester, and vice versa. So pass measures to encourage collaboration between the two, not those that encourage a lot more competition, which there's plenty of already. It just doesn't really make sense.

Make a plan that actually acknowledges the [economic] diversity within Upstate and responds to that diversity appropriately. But then say: OK, if we have sub-regions in New York State, let's get those sub-regions working together. And then we'll incentivize you to do that kind of planning by saying we'll give you certain pots of money but if you don't, then we won't. We won't give you the ability to offer tax breaks unless you can show us that you're cooperating with your neighbors.

There's definitely an infrastructure in place already for planning at the county level and even at the regional level, like the Genesee-Finger Lakes Regional Planning Board. They can serve as those kinds of forums, but they're not very empowered.

Christopherson: The places where the planning is done and where there could be some coordination are not very empowered. The places that are essentially giving away tax subsidies are quite empowered and can operate independently; they're not very accountable.

We did a study a number of years ago to see if IDAs were accountable to the county government or the city government and if there was a plan that they were following. You know, you'd think this is logical, there'd be a plan, that they would say "OK, these are our priorities." It turns out that almost none of them had any plan and almost none of them were accountable. But if you're going to do any kind of economic development you have to have priorities; you've got to have some idea of what the trends have been and then say "how are we going to strategically act according to that?" But that's not been the case.

Pendall: In that planning process, encouraging better use and connections throughout the higher-education institutions throughout Upstate is critical to our future. This is an asset Upstate has that's not going to go away anytime soon. We're bringing in a lot of young people to educate here. There's a huge number of people who teach and do research at these institutions. We've got a lot of embedded human capital up here. And steadily over the last 20 years the share of people over 25 who have a college degree has gotten higher and higher. It now surpasses that of the United States as a whole, which I think is a really important trend. It's important that these economic development strategies be targeted at putting these people to work.

City:Yet we have one of the highest "brain-drain" levels nationwide. Some of that is likely due to these lower wages for the higher-income sectors. What else is causing this exodus of our college graduates?

Pendall: A lot of the colleges are located in more rural areas with smaller labor markets, so once you graduate from a small-town university, if you're going to move at all, you're probably going to go to New York City or North Carolina or something, unless you have roots Upstate. Otherwise, most people who are going to a small town college don't say, "alright I'm going to go to Rochester, or I'm going to go to Buffalo," especially if they look at the wages in Rochester or Buffalo or Syracuse and compare them to the wages that they'd be earning practically anywhere else, in any other big city in the Northeast.

Christopherson: And the cost of living is as high here as anywhere else in the US. People think that the wages are low because the cost of living is low, but apart from the housing cost, other costs are high: utility costs, food costs, travel costs, taxes.

If you're a young person looking for a job, you're not necessarily interested in having a family and settling down and living in the suburbs. You also want to live in a place where you can have fun, number one, and number two where you can move from job to job building your career. Most people now don't say with Kodak or with one firm, they want to build a career. The one place really in Upstate New York where you can do that kind of thing is Rochester, in the photonics industry, because there's a critical mass of firms.

So the other thing that I think would keep young people here is having and identifying a critical mass of firms in different industries and developing the skilled labor force around that critical mass. One possibility is in the environmental systems area in Syracuse, which is a very interesting industry, both low-tech and high-tech.

Pendall: But I think part of the problem is that Buffalo and Rochester and Rochester and Syracuse are all just far enough way from each other that it's inconvenient to think about locating yourself somewhere where you could exploit both of the labor markets at the same time. I mean, you're going to live in Batavia? There's just not enough going on there. You're going to live halfway between Rochester and Syracuse? No you're not going to do that either. So these are all sort of small to middle-sized metropolitan areas. Rochester and Buffalo are both over a million people and they both have a large number of jobs, but they don't have the diversity of jobs that would be permanently attractive for a lot of people. Rochester especially is so dependent on Kodak, on optics manufacturing...

Christopherson: And if you're in that industry it's fine.

Pendall: Yes, it's fine. But if you're not, or if your partner isn't, then you're looking at a really difficult decision about where you're going to live and what you're going to do. So there's that aspect of the company town that is problematic for Rochester, that has been problematic for Binghamton in the past.

City:You've said that one reason these higher-income wage earners, especially younger ones, don't stay is because they make less for the same job as they would elsewhere. Why is that?

Pendall: Well, college graduates are earning lower wages across the board. And I have to think that that's a demand issue; that there simply isn't enough demand for their labor.

City:You mentioned in another report that having this critical mass of firms in one industry actually hurt Rochester when Kodak or Xerox have made layoffs. Since there's nowhere else in the country for a Kodak worker to go, they'll stay and take a job doing something else for lower wages.

Christopherson: Yeah, that's right. Well, they can go to Tucson; there is something of an optics cluster in Tucson. But yeah, I agree with that. That's an advantage and a disadvantage.

City:So there's circulation among companies and workers can build a career, but if they get laid off and they're not willing to move to Tucson, they're forced to work for lower wages?

Christopherson: That's right.

Pendall: Also, anyone in the country who wants to work in that field is going to be looking at Rochester as a possibility. In that way, the supply of labor for Rochester firms is much greater than those people who have the skills in Upstate. So there probably isn't enough demand in Rochester for everybody in Upstate who wants to work there, but there are also huge amounts of labor available for people with a highly-specialized education who are willing and able to relocate from other parts of the country; that simply enables optics firms that are in Rochester that are so specialized to keep the wage bill down and yet maintain the quality of workforce that they need to continue to develop.

Christopherson: There was a problem, though, during the 1990s boom. I was working on this project on the photonics industry for several years. When we first started, firms were really hurting for people who were middle-level trained workers. They still say that's the kind of worker they need. They were able to get the more highly skilled engineer because they would pay higher wages, but they were not able to get the middle-skilled workers.

This is really a problem if these smaller firms are going to expand in place. If they can't get the kind of labor force they need at the middle level, then they can't expand in place. And if they start getting venture capital, the venture capitalist is going to tell them to move.

You get this conundrum where they're paying relatively lower wages, but if they start to grow then they've got to draw on that broader national labor force. And that broader national labor force for the middle-level occupations says "I don't want to go there, because the wages are lower."

City:But wouldn't that drive the wages up eventually?

Pendall: It could do that. Or it could force these businesses to relocate out of state, depending on how favorable the business climate is here.

I'm definitely not on the side of the business councils and the other folks who say the only problems we have Upstate are taxes. But between taxes and insurance and high utility costs and other things, there are costs of business that are high in Upstate New York that will condition the decision about expansion and continued operation here.

We do still have the wage card, which is fine, but I don't know how much longer we're going to be able to play the wage card here. We have lower wages here so we can still keep on doing business, but these workers are obviously quite mobile. No one's more mobile than a recent college graduate.

City:What about the national shift toward Sunbelt states?

Pendall: There is that trend, but I don't think we would say because we've got cold weather we're doomed to the 1.1 percent population growth rate we had in the 1990s. I just don't think that this needs to be the fate of this state.

Christopherson: Well, I'm from Minnesota, so nobody can tell me that. Minnesota is one of the most successful states in the whole United States, in terms of its economic growth rate, high wage rates. And it's cold --- much colder than here. Horrible weather. Horrible summers. Horrible winters. I always point to that. You know people say 'Oh, it's the weather,' well....

Pendall: But you left Minnesota and came to Upstate, so...

Chrispopherson: But a lot of people stayed there, and they're earning high wages and the economy there is thriving.

Pendall: And also --- everybody is complaining about the state government in Albany right now. Let me just add my voice to the chorus: It's widely known as an ineffective government, and we're paying a lot of money for government that isn't delivering anything. If the taxes were high and we were actually getting a good economic development strategy out of it, then maybe people would be happy about it.

I do think New York State generally does pretty well in educating kids. So we are getting our money's worth, to an extent, on the public-education side.

City:Is it worth it, though, for the state's children? They may be smarter than their peers from North Carolina, but they're still going to be working for less money when they take that entry level job at Kodak, for instance.

Pendall: They'll still work for less money, or they may leave. So there's still the ongoing question of what do we do to capitalize on this investment in kids in Upstate New York. What are we going to do to encourage them to stay in New York State? Once we pour all this money into their education, they just leave. Once again, that's our pain and North Carolina's gain.

Christopherson: I've actually come around to thinking that changing some of these laws and regulations that affect the quality of life in cities is really critical. That would change some of the underlying dynamics that are affecting the resources these cities have. And it wouldn't take very much to provide a jumpstart to some of the cities, to give them some advantages.

Rochester has a lot of assets: historical assets, institutional assets. But I think the land-use regulation, the distribution of costs --- I would say that's one of the places to start. It's doable. Then also change the economic development plan for the state to encourage cooperation and discourage competition.

Pendall: And that's the kind of thing that good leadership from the governor's office could actually do. I mean, you don't need the state legislature to say you have to do this. You don't have to get them to agree. An activist governor who thought this was a problem could actually do quite a lot without having to have too many changes in state law.

City:A lot of these recommendations might seem obvious, but they've been rejected by voters either outright in the case of a referendum, or indirectly through elections; our recent county executive race was widely viewed as a referendum on shared services, between the county and city, and people in the county didn't want it. Is something like Buffalo going to have to happen where the state takes over before we are forced into shared services?

Christopherson: I think Rolf's comment about leadership is really important here. If the governor came to Rochester and said "This is really important. The health of your county depends on the health of your city. And we're going to have to move forward in a different direction, in the Albuquerque direction" --- you know there are models out there.

Pendall: And they're not models that require city-county consolidation. But practically every single incentive out there is an incentive against cities, especially cities working with suburban towns. Practically every single one --- cities can't annex, cities have no power with respect to suburban towns. Change the annexation rules a little bit and see what happens.

I think there are also some small reforms. Would people in counties support this? That's always going to be the rub. People who have privilege don't usually vote in favor of giving it away. So you have to think about how to build a persuasive case that they have more to gain than to lose from these kinds of changes; we both think they do.

I think Upstate's economy will not really have a turnaround until cities and towns are working together and thinking strategically about how to overcome cutting-edge problems. There are places in the United States where this works, where it happens: in Silicon Valley, in North Carolina, in Portland.

That's all a mixture of being forced to do that by the state but also having civic leadership that tries to break out of these patterns, which are really set very much by poisonous political fighting that goes on from either side. I think a lot of people Upstate are really sick of the deadlock that happens, because any one of these issues, the minute it comes up, it's a partisan issue and the only people who are talking about it happen to be the partisan politicians.

Smart growth came up: we couldn't do anything about it because the words "Smart growth" got branded as a Democratic phrase. They managed to do something about it in New Jersey, in Pennsylvania, in Connecticut, in all these places under Republican governors. And they were calling it "Smart Growth" even under Republican governors.

            So there's something about the dynamic in New York State. And I'd say not only the leadership from the politicians, but also from the civic sector [is needed] to say: Look we have to break out of this demonization of one side against another. We have to work together to solve problems. And if that means we have to shut the politicians down for a while and engage each other in a conversation, that's what we have to do.

Losing Ground: a local take

After reading the Brookings Institution report Losing Ground, the Center for Governmental Research's Kent Gardner said he found little in it to disagree with.

"I'm an economist," he joked, "so I tend to think that the economy drives jobs, not the other way around."

Gardner says he agrees with most of the report's conclusions, and even recommendations, and pointed to one underlying cause for most of the problems Pendall and Christopherson identified.

"I see pretty much everything in there as a consequence of the de-industrialization of [the region]," he says. "That's the long and the short of it. I don't think there's a more profound story than that."

And two facets of the Industrial Age are shaping the Upstate economy right now, Gardner says. The first is New York's decaying industrial infrastructure. Since the state was among the first industrialized regions, the infrastructure is older, often unfit for use in another industry, or badly polluted. When other regions --- developed with more environmentally friendly technology after the Clean Air and Water Acts were passed --- experienced recessions, their factories and industrial parks could more easily and cheaply be put back to use, says Gardner. Instead, Upstate New York has one of the highest concentrations of Superfund sites and brownfields in the nation.

Labor unions are the other legacy of the state's heavy-industry history, says Gardner. "That leads to a less flexible economy, regardless of what you think of unions," he says. "They're supposed to be a buffer against rapid change."

Gardner takes a more pessimistic view of cooperation between municipalities, but agrees it's critical.

"It's always easy to say we've got to cooperate more," he says. "[But] the home rule provisions in New York State make that almost impossible."

And while "you can't solve everything with one program," admits Gardner, he advocates for regional planning to combat sprawl and push for smart development. But that will come with a cost: "The only way regional planning is effective, is if municipalities give up control. Regional planning has to have teeth," he says. "How do you get something done when you have do deal with 19 different municipalities?"

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