February 18, 2009
The Stimulus will lead America in the direction of Western New YorkBy Michael Filozof
If you want to know what President Obama's new style of government-led, Democratic Party economic and political policies will bring to the country, you need look no further than Western New York -- and what you'll see isn't pretty. Nearly every item in the Obama economic and political agenda -- from health care to taxes to unions to gun control to government schemes to spend money to "stimulate" the economy -- has already been tried here, but the region remains stagnant and moribund.
The economy of Western New York and the cities of Buffalo and Rochester are, for practical purposes, socialist. The private sector is nearly dead, government is the largest employer, and taxes and union membership are the highest in the nation. As a result, economic growth is nil, and the population continues to migrate to the Sun Belt at an alarming rate.
It would be an understatement to say that the region is a Democratic Party stronghold; "uni-party rule" is a more accurate description. Buffalo has not elected a Republican mayor since 1962. Party registration in Buffalo's Erie County favors the Democrats 150,000. Republicans have been reduced to a permanent minority here, and it's not unheard of for lifelong Democrats - former Erie County Executive Joel Giambra, for example - to switch party labels to Republican only after they could not obtain the Democratic nomination. The Democratic Party also controls the Governor's office and both houses of the State Legislature, along with 26 of the state's 29 House seats and both Senate seats.
Mere possession of a handgun, even in one's home, requires a government permit, which can take up to a year to obtain in some counties. The federal "assault weapons ban" which expired nationwide in 2004 -- but which President Obama promised to reinstate on a permanent basis -- has been codified into state law and remains in effect here.
According to the Bureau of Labor Statistics, New York State has the highest rate of union membership in the country. Nearly 25% of the workforce here is unionized. Virtually all public sector employees here are unionized, and richly compensated as a result. In 2008, a Buffalo cop caused a stir by milking the overtime and seniority rules to earn nearly $200,000 in his last years on the job, enabling him to retire with a pension of $100,000 per year. Unionized city school district janitors can earn between $70,000 and $100,000 per year. In the private sector, bankrupt auto parts maker Delphi, a major employer in Lockport, is staggering under the weight of its union contracts, and American Axle recently closed a unionized facility in Buffalo.
The public sector dominates here. Data from the Census Bureau in 2004 indicated that there were 95,300 public sector employees in the Buffalo-Niagara Metropolitan Statistical Area out of a total labor force of 547,000; by comparison, only 66,400 were employed in manufacturing and 20,300 in "construction and mining." Only the category of "trade, transportation, and utilities" produced more private-sector jobs - 102,000 - than government.
In 2008, the three largest employers in Buffalo were all in the public sector. The State of New York employed 16,500, the Federal government 10,000, and the City of Buffalo 8,200. Of the top three private sector employers, two -- Kalieda Health with 10,000 employees Catholic Health Systems with 4,900 -- were hospitals, heavily reliant on state and federal aid. HSBC Bank, with 5,800 employees, rounded out the top three.
Health care remains a major employer in the region because the population is aging. Medicare and Medicaid provide substantial funding to the health-care industry. But Medicaid here is out of control. New York's Medicaid system the costliest in the nation, double that of California's. Medicaid here pays for just about everything. Several years ago a public outcry caused the state's Medicaid system to stop paying for Viagra for convicted sex offenders, but it continues to fund abortions.
Things are not much better in nearby Rochester. For decades Rochester was a company town, home of the once-mighty Eastman Kodak Co. But Kodak has been shedding jobs for three decades, and in 2006 the University of Rochester, a non-profit educational institution, surpassed Kodak as the city's largest employer.
The high rate of public employment requires a substantial tax burden to support it. A 2008 study by the Tax Foundation found that 8 of the top 10 counties in the nation with the highest property-tax burdens were in Western New York. Niagara County was ranked number one, Monroe County number two, and Erie County number seven. But residents here do not merely pay high property taxes; the combined state and county sales tax in Erie County is a staggering 8.75%, and the state levies an income tax that averages 5% as well. The state even demands that residents pay sales taxes on items purchased by mail or on the Internet and shipped into New York from other states. The state recently raised nearly 100 taxes and fees to meet this year's budget; even so, Gov. David Paterson is predicting a $15 billion budget deficit for next year.
The enormous sums of money flowing into government coffers gives politicians the means to dictate the terms on nearly everything. Almost nothing here is decided solely by market forces in the private sector. Political operatives spend public money at the behest of favored interest groups, and consequently nearly every idea for "economic development" involves some harebrained scheme carried out by socialist-type planning that invariably fails.
In 1978, Buffalo began construction on a light rail/subway system. The first portion of the system -- which eliminated auto traffic on Main Street -- was only 5 miles long and opened in 1984 at a cost of $500 million. The system flopped. Planned extensions of the rail line never materialized, and ridership dropped from 7.1 million on 1996 to 5.6 million in 2006. By 2008, even more public money was committed to re-opening Main Street to traffic.
In 2000, some were optimistic about private sector investment when Adelphia Communications Company announced plans for a $125 million office in downtown Buffalo. But by 2002 Adelphia, $2.3 billion in debt, went bankrupt and its principal owners, John and Timothy Rigas, were sent to prison on fraud charges.
The next plan, announced in 2004, was to commit $66 million in public money to entice hunting and fishing retailer Bass Pro Shops to build a 250,000 square foot outlet in downtown Buffalo. Advocates of the plan claimed that the store would bring 3 to 5 million people per year downtown and anchor an "economic revitalization." Nearly five years later, despite the commitment of tens of millions in taxpayer dollars, Bass Pro has not materialized.
Equally ridiculous schemes have been hatched in Rochester. Several years ago, city leaders somehow became convinced that residents of Toronto, a city of 5 million with major league sports, theater, and world-class restaurants, were just beside themselves with desire to come to Rochester, a city of 219,000 with minor-league sports and way off-Broadway entertainment. They solicited bids for companies to run a ferry operation across Lake Ontario, and guaranteed sums of public money to construct harbor facilities for the project.
The ferry was launched in June 2004 -- and went bankrupt by September. The chagrined leaders of the city then decided to use tax dollars to purchase the ferry at a bankruptcy auction for $32.5 million, and contracted with another company to operate the vessel. The project went belly-up for a second time in 2005, forcing the city to sell the vessel at a loss, and pay millions to fulfill other financial commitments related to the ferry.
More recently, a plan was announced in 2007 to commit $50 million in state funds to demolish existing structures in downtown Rochester, which would enable PAETEC Co., a telecommunications firm, to move its headquarters about 10 miles from suburban Fairport to downtown. But by 2008 PAETEC's stock dropped below $1 per share, and the company announced that it was losing millions and would cut more than 200 jobs, putting its new office building plans on hold.
Even the highly-touted "green energy" is present here: Niagara Falls has produced "green energy" for over 100 years, but it's heyday is long past. Today, hundreds of wind turbines dot the hills of rural Wyoming County, but they are not a significant source of either jobs or industry.
Despite these repeated gimmicks to stimulate economic growth, the private sector here has failed to prosper, taxes remain astronomical, and the public "votes with its feet." In 2008, Forbes magazine listed Buffalo as one of the top 10 "fastest dying cities." The previous year, Harvard economist Edward Glaeser wrote an article entitled "Can Buffalo Ever Come Back?" The subtitle was "Probably Not -- and the Government Should Stop Bribing People to Stay There."
Glaeser argued that decades of public spending -- on office towers, sports arenas, urban renewal, and the light rail system -- failed to halt Buffalo's population decline from a high of 585,000 in 1950 to under 290,000 today. The surrounding area has not fared much better; census data shows that the Buffalo-Niagara Metropolitan Statistical Area lost 51,000 people since 2000. Ditto for Rochester; the city's population fell from 328,000 in 1930 to 219,000 in 2000.
People who leave the area tend to head for the low-tax, pro-growth, right-to-work states of the Sun Belt, especially North Carolina and Florida.
But at least the people have someplace to go. If the Obama "stimulus" program replicates the same kind of heavy-handed political agenda and tax policies found in Western New York on a nationwide basis, where will the people go then?