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Beating Them At Their Own Game:
Chapter 4


Getting Better, But Still Not Good Enough

New York State's economy is stronger than it's been in years. We've added more than 140,000 private-sector jobs since early 1995, and are within striking distance of the nationwide growth rate after a decade of lagging far behind.

That better news seems likely to continue. Site Selection magazine reported recently that in 1996 New York was in the top five states in attracting major new industrial facilities. That was after our 1995 finish in the top 10 for the first time in years. Many of the new facilities announced in the past two years are just now staffing up, or will be doing so shortly.

The list of world-class companies that have announced significant new investments in New York in the past two years is a long one. Eastman Kodak announced two major projects with capital investment totaling some $500 million. IBM is building a new, $70 million headquarters in New York State. That's part of new capital investment totaling hundreds of millions of dollars which CEO Louis Gerstner says was influenced by "a shift in policy toward pro-economic growth on the part of this government."

In mid-1996, Guardian Glass Inc., a Michigan-based glass manufacturer, announced it had chosen the Finger Lakes region as the site of a major new facility creating 250 permanent jobs and hundreds of construction jobs. In addition to representing $125 million in capital investment, the Guardian Glass project especially pointed up New York State's new attractiveness nationwide -- the company had no prior investment in the Empire State, and had considered sites in 10 states before choosing New York.

The good economic news — more businesses, and more jobs — is happening in large part because of good news about our government policies. Albany is now into the third year of the $3.9 billion personal income tax cut Governor Pataki and the Legislature enacted in 1995. The 15 percent corporate tax surcharge created in 1990 is finally history. A dozen other business and consumer taxes are being reduced as well.

Workers' compensation premiums dropped an average 18 percent in 1996, and are expected to fall further in the coming year for a total reduction of more than 25 percent. That will save employers $1 billion. Similar savings will flow to employers and taxpayers as a result of major health-care reforms enacted in 1995.

State regulators now treat businesses more fairly, focusing on good results (a cleaner environment and safer workplaces, for instance) rather than imposing time-consuming and costly methods and processes. Responsible companies do not have to submit as much paperwork and obtain as many permits as they used to; those permits that are still required are generally issued with much less delay than just a couple of years ago.

Doing better -- but we're still behind

Even all that good news simply is not enough. We're still a bit behind other states — and nowhere near meeting our potential.

That's not surprising. After all, New York's political establishment inflicted so many wounds on our economy, for so many years, that we have to expect further treatment will be required. Rome was not built in a day, the saying goes; the powerhouse that once was the economy of the Empire State cannot be rebuilt in just a year or two, either. Still, it's important to understand just where we are, a relatively short way into our comeback.

Through most of the 1980s, our private-sector job growth trailed the rest of the nation. Starting in the third quarter of 1983, and lasting until late 1989, the gap between our growth and that of the nation was less than 2 percent. (We matched or beat other states from the first quarter of 1981 through mid-1983, and for several quarters in 1986.)

Before, during and after the last national recession, our jobs gap increased. The gap in quarterly job performance was usually more than 2 percent and in some cases surpassed 3 percent.

Starting in the last quarter of 1995, though, we enjoyed four straight quarters of growth that came within 2 percent of the rest of the country. The result is an increase of more than 140,000 private-sector jobs.

That's not good enough — but it's a significant improvement.

For many observers in Albany (and in New York City), the better news is reflected most noticeably in stronger tax revenues, up by hundreds of millions of dollars over projections made just a few months ago. Those additional tax dollars mean both the city and the state have unexpected surpluses — obviously, positive news. But the boom in government revenues is greater than the growth in jobs, coming largely from record highs in the stock market and other activity on Wall Street. We need to recognize that a surplus in tax revenues does not necessarily mean even an adequate level of job growth.

Top 10 States in Attracting Major New Corporate Facilities
1990 1991 1992 1993 1994 1995 1996
Florida 394 Florida 281 N. Carolina 405 Ohio 689 Ohio 911 Ohio 888 N. Carolina 915
Texas 336 N. Carolina 276 Texas 405 Texas 386 N. Carolina 539 Texas 685 Ohio 832
N. Carolina 265 Texas 261 Ohio 319 N. Carolina 376 Texas 505 N. Carolina 491 Texas 776
California 263 California 191 Florida 252 Florida 286 Florida 265 Florida 482 Illinois 573
Alabama 234 Alabama 156 California 221 California 198 Wisconsin 223 Illinois 451 New York 511
Virginia 212 Kentucky 152 Louisiana 168 Kentucky 166 Tennessee 221 California 406 Michigan 480
Georgia 207 Mississippi 127 Wisconsin 161 Louisiana 166 California 185 Michigan 243 Georgia 413
Tennessee 206 Indiana 126 Indiana 159 Virginia 144 Virginia 174 Arizona 224 Florida 340
Illinois 203 Georgia 119 Georgia 148 S. Carolina 131 S. Carolina 172 Virginia 199 California 325
Ohio 201 Virginia 107 Virginia 131 Indiana 122 Kentucky 169 New York 195 Kentucky 279

Source: Site Selection

Even the good news about more major new facilities locating in New York, given a closer look, shows how much work lies ahead of us.

New York ranks 5th in Site Selection magazine's count of new industrial and commercial projects around the country, with 511 such important developments in 1995.

But we should do better. If the number were adjusted to reflect the existing size of each state's economy -- and therefore its likely potential for producing new growth — the Empire State would be farther from the top of the list.

Our Top 10 showings for two years in a row are evidence that Albany's new policies of cutting taxes, rationalizing regulations and reducing workers' compensation benefits are paying off. We're finally emerging from the recession that our old government policies turned into a harsh, years-long slump. We can, and must, improve still further.

The competition isn't standing still

Doing everything we can to make our economy stronger won't guarantee that we'll immediately start beating or matching growth in the rest of the country. Other states that are already beating us in the hunt for new jobs are making their own plans to be even more competitive.

"Virginia still has a solid business climate, but it's losing its edge," a business magazine in the Old Dominion lamented recently. "We Virginians have every reason to congratulate ourselves for recent successes in economic development, but we can't get complacent."

And in North Carolina, the 1995 Site Selection magazine rankings of major new industrial facilities had people fretting over a third-place finish, after coming in second in 1994 and leading the country in 1992. (North Carolina reclaimed the top spot in 1996.)

"How did Ohio, which had trailed North Carolina in economic development for seven previous years, suddenly become a magnet for expanding and relocating businesses? Why is it that nearly twice as many companies chose Ohio as North Carolina for new factories in the last three years?" North Carolina magazine asked its readers a few months ago. The answer, the magazine says: Ohio "got aggressive with business incentives."

In Ohio's case, that meant enacting a major investment tax credit allowing businesses to write off up to 20 percent of property costs (New York's investment tax credit, which has been one of our most powerful attractions for manufacturers since the early 1970s, is 5 percent). Ohio also now allows manufacturers to deduct 7.5 percent of machinery and equipment costs, 13.5 percent if the facility is in a distressed area.

"Economic development experts say Ohio's experience proves that business incentives do work, often amazingly well, in improving a state's competitiveness against others in attracting new and expanding businesses," North Carolina magazine wrote. "They also say it shows that states that don't match Ohio and others in the high-stakes industrial recruitment game will begin slipping badly in business growth."

They're still trying to steal our businesses

Meanwhile, other states continue trying to "raid" our businesses. Virtually any manufacturer with more than, say, 100 workers receives regular invitations from other states to visit and check out the attractions of doing business there. The state of Kansas recently established an economic development office near Albany, to initiate contact with companies in New York and other Northeastern states.

As noted above, New York's business climate is changing for the better. Yet most of the rest of the world doesn't know that. One example: A Hong Kong-based writer for The Wall Street Journal recently analyzed potential changes when the island colony comes under Chinese sovereignty later this year. He wrote: "Hong Kong people might be better prepared for the risks of 1997 if they already lived in a place where politicians regulate many industries, where corruption is rife, where the legal system is widely viewed as unreliable, where taxes are high — say, New York."(1)

Nation's Business, a publication of the U.S. Chamber of Commerce, recently wrote about states "working to erase vestiges of hostility to business." No state has traditionally been viewed as more hostile to business — and no state has done nearly as much to change — as New York. The U.S. Chamber publication described efforts underway in Pennsylvania, Michigan, California and Texas. Not a word about New York.

We now have a good story to tell. It's vitally important that the state — and the private sector, as well — shout that news from the rooftops.

Changing the attitudes of business executives — especially those who are outside the state — will take time, and continued change for the better. But it will also take dramatic action to show businesses they're wanted, such as the major financial incentives other states offer, and more marketing of New York's new outlook.

An estimated 2.1 million jobs will be created nationwide in 1997. Experts say New York will only add 70,000 or so private-sector jobs this year; if we gained our proportionate share of the total, we should add about 174,000.

The additional 100,000 jobs we should gain — but will not, if current projections are correct — would mean significant benefits for every corner of New York, as the table on the next page shows. The Buffalo-Niagara Falls region represents some 6.8 percent of the state's existing employment, for instance; it would gain 6,800 additional jobs. Long Island would benefit from 16,400 new jobs, and so on.

Our long-term advantages

Meanwhile, we should keep in mind that our traditional advantages are as important as ever, and in some cases even more so.

We're a rich market, and companies doing business here are close to other good markets. Average per-capita income is among the highest in the nation, and half the population and business of the United States and Canada is within a one-day truck run from the heart of New York.

We're recognized globally as a source of knowledge, skills and capital.

What would 100,000 new jobs mean?
If each county gained in proportion to existing employment. . .
County New jobs County New jobs County New jobs
Albany 1,858 Herkimer 354 St. Lawrence 562
Allegany 269 Jefferson 526 Saratoga 1,198
Broome 1,137 Lewis 147 Schenectady 880
Cattaraugus 452 Livingston 391 Schoharie 183
Cayuga 440 Madison 416 Schuyler 110
Chautauqua 807 Monroe 4,584 Seneca 171
Chemung 513 Montgomery 281 Steuben 575
Chenango 293 Nassau 8,129 Suffolk 8,251
Clinton 464 New York City(2) 36,071 Sullivan 428
Columbia 416 Niagara 1,259 Tioga 293
Cortland 269 Oneida 1,357 Tompkins 575
Delaware 244 Onondaga 2,799 Ulster 941
Dutchess 1,406 Ontario 623 Warren 416
Erie 5,501 Orange 1,834 Washington 379
Essex 232 Orleans 244 Wayne 562
Franklin 244 Oswego 367 Westchester 5,219
Fulton 318 Otsego 367 Wyoming 257
Genesee 379 Putnam 623 Yates 159
Greene 257 Rensselaer 966 Calculations by
The Public Policy Institute
Hamilton 37 Rockland 1,687

Our workers are highly productive. In manufacturing, worker productivity is 23 percent above the national average, while wages are only 7 percent higher. In other sectors, too, New Yorkers come ready to work hard, be creative and get the job done right. Our businesses and their employees are national leaders in building quality into the work process, and thus the work product.

Technology is more important than ever; we're good at dreaming it up, making it, and using it. We have more than 1,000 industrial research facilities, and high proportions of scientists and engineers.

And we have every enviable lifestyle — from the excitement of Manhattan, to the wilderness of the Adirondacks, and the waterfront beauty of lakes and the Atlantic.

There's no limit on where New York can go next.

1. "Hong Kong's Challenge, Beijing's Opportunity," L. Gordon Crovitz, The Wall Street Journal, June 27, 1996.

2. Within New York City, Bronx would gain 4,828; Brooklyn, 10,133; Manhattan, 8,605; Queens, 10,426; and Staten Island, 2,054.

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Introduction

Chapter 1

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Chapter 3

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