Albany, New York
May 11, 1999
Testimony of:
Daniel B. Walsh, President
The Business Council of New York State, Inc.
Assemblyman Morelle, Assemblyman Schimminger, and honorable members of the committees:
Thank you for the opportunity to testify on the upstate economy. The Business Council is the largest broad-based association representing business in New York State. It's also the largest broad-based association representing business upstate.
As a native of Olean and a lifelong resident of upstate New York, I'll start by thanking you for all you've done for the upstate economy.
You've slashed taxes, reformed workers' compensation and unemployment insurance costs, and attacked our high energy costs through Power for Jobs. New York is abandoning its historic antipathy toward business.
The early results are promising. New York has created some 300,000 new jobs more than it would have added by sustaining its record of the early 1990s. Upstate benefitted, adding about 44,000 new jobs in the three years before 1999.
But a nagging question remains: If we've been doing the right things, why has upstate been relatively slow to see the benefits, both in nurturing its current base of businesses and in attracting new ventures? And what should be done about it?
For answers, we should consider key differences between upstate and the New York City region.
First, let's look at how each region coped with hard times before the current boom.
When the recession hit in 1990, jobs were cut both downstate and upstate. But downstate companies stayed put, and the population continued to grow. Upstate, by contrast, saw many employers go out of business, or close up and move to other states. And upstate lost population, as well. So when the recovery began, upstate simply had fewer employers to provide jobs--and fewer workers to take those jobs, as well.
Second, let's consider competitive differences between the two regions.
The greater New York City region is a one-of-a-kind business location. It still can lose jobs--for example, when financial services firms are tempted to move to New Jersey. But there's only one New York City, and in a global boom, that distinctiveness helps all of downstate a great deal.
And when Albany acts to enhance prosperity statewide, as you have done in recent years, the New York City region becomes even more attractive.
Upstate is different. Its assets are formidable--but not unlike what businesses can find in Ohio or Pennsylvania or Indiana or North Carolina. Upstate has close competitors, which means its economy is much more vulnerable to the cost differences between New York and other states.
A third key difference between upstate and the New York City region is upstate's dependence on manufacturing. That's crucial because manufacturing is more sensitive to some costs of doing business than, for example, the financial services industry. This is Manufacturing Week in New York State, so it's a good time to remember that if we want to do something for upstate, let's do something for manufacturing.
Now we're at the core of the problem. Let's compare New York State to its competitors on costs of doing business that matter most to manufacturers.
State taxes: In 1996, New York still ranked first among the 10 largest states in overall state and local property taxes per capita. The other nine states included some of our toughest competitors--New Jersey, Illinois, Pennsylvania, Ohio, Texas. Our taxes were 56 percent above the average level in the other nine states. Recent tax cuts have narrowed that gap but not closed it. New York is a lower-tax state but not a low-tax state.
Property taxes: New York's local taxes are $25 billion more than they would be if we matched the national average of per-capita taxes. That disparity is greater than our higher-than-average costs for health care, electricity rates, and lawsuit liability combined.
Let's see what that means in western New York. In Erie County, total property taxes per capita in 1996 were $1,057. In Niagara County, the figure was $1,097. In Monroe County, the figure was $1,229.
The average of all other states is $774.
In Ohio, the number is only $693. In Pennsylvania, it's $703.
Workers' compensation costs: Manufacturers led the applause for the workers' compensation reform of 1996. These reforms cut our rates significantly. But in 1998, New York's workers' compensation costs were still the nation's 10th highest and still 20 percent above the national average.
Liability costs: Manufacturers, like all businesses, pay close attention to their added costs of liability.
We track the per-capita "tort tax." This includes liability insurance for auto and other coverage as well as medical malpractice and self-insurance costs.
Once again, In New York, those costs are high: $797 a year, sixth highest in the nation and 28 percent above the national average of $616.
Energy costs: The cost of energy concerns all businesses but especially manufacturers, whose processes are energy-intensive.
Our average cost for electricity for industrial users is the nation's seventh-highest and is 55 percent above average.
A key factor is New York's energy taxes. In 1996, utility sales taxes per capita were the nation's fifth-highest--100 percent higher than the national average. Our per capita utility sales tax was $120. In Pennsylvania, it's $62. In Ohio, it's $61.
Health-care costs: Here's another area in which our competitive disadvantages are significant.
Our Medicaid spending per capita is $1,177, by far the nation's highest and an astonishing 155 percent above the national average. In fact, it's more than Medicaid spending in Texas and California combined. New York spends 15 percent of the national total for Medicaid, even though we have only 7 percent of the population and 9 percent of all Medicaid recipients.
It gets worse. New York collects $1.38 billion in taxes on health care, virtually all of it from businesses. These are taxes that no other state even imposes--yet it costs business more than all other state taxes except the corporate franchise tax.
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So what should be done for upstate? Our members, including many upstate employers, have made clear, forceful recommendations through The Business Council's legislative agenda.
More tax cuts: You've already seen our complete tax agenda. Today I'll mention two that are especially important to manufacturing: eliminating unlegislated increases in utility taxes, and further reductions in the alternative minimum tax.
Tort reform: The best reform package you already know well: the Volker-Morelle Civil Justice Reform Act. Thank you, Assemblyman Morelle, for your strong leadership on this issue.
Of special interest to manufacturers and therefore of special importance upstate is the statute of repose, which would impose sensible limitations on the duration of liability that manufacturers bear for their products.
Health-care cost containment: To bring our health spending in line, we must cut Medicaid spending and rethink the HCRA taxes, which expire this year. We also must resist new health-care mandates, which drive up health-care costs and make it harder for business and individuals to afford health insurance.
Reducing energy costs: New York's energy costs will begin to come down as our transition to a fully competitive marketplace continues to unfold. The Power for Jobs program that you created in 1997 is having a huge and positive impact--and we strongly encourage you to add even more power to further expand these benefits.
But you can do even more--by reducing energy taxes. Specifically, we urge you to support Governor Pataki's package of energy tax reductions.
This bill would reduce the gross receipts tax, reduce and restructure taxes on electricity and gas, and eliminate four unanticipated tax increases that are due to kick in this year. These taxes were never intended to apply to deregulated utilities, but they were inadvertently made pertinent by utility restructuring.
Workers' compensation reform: One key reform remains to be made: a cap on benefits in cases of permanent partial disability. This is no small matter: About 50 percent of all claim costs in New York State workers' compensation cases are for cases of permanent partial disability.
Local property tax reduction through mandate relief: State lawmakers can help address New York's problem with local property taxes--by easing some of the state mandates that drive those taxes up.
Through the Coalition for Mandate Reform, The Business Council and about 30 local chambers of commerce and employer associations have just completed six months of discussions on mandates with local business leaders and government and school district officials.
We're still developing our report and our legislative agenda, but we already know what mandates were mentioned most frequently in these contexts. There are no surprises. The Wicks Law. Civil service regulations on hiring and on binding arbitration in labor negotiations with police and firefighters' unions. Education mandates governing student transport and special education.
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There are some other issues that are business priorities and of special interest upstate.
Workforce development: Current workforce development programs in New York are well-intentioned but misguided. They're unfocused and uncoordinated. They pay too little attention to the needs of employers. There's not enough emphasis on retraining of current workers who need to have their skills upgraded.
This is a major concern because employers across the state and in businesses of all sizes are reporting increasing difficulty finding, recruiting, and retaining good employees. Our survey last year showed that the concerns are in large and small sizes and in all business sectors.
We propose a new, coordinated workforce development program that is employer-focused, employer-driven, locally delivered, easy to access, and adequately funded. We suggest a state investment of $50 million, to be directed to consortia of local employers that will design and deliver this training.
This model should seem familiar because it mirrors legislation that you enacted last year under the leadership of Assemblyman Schimminger. Assemblyman, we appreciate your strong and insightful support on this issue.
Brownfield redevelopment: A major obstacle to expanding New York's recovery is the challenge of redeveloping brownfield sites.
Think about it: Sites that have already been used for business and industry should be attractive for redevelopment. A physical plant already exists. Essential infrastructure--roads, rail links, water, electricity, sewer, and so on--is already in place.
But New York is dotted with vacant plants that new and growing businesses are systematically avoiding. Who can blame them? If you invest in one of these abandoned plants and communities, it could cost you millions of dollars to clean up a previous owner's hazardous wastes. You'll be forced to clean the site not to a use-specific standard, but to nearly pristine levels. And you'll have no protection from future lawsuits related to these wastes.
We urge lawmakers to authorize use-based cleanup levels, liability releases and post-remediation redevelopment incentives for "brownfield" sites.
Marketing our successes: The honorable members of these committees know about New York's recent progress cutting taxes and enacting other business climate improvements. But business leaders in other states still know little about our progress, I'm afraid. Many of them think this is still the old New York--the New York that increased taxes every year, not the New York that now cuts taxes every year. And they don't know about the advantages of upstate-- the skills of our workforce, the quality of our lifestyle.
The state should invest $10 million in a private sector-led marketing campaign to tell potential site-selection and economic development professionals about New York's progress.
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Last fall, The Business Council was the first business group to urge legislative action to bolster the upstate economy. We suggested a package called the Upstate Agenda for Growth. It recommended steps to contain energy costs, enhance workforce development, cut property taxes by repealing mandates, pre-approve business sites, and market New York State's recent progress. We continue to believe that's the right mix.
Assemblyman Schimminger, Assemblyman Morelle, and all of your colleagues -- thank you for conducting these hearings. I hope that they help you generate momentum, in Albany and statewide, for the kinds of changes that will help our upstate cities -- and the rest of the state as well.