$1 billion semiconductor plant: ‘Flashy mega-project’ or ‘transformational investment’ for New York?

| Albany Business Review

New York state officials have committed to spending more than $500 million to entice Cree, a North Carolina company, to build a $1 billion semiconductor plant near Utica. The deal will create more than 600 jobs, at a cost per job of more than $800,000.

The announcement has drawn praise as a potentially transformational investment for the Mohawk Valley — and criticism for how much the state will be spending to make it happen.

The state’s economic development arm, Empire State Development Corp., is offering Cree (Nasdaq: CREE) — a semiconductor and LED manufacturer — $500 million in capital grants, plus $1 million in Excelsior Jobs tax credits and other benefits, to invest $1 billion in a new 480,000-square-foot factory in Marcy, near Utica.

Ken Girardin, of the fiscally conservative research group Empire Center for Public Policy, says the strategy of giving large incentive packages to individual companies is flawed.

“The state is continuing its strategy of pursuing flashy mega-projects instead of making New York more attractive for all businesses. We’re now in the second decade of this approach, and it’s still failing to deliver the promised results,” Girardin said. “This is the sort of economic development strategy that politicians turn to when they don’t want to take on the tougher questions.”

But Assemblyman John McDonald III, a Democrat of Cohoes, disagrees. He sees this as a necessary investment in a struggling area upstate, just west of the Albany region.

“I agree it’s a lot of money. On the other hand, the Mohawk Valley needs significant investment,” McDonald said.

He pointed to the GlobalFoundries deal — in which the company received more than $1 billion in state incentives, and has since grown employment to more than 3,000 people – as an example where incentives paid off for the Albany region over time.

“These investments, you need to have a long view. You need to take a long picture of 10 to 20 years,” McDonald said.

The new jobs at the Cree factory will be filled by technicians and engineers, with an average salary of $75,000. McDonald said it’s important that average is more than the median household income in the city of Utica (currently $33,873). The additional indirect jobs created by businesses that pop up to support Cree will reduce the amount the state is spending per job to far less than $800,000, as McDonald sees it.

“The cynics are going to do the simple math. Well, that’s fine,” McDonald said. “Solving the economy for upstate New York is not simple math. It’s complicated and requires a lot of thought.”

Girardin, though, believes the administration of Gov. Andrew Cuomo, a Democrat, does not need to spend hundreds of millions of dollars incentivizing individual companies to move here.

Cree had planned to build this factory in North Carolina, but shifted the plan to New York in light of the incentives the state offered. Building in New York will allow Cree to add more capacity while saving on net costs, the company’s CEO said.

“The Cuomo administration often frames these sorts of things as a bidding war between states, but they don’t talk about how we are entering those sorts of auctions at a disadvantage because it’s already artificially expensive to build and operate in New York,” Girardin said. “We have a constellation of bad policies that needlessly inflate costs for virtually every business, in a way that makes the other states more attractive.”

Girardin says state leaders should instead focus on things like taxes, workers’ compensation costs and energy costs.

McDonald sees this as Empire State Development and Cuomo making a strategic investment in the industries of tomorrow.

“Economic development is creating tomorrow’s economic opportunity and drawing from around the country and around the world,” McDonald said. “The cost per job is going to be a magnificently high number, however, you have to look at the impact it’s going to have in the downtowns, in the residential communities, in the [various tax revenues].”

McDonald believes it is in the best interest of the entire state to turn around the Mohawk Valley and other depressed areas.

“We need to see a game-changing, transformational investment,” McDonald said. “I believe that is what this is going to be.”

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