Panel Transcript – Can Upstate Cities Save Themselves? (5)

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Speaker: DANIEL GUNDERSEN

MR. EDMUND J. MCMAHON: One of the recessive genes of the Manhattan Institute is that everything is always on time, and I’m happy to report to you again — it’s a dominant gene, actually — so I’m happy to say, again, we are on time, and so, as Julia did, I’m not going to give our next speaker an introduction that actually pays him anything approaching his due.

I’ll only observe that, as I think everybody is aware, when Eliot Spitzer was running for governor, he identified the renewal of Upstate and promoting new growth in Upstate as a priority. He made it clear that one of his steps to achieving that would be creating an Upstate headquarters for the Empire State Development Corporation and, as one of his first official acts, made it clear that he was going to appoint an Upstate chairman, who become known immediately as the czar. We have here today the czar himself, who’s not going to speak to us in his native Russian, but actually in English.

Dan Gundersen who, in another break with tradition, is actually a professional in the economic development field, who previously worked in Pennsylvania as a key economic development official there, was essentially the COO of their ESDC. Previously he had a similar position in Maryland, and previous to that worked in economic development with Mayor Rendell in Philadelphia. Without any further ado, I’ll introduce our keynote speaker, Dan Gundersen.

MR. DANIEL GUNDERSEN: These yours?

MR. MCMAHON: Yes. You can use them if you want.

MR. GUNDERSEN: [Laughs] Well, it might be a little tough. Well, thank you, E.J. Thank you for inviting me to be here today. This is super. This is super to see all of you. You know, of course these are busy days here in Albany as the legislative session comes to a close, and of course one of the biggest challenges that is facing all of us — all of us in the state of New York — is revitalizing the Upstate economy. And I believe that when all is said and done with this legislative session, that it will end having advanced the core of Governor Spitzer’s “Renew New York” agenda, but with a lot more work that’s going to have to be done in the years to come. And what I’m going to do is I’m going to talk about some of those things that you can anticipate as we move forward in advancing what is so very important on the governor’s mind.

Now you know it’s been years, years that so many of you have been waiting for the attention that Upstate is getting now, and it’s great. It’s great. But we have to make sure that we coalesce, that we come together, and that we do this right. Let’s not be hasty in our approach here; let’s do it right.

The topic, as presented today in the program, was “Can Upstate Cities Save Themselves?” And that’s a pretty provocative topic, really, because the title implies that the revival of these cities in Upstate is really a city by city proposition, and it even poses the question of whether change can occur without intervention from some outside force.

You know, the discussion Upstate, it’s certainly timely, as well, to be having that right now, today, and in the weeks to come, given a report just released a few days ago. In that report the Brookings Institution posed a different question, and that question was, what role should the state play in revitalizing some of these older industrial cities? And that’s the fundamental question. The fundamental question is what role, if any, should government assume?

Now personally, I don’t think that this is an all or nothing proposition. The position of the Spitzer administration is that government must assume responsibility, and respond to the best of its abilities. And for what purpose? To stimulate private sector investment. Once we’ve done this, then we step away, and we let the private sector do what it does best, and that is grow. And when it does that, it creates the jobs.

Now Governor Spitzer made Upstate revitalization, as E.J. said, a central theme of his campaign for governor. And his question was, why not one New York instead of two vastly different New Yorks? An Upstate that is caught in a tailspin of decline and a Downstate that’s flying high with economic prosperity. The governor believed that that was unacceptable, and the electorate clearly agreed and sent the governor to Albany. [Buzzing] I did not turn this off, and it will continue to go if I’m not careful, so if it rings, please ignore it. I will. [Laughter]

At any rate, the Brookings report entitled “Restoring Prosperity,” it looked at cities nationwide, and some of these cities they classified as having significant economic problems. But it also addressed opportunities and the challenges that face some of these cities. Twelve of them were Upstate, including Albany, Schenectady, and Troy in this region. And the statistics that were presented, updated statistics, are pretty grim. In 2005 the average poverty rate for Albany, Buffalo, Rochester and Syracuse was almost 29%, an increase of over eight percentage points since 2000. The growth of wages and the number of business establishments has continued to trail that of the other cities studied, and all told, nearly 4.5 million people in 2000, nearly a quarter of the state’s total population, were living in economically anemic communities.

And what happened in these communities is really no secret. These communities were made great by manufacturing, and manufacturing has been on the decline. And the argument could be made that government was too slow, and was unresponsive and unprepared, and now we’re having to play catch up with the other states. And that shouldn’t be the case. We obviously should be leading them.

And the report demonstrates, we believe, the need for government, civic, business leaders within and across metropolitan areas to work together to advance a new state agenda for revitalizing the Upstate economy. Brookings said the solution lies in maximizing these communities’ physical, economic and cultural attributes. It cited several of these, including historic sites that shape many of the neighborhoods and the communities, educational and medical facilities that can become a magnet for commerce and new industries, and cultural amenities that can serve, also, as magnets to revitalize downtowns and surrounding neighborhoods. And that’s good news. Obviously that’s good news, because Upstate has all of these attributes.

But I believe, I believe that the solution is much more complicated than that. It involves identifying the industries that will provide tomorrow’s jobs, it involves doing a better job of opening Upstate to international markets, and it involves capitalizing on Upstate’s dedicated, highly motivated work force. And that is exactly what Governor Spitzer and I have been trying to do.

We are pursuing an integrated and an intentional economic development strategy to bring about this revitalization. It’s a strategy that recognizes that Upstate is comprised of seven distinct regions and must, therefore, include different strategies, not one strategy.

But for too long, I would submit that Upstate has been betrayed by government policies that failed to appreciate the dynamics of regional economies, policies that are a one size fits all, policies that assume that development programs designed here in Albany for all of New York will have the same effect in all communities across the state. And these policies have not been integrated with the good ideas and the efforts initiated in the communities themselves. And, just as poorly, we have continued to rely too heavily on programs that were outdated and ineffective in meeting Upstate’s needs.

The Empire Zone Program. It’s a good example. When it was first implemented, it was viewed as a means to revitalize communities by targeting development in distressed areas. And if you look at the roster of 9,700 companies that claimed the Empire Zone benefits, you’ll find that three-quarters of them are located Upstate. So it stands to reason, then, doesn’t it, that if the program had lived up to its early promises, then Upstate would not be seeing the problems that we continue to deal with today? Instead, what I believe is needed, and what I believe has been lacking with the Empire Zone program, is that it is not tied to any overarching economic development strategy.

It reminds me of the old Talmudic proverb that if you don’t know where you’re going, any road will lead you there. And Yogi Berra’s take on that, “If you see a fork in the road, take it.” [Laughter]

What we needed — what we needed was a broad vision for where we wanted to go, and an ability to adjust along the way, and the state didn’t have that vision, but — but now — but now it does. And that’s at the heart of Governor Spitzer’s “Renew New York” agenda, a vision of what is needed to revitalize Upstate, with some strategies that implement that vision. And it’s heartening to see the Brookings report single out “Renew New York” as the type of plan that’s relevant to the aging industrial cities nationwide.

The “Renew New York” agenda can be viewed as a three-legged stool, and without all three legs, the stool won’t provide the proper support. And leg one is preparing Upstate to compete in the innovation economy. And this doesn’t mean bidding a fond farewell to the manufacturing sector that made Upstate great. In fact, I think it’s quite the opposite. Nanotechnologies, biopharmaceutical production, alternate energy, these are manufacturing processes. And in fact manufacturers are responsible for more than 70% of business R&D.

Now simple economics demonstrate why we need to focus on the innovation economy, and why it is a part of the future of Upstate. Positions in technology-related industries pay almost twice the salary of traditional jobs, and they have a multiplier effect of two and a half to three times, in terms of producing additional jobs.

So why do we get excited when Sematech announces that they’ve chosen the capital region for their international headquarters, or when Corning commits a new Research & Development center? The Board takes a U-turn and instead of doing what other corporations around the world are doing and placing these facilities in Asia and Shanghai, they say, “We’re staying put. We’re going to invest in the Southern Tier.” They did this last month.

Or when Governor Spitzer announces that BAE Systems has moved a Research & Development operation from Los Angeles to Johnson City outside Binghamton? Or when we were able to work with Mayor Duffy and a county executive in Rochester to keep 800 jobs and attract, through negotiation, 500 world-class researchers to that area? Why? Because these are the jobs that are created in the innovation economy, and they’re higher paying, and they have this high multiplier effect.

For example, on Monday — on Monday, here in Albany, I met with leaders of the first college in the world dedicated to R&D education and deployment in the emerging disciplines of nanoscience, nanotechnology, and even one that I wasn’t aware of, nanoeconomics. And that’s here at U Albany’s College of Nanoscale Science & Engineering. The expansion underway there will attract over 2,000 engineers, students and faculty, researchers, scientists, by the end of 2008. The Times Union reported recently that of all the jobs added between 2005 and 2006 in the capital region, 41% were in high-tech fields, with high-tech manufacturing outpacing all others.

Now a few weeks earlier I met with Cornell University’s Director of Nanobiotechnology and newly formed companies that had spun out of Cornell, and we discussed ways to build the regional economy. And likewise, I’ve had that same kind of conversation all across Upstate, at the Rochester Institute of Technology, at the Buffalo-Niagara Medical Center, towards brokering the intellectual capital in our universities to further economic growth. But it’s not just the big universities. Conversations with Clarkson University’s president in the north country reveals astounding possibilities to use technology research to attract new job growth.

Now back to that three-legged stool. Leg two is reducing cost. In his State of the State address the governor referred to “the perfect storm of unaffordability” that was slowing growth and driving businesses out of the state. And the governor promised that he would attack this perfect storm relentlessly. And we have already made some good strides. The governor secured a historic agreement that will lower the Workers’ Compensation cost. He lowered corporate tax rates, he reduced the corporate alternative minimum tax. All told, about $140 million in business tax relief. And he won a $1.3 billion property tax relief for middle class New Yorkers. And he ushered through a massive increase in state education aid.

Now a lot remains to be done, but that’s a good start. And having worked for two other governors, and kind of keeping pulse on what happens in the first term of a new governor, this is astounding. This is really astounding that so much has been achieved, particularly as it relates to the business environment.

The third leg is to invest in infrastructure. To attract new jobs and new economic activity, we need to make our Upstate communities into attractive places in which to live, work, start and expand a business. We singled out infrastructure projects crucial to this investment, and we’re going to work with the localities to expedite their commencement and completion.

And one of the key challenges here is that we need to reform the state’s brownfields program to prepare former industrial sites for redevelopment. And today there is news on the administrations’ approach to this task. Now this has two benefits. It’s preserving the open space that people want, and putting vacant properties back into productive use. My view, and that of the governor, is that we should be looking at redeveloping before developing.

So those are the legs of the stool, but for any stool to be useful, it needs to sit on solid ground, it needs a solid foundation. And the foundation — part of this foundation — begins with realizing that Upstate is different from Downstate. And that’s not news, but really realizing that is a good step, and that’s why I’m here today. The governor understood that the differences cried out for different approaches and, in fact, different people dealing with the economic development issues.

And it’s also why there’s a new organization, the Upstate Empire State Development Corporation, whose board will be representative of each Upstate region, and help advance that region’s blueprint for change. It gives Upstate not only the voice, but the ear that has been so desperately needed. And let me explain what I mean by that.

It’s a voice that’s now unified in purpose and will bring about, I believe, the action necessary, because we’ll be able to mobilize the action necessary to bring about the resources that will effectuate this change. And it’s an ear to hear the needs and the opportunities, when they present themselves, to be on the ground, to be there. And this is the direction we’re headed.

But as I’ve learned throughout my travels — and in my first 14 weeks on the job, I averaged no less 1,000 miles a week traveling all of Upstate — what I learned was that Upstate is different from Upstate. [Laughter] As I mentioned earlier, there are over 40,000 square miles to it. And within it there are at least seven diverse economies. And solving their problems calls for these different approaches. What works in the capital region may not work Elmira or in Buffalo or in Plattsburgh. Doesn’t that stand to reason?

So another integral part of this foundation is understanding that sustainable economic development is integrated. The state needs to work with individual localities to tailor the best strategies for individual communities for developing the regional blueprints that will determine how we can best deploy our resources most effectively. And we need to be flexible. I mentioned this. We need to be flexible to realize that this is the best way to make the whole greater than the sum of its parts.

And central, too, to this foundation is to know what businesses want. We need to look at ourselves from the investor’s perspective, and we need to see what our competitors are offering so that we can get ahead of them. And we need to identify those key industry clusters that will position Upstate well in the innovation economy, and then concentrate our efforts on growing businesses in those sectors.

You know, I’ve always found it a little bit odd that economic developers spend so much time with troubled businesses. Why not learn from the successful ones? We need to identify fast-growing businesses in each of our communities, and focus our efforts on helping them grow. Now let me talk about that a little bit. It is difficult. It is very difficult to see the big companies shut down, and we’ve all seen those headlines, all too often, Upstate.

But the real tragedy is when our fast growing, smaller companies leave New York, unnoticed, for states with a more hospitable growth environment. And their departure, I would submit, will do more harm in the long run than the factory that shuts down because it has an outmoded product or uncompetitive plan. We need to focus on the real leakage of jobs by responding to small, fast-growing companies’ needs.

That’s only part of the task. We can identify the key clusters and the businesses that will define the innovation economy, but what’s harder to do is to understand when it’s appropriate to invest in any one business or cluster. And we need to have the process in place to help make those decisions. This foundation includes not only having the right tools and the right programs, but it’s not just about program, it’s about having the right people in the right places who are empowered to act quickly.

We have regional offices all over Upstate, and they need to be our eyes and ears. They need to alert us both to the opportunities and to the challenges. They need to be proactive in reaching out to businesses. They need to knock on doors. They need to be cognizant of what these businesses need, and to be able to refer them to the resources that might be available. And they need to be led by economic development professionals. They will be at the front lines. They’ll be finding the opportunities for the deals. But the deals won’t be the only things that they do. And this is, perhaps, the biggest change for the way in which Empire State will operate Upstate.

Empire State has been defined as the place you go to do the big project. Well, the big project isn’t Upstate; it’s the small businesses, it’s the fast growing businesses. And so we will adopt a different kind of approach to business development. And on top of that, each one of our regional offices will have resident expertise in site development and infrastructure, with a focus on brownfields. Each one should have an expert in international trade, because one of the major efforts we need to make is engaging our companies, opening up opportunities that world markets present.

And finally, this foundation will crumble if it’s not supported by sound economic and ethical principles. We need to set the standards that will drive the decisions about the investment we make. We need to know that when we invest our limited resources — taxpayer money — that the investment meets predetermined goals. We must have the self-control to say “no” so that on occasion we have resources available when we need to say yes. And if I can make a personal statement here, our principles must also apply to our investments. Where we put our money reflects who we are. And it’s clear from the numbers that the billions of dollars of investments made over the past decade have not produced the needed change. They have not revitalized many parts of Upstate, and it’s clearly time for a new approach, one that takes the best practices from other states, those states to whom we’ve lost jobs and people. But, you know, we have to take those practices, not to emulate, but to improve. We need to be the ones setting the standards. That’s the New York way, and that’s why we’re called the Empire State.

So there you have it. Upstate has plenty of positives to build on, but we need an integrated economic-development strategy that leverages regional strengths. Governor Spitzer’s “Renew New York” agenda advances the innovation economy, reduces business costs, and invests in infrastructure. We will deploy economic-development professionals who come at their work not from a political, but from an investor’s perspective. And knowing that without principles you breed problems, we will advance principles for investment that target the public dollar and that allows the private sector to do what it does best: grow.

The Brookings report concluded, “For the first time in decades there’s reason to be optimistic about the future of America’s older industrial cities. Advancing beyond hope, however, requires a vision of the possible and the will to achieve it.”

We know a house divided cannot stand. We know that a house united, one New York, is the way to go. We know we have a vision. We know we have the will. We know what makes communities so very special. Better, we know that we must and we will. Thank you.

MR. MCMAHON: Thank you, Dan. And we’re really appreciative of Mr. Gundersen being here today. He’s very tightly scheduled and has to move on, so we won’t be closing with Q&A. I’ll just say, in closing, I want to thank everyone for attending, and thank all of our speakers, who I think did a wonderful job. And please, if you haven’t done so already, leave us your card, or in some other way, your email address, so we can keep you posted with updates of materials coming out of this conference and of future events and relevant materials. Thank you all, again, very much for attending, and have a good day.