Tag Archives: NY

New York’s Buffalo Billion initiative has been underwhelming

New York’s Buffalo Billion plan has come under fire amidst an ongoing corruption probe looking into whether some contracts were inappropriately awarded to political donors. The investigation has led to funding delays and there are reports of some contractors and companies rethinking their investments. But even without these legal problems, it is unlikely that the Buffalo Billion initiative will remake Buffalo’s economy.

Buffalo, NY has been one of America’s struggling cities since the 1950s, but before then it had a long history of growth. After it became the terminal point of the Erie Canal in 1825 it grew rapidly; over the next 100 years the city’s population went from just under 9,000 to over 570,000. Growth slowed down from 1930 to 1950, and between 1950 and 1960 the city lost nearly 50,000 people. It has been losing population ever since. The Metropolitan Area (MSA), which is the economic city, continued to grow until the 1970s as people left the central city for the surrounding suburbs, but it has also been losing population since then. (click to enlarge figure)


Buffalo’s population decline has not escaped the notice of local, state and federal officials, and billions of dollars in government aid have been given to the area in an effort to halt or reverse its population and economic slide. The newest attempt is Governor Andrew Cuomo’s Buffalo Billion, which promises to give $1 billion of state funds to the region. The investment began in 2013 and as of January 2016, $870.5 million worth of projects have been announced. The table below lists some of the projects, the amount of the investment, and the number of jobs each investment is supposed to create, retain, or induce (includes indirect jobs due to construction and jobs created by subsequent private investment). This information is from the Buffalo Billion Process and Implementation plan (henceforth Buffalo Billion Plan).


The projects listed have been awarded $727 million in direct investment, $150 million in tax breaks and $250 million in other state funds. The total number of jobs related to these investments is 9,900 according to the documentation, for an average cost of $113,859 per job (last column).

However, these jobs numbers are projections, not actual counts. This is one of the main criticisms of investment efforts like Buffalo Billion—a lot of money is spent and a lot of jobs are promised, but rarely does anyone follow up to see if the jobs were actually created. In this case it remains to be seen whether reality will match the promises, but the early signs are not encouraging.

Executives of the first project, SolarCity, which received $750 million of benefits and promised 5,000 jobs in western New York, appear to have already scaled back their promise. One company official recently said that 1,460 jobs will be created in Buffalo, including 500 manufacturing jobs. This is down from 2,000 in the Buffalo Billion Plan, a 27% decrease.

The SolarCity factory is not scheduled to open until June 2017 so there is still time for hiring plans to change. But even if the company eventually creates 5,000 jobs in the area, it is hard to see how that will drastically improve the economy of an MSA of over 1.1 million people. Moreover, page eight of the Buffalo Billion Plan reports that the entire $1 billion is only projected to create 14,000 jobs over the course of 5 years, which is again a relatively small amount for such a large area.

Contrary to the local anecdotes that say otherwise, so far there is little evidence that Buffalo Billion has significantly impacted the local economy. Since the recession, employment in Buffalo and its MSA has barely improved, as shown below (data are from the BLS). There has also been little improvement since 2013 when the Buffalo Billion development plan was released. (City data plotted on the right axis, MSA on the left axis.)


Real wages in both Erie and Niagara County, the two counties that make up the Buffalo MSA, have also been fairly stagnant since the recession, though there is evidence of some improvement since 2013, particularly in Erie County (data are from the BLS). Still, it is hard to separate these small increases in employment and wages from the general recovery that typically occurs after a deep recession.


The goal of the Buffalo Billion is to create a “Big Push” that leads to new industry clusters, such as a green energy cluster anchored by SolarCity and an advanced manufacturing cluster. Unfortunately, grandiose plans to artificially create clusters in older manufacturing cities rarely succeed.

As economist Enrico Moretti notes in his book, The New Geography of Jobs, in order for Big Push policies to succeed they need to attract both workers and firms at the same time. This is hard to do since either workers or firms need to be convinced that the other group will eventually arrive if they make the first move.

If firms relocate but high-skill workers stay away, then the firm has spent scarce resources locating in an area that doesn’t have the workforce it needs. If workers move but firms stay away, then the high-skill workers are left with few employment opportunities. Neither situation is sustainable in the long-run.

The use of targeted incentives to attract firms, as in the aforementioned SolarCity project, has been shown to be an ineffective way to grow a regional economy. While such incentives often help some firms at the expense of others, they do not provide broader benefits to the economy as a whole. The mobile firms attracted by such incentives, called footloose firms, are also likely to leave once the incentives expire, meaning that even if there is a short term boost it will be expensive to maintain since the incentives will have to be renewed.

Also, in order for any business to succeed state and local policies need to support, rather than inhibit, economic growth. New York has one of the worst economic environments according to several different measures: It’s 50th in overall state freedom, 50th in economic freedom, and 49th in state business tax climate. New York does well on some other measures, such as Kauffman’s entrepreneurship rankings, but such results are usually driven by the New York City area, which is an economically vibrant area largely due to historical path dependencies and agglomeration economies. Buffalo, and western New York in general, lacks the same innate and historical advantages and thus has a harder time overcoming the burdensome tax and regulatory policies of state government, which are particularly harmful to the local economies located near state borders.

Buffalo officials can control some things at the local level that will improve their economic environment, such as zoning, business licensing, and local taxes, but in order to achieve robust economic growth the city will likely need better cooperation from state officials.

State and local policy makers often refuse to acknowledge the harm that relatively high-tax, high-regulation environments have on economic growth, and this prevents them from making policy changes that would foster more economic activity. Instead, politicians invest billions of dollars of taxpayer money, often in the form of ineffective targeted incentives to favored firms or industries, with the hope that this time will be different.

Discovering an areas comparative advantage and creating a sustainable industry cluster or clusters requires experimentation, which will likely result in some failures. Local and state governments should create an environment that encourages entrepreneurs to experiment with new products and services in their region, but they shouldn’t be risking taxpayer money picking winners and losers. Creating a low-tax, low-regulation environment that treats all businesses—established and start-up, large and small—the same is a better way to grow an economy than government subsidies to favored firms. Unfortunately the Buffalo Billion project looks like another example of the latter futile strategy.

TEL Event and TEL Podcast

If you couldn’t make it to GMU last week for the Tax and Expenditure panel, you are in luck: the tech team at Mercatus was good enough to capture it for posterity:

I thank our two guests: Assemblyman Micah Kellner of the NY-65th district and Nick Kasprak of the Tax Foundation.

Nick has created a very handy on-line tool. It does what my paper on state spending restraint did: it traces out what states would (theoreticall) have spent had they adopted TELs in certain time periods. Unlike my paper, however, Nick’s tool is interactive, it examines all states, and it allows users to see the different impact of different types of TELs. Check it out.

I learned a number of things from Assemblyman Kellner. Perhaps the most-interesting thing I learned: if you live in the 65th district of NY and if your family earns $250k or more, the state considers you poor enough to qualify for affordable housing rent control but rich enough to pay the “millionaire’s” tax. The assemblyman notes that in pricey NYC, a lot of people who live modest lifestyles actually fall into this category.

I presented the results of my  paper on tax and expenditure limits.

Also this week, the Tax Foundation’s Richard Morrison interviewed me about TELs in their weekly podcast.

California May Have a Budget!

Here are some facts:

  • The budget is 99 days overdue. PA and NY’s budgets were also-past due, but they were resolved long ago.
  • According to reports, the state’s $19 billion budget gap is closed:

with what lawmakers call solutions and creative accounting tactics, some of which push off payments to the next fiscal year [MM: Sound familiar?]

  • The deal was made possible by a recent ruling by the state’s Supreme Court. It upheld Governor Schwarzenegger’s mandate that 200,000 public employees take unpaid days off.
  • The deal required $5.3 billion in federal aid. If we extrapolate the result from Sobel and Crowley, the federal aid may stimulate anywhere from $1.7 to $2.2 billion in new state taxes. 
  • Last month, the Wall Street Journal reported:

On the brink of insolvency, California may have to pay its bills with IOUs soon. A budget was due three months ago, and the legislature hasn’t passed one.

The lawmakers can, however, point to a list of other achievements this year. Awaiting Gov. Arnold Schwarzenegger’s signature, for example, is a bill that would bar the state from filming cows in New Zealand. It’s the fruit of five committee votes and eight legislative analyses.

California lawmakers also voted to form a lobster commission. They created “Motorcycle Awareness Month,” not to mention a “Cuss Free Week.”

And they kept the California state rock safe. Senate Bill 624 had sought to bust the rock, serpentine. Adamant opposition protected it, but sponsor Gloria Romero declared this “an issue we should address again.”

Property Taxes and Household Income

People who live in New Jersey and New York already know that their property taxes are high. But they may not know just how high, that these two states have the highest property taxes in the United States, by various quantitative measures as described below.

New York and New Jersey vie in any given year for first place for highest per capita homeowner property tax burden in the nation. The Tax Foundation recently published rankings of median per capita homeowner property taxes paid and 2008 is no exception. The top 10 counties are nearly split between the two states. Number one is Westchester, NY with a median per capita homeowner property tax of $8,890.

When dividing the median property tax burden by median home value, only New York counties make the top ten. Niagara County is number one with median property taxes representing 2.89 percent of median home value.

I decided to do another calculation using the Tax Foundation’s data and combining it with median homeowner income for each county in the U.S. to calculate another measure of property tax pain: how big a bite it takes out of homeowner income.

Not surprisingly, the results don’t help either state.

New Jersey has 16 out of the top 25 highest property tax counties (among counties with populations greater than 65,000) in the US. New York has six counties, and Illinois, three. For three counties in New Jersey — Passaic, Essex and Bergen — the median property tax represents over eight percent of median homeowner income. As a benchmark, the average for the US is 2.8 percent.

New York has six counties in the top 25 in the eight percent range. It’s only by 21st place that a new state jumps into the rankings: Lake County, Illinois with a ratio of median property taxes to median income of 6.5 percent.

Here are all the top 25 counties:

Highest 25 Property Tax Counties in United States, 2008 (Median Homeowner Property Tax as a Percentage of Median Homeowner Income)

County State Taxes as % of Income
1. Passaic NJ 8.7%
2. Essex NJ 8.3
3. Bergen NJ 8.2
4. Nassau NY 8.1
5. Union NJ 8.0
6. Westchester NY 8.0
7. Rockland NY 8.0
8. Hunterdon NJ 7.4
9. Suffolk NY 7.4
10. Putnam NY 7.3
11. Hudson NJ 7.0
12. Sussex NJ 6.9
13. Camden NJ 6.9
14. Somerset NJ 6.8
15. Atlantic NJ 6.8
16. Monmouth NJ 6.7
17. Warren NJ 6.6
18. Mercer NJ 6.6
19. Morris NJ 6.6
20. Middlesex NJ 6.6
21. Lake IL 6.5
22. Orange NY 6.4
23. Gloucester NJ 6.3
24. Kane IL 6.2
25. Kendall IL 6.2

Note that these are counties with populations of over 65,000.

Assorted Links

Private beachs on public parkland in Rockaway Peninsula, Queens, NY.

New York in search of reveneus at the DMV — registration  and license fees hiked, and mandatory new licencse plates with every new registration.

Former New Jersey State Senator Joseph Conglio sentenced on corruption charges: giving state money to a hospital in exchange for a job.

Tax havens versus Tax hells — The Economist reports that in terms of tax, Chicago is the most expensive city for travelers, at $41 a day in taxes on general sales  purchases. The least expensive: Burbank, California, at just $1 a day in taxes.