A new report by management consultancy A.T. Kearney, commissioned by Empire State Development (ESD), takes an in-depth look at why New York state”™s economic development has been lackluster compared with other competing states, suggests strategies for future action and recommends a number of reforms.
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The RX for change: Get rid of the unnecessary regulations and taxes that make New York one of the least-friendly states in which to do business; and shift the economic development focus from attracting businesses based on the numbers of new jobs created to an emphasis on the emerging, tech-focused nanotech, bioscience and clean-tech sectors. Jobs in these fields pay an average annual salary of $65,000 and result in 3.5 more jobs, compared with $30,000 and one additional new job in other of industries, such as retail. The report also noted the state has been too dependent on public-sector programs.
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That emphasis doesn”™t sit well with Lance Matteson, president of the Ulster County Development Corp., who said in general he thought the analysis was “sound and valid.” But, “There”™s a lot made of the innovation economy and the growth industries and quality of those jobs. All are in agreement about that, but the question is, what are the strategic ways of doing that?”
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March Gallagher, chairperson of the Ulster County Industrial Development Authority, said the Solar Energy Consortium, a Kingston initiative in a former IBM facility that requires an input of state funds, fits perfectly with the report”™s strategy to promote clean-tech companies in the state. However, “the ESD has not been supportive of the consortium. They”™ve said it doesn”™t fit their model. Bringing big private-sector dollars to the table is their model.”
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Gallagher and Matteson also took issue with the fact the report pegs the mid-Hudson region as a nanotech center, while excluding it from the list of regions strong in clean tech. “It”™s hard to find how Albany Nanotech has impacted the Hudson Valley,” said Matteson, noting nanotech was very much a Capital Region industry. At the same time, “the Hudson Valley was not identified as one of the target regions for clean tech, even though we have a number of world-class clean-tech companies. We think we”™re going to be a player in this area.”
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Meantime in Dutchess
Across the river, Anne Conroy, president and CEO of the Dutchess County Economic Development Corp., said the report”™s recommendations “are a very sound policy decision. We agree with the focus on strategic industry clusters,” which fit with the county”™s focus.
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“Going forward, we”™d like to see closer coordination with the local economic development organization” in terms of the state”™s outreach, Conroy added.
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Gallagher was a bit more critical of the ESD: “They need to be more aggressive. We”™re competing with states out West. A model that prevents new entrepreneurial incubators doesn”™t work.”
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Theresa Waivada, executive director of the Westchester County IDA, said she lauded the report”™s emphasis on more transparency. “The ESD and Westchester IDA have worked cooperatively. We talk to them more than once a week and work on projects together. Our projects have been appropriate. We”™re cluster driven. Everything is based on getting a major investment.”
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The report noted that New York state economy ranks ahead of all but 11 national economies. However, in terms of private employment growth it ranks 39th in the nation. Half a million young adults left upstate between 1990 and 2005.
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The good news: compared to other states with which it competes, New York has a higher percentage of college graduates, which comprise more than 27 percent of the population above age 25. The state has 271 colleges and universities and research centers, ranking it second nationwide for educational resources. New York City, to many, remains the capital of the world.
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The bad news: the state and local tax burdens are 53 percent higher and energy costs are 58 percent above the national averages. The state has an aging infrastructure. And its economic development efforts have been inefficient and redundant.
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The report recommended that ESD “establish a network of in-state and out-of-state scientists and business experts to help assess the commercial viability of tech and guide the allocation of public funding to the most promising sectors.” ESD “needs to be more adept at attracting global capital” and it should also encourage more upstate-downstate connectivity (for instance, by creating incentives for more New York City businesses to establish back-office service centers in the central and western regions of the state, which many have already done successfully).
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It found the Empire Zone program has drifted from its original mission to aid pockets of extreme poverty. The tax credits it offers currently cost the state half a billion dollars. The program also has a bloated administration and an overly complex array of incentives; the zones should be folded into a central economic development authority, it says.
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The Centers of Excellence, of which there are seven, has performed unevenly. The $7 million earmarked for the program in 2007 is now being administered by ESD. Funds to the centers should be rewarded on the basis of their academic and commercial partnerships.
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NYSTAR”™s (New York State Foundation for Science, Technology and Innovation) regional partnerships, introduced last year, duplicate ESD efforts and should be rolled into a new program coordinated by the ESD, according to the report. The international trade and investment program, which helps small- and mid-sized businesses export their products overseas and has an initiative to attract foreign companies to the state, doesn”™t live up to its potential. It needs better leadership, more experienced staff, more focus and clear performance expectations, the report states. And: The small business program, which includes a subsidized loan program and grants to help small companies assess and increase their tech-competitive edge, “is well aligned,” but should be restructured by ESD, with a centralize program repository, including better coordination with regional offices. The report notes that more than 3.5 million state citizens are employed in 490,000 small businesses.
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The report characterized the ESD as too passive, with ineffective communication both internally and externally; politicized; lacking credibility with the Legislature; isolated from possible state government agency partners and dependent on a patchwork approach to problem solving.
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