New York state, under Gov. Andrew Cuomo, has broken with past practice in trying to revitalize the upstate economy. A key part of that strategy involves shifting power for making deals and managing projects from state agencies to private nonprofits. Some of those deals are now part of an expanding federal investigation.
Cuomo’s model is patterned after a program used to develop a nanotechnology sector in Albany. President Barack Obama praised the approach during a visit in 2012, saying that he wants the progress Albany has made to “happen all across the country.”
It hasn’t come cheap. North of $2 billion in public funds have been invested, but the nano sector boasts some 50 companies and more than 15,000 jobs in the Capital region and across the state.
The model involves state government building, equipping and owning high-tech manufacturing plants. Major companies are recruited, along with smaller firms, much like tenants to a shopping mall. They collaborate with each other, and academics, in what Alain Kaloyeros, architect of the approach, calls “innovation hubs.”
“You locate the smartest people from a university and build a state-of-the-art infrastructure and bring in the top corporations in a specific field, in our case, nanotechnology,” said Kaloyeros.
Cuomo has charged Kaloyeros with exporting a variation of that model across upstate, from Buffalo and Dunkirk to Rochester, Syracuse and Utica. Those projects are set to cost at least $2.25 billion in state funds and to create nearly 8,000 jobs. The goal is to infuse high-tech industries into local economies to compensate for the loss of traditional manufacturing.
Cuomo said the state’s $750 million investment in a solar panel manufacturing factory in South Buffalo, at the site of a former steel plant, would usher in an economic renaissance for the region.
“Riverbend was what made us great in the first place, and this facility is about what’s going to make us great in the future,” said Cuomo.
Developing industrial clusters is sound practice, said Greg LeRoy, executive director of Good Jobs First, a national research organization that tracks economic development programs. But he says Cuomo’s approach varies from the norm in a couple of important ways.
Rather than investing in bricks and mortar, LeRoy said states usually direct their dollars elsewhere, such as developing talent and providing working capital to fledgling companies. LeRoy has other reservations, too.
“You can’t create a cluster out of thin air. Cluster strategies are what you do after you figure out what you’re already good at,” LeRoy said.
But in Buffalo, for example, the state is trying to seed a solar industry where none exists. In Syracuse, the state has built a high-tech film production hub.
Another part of Cuomo’s model for upstate places the power to develop projects to nonprofit development corporations affiliated with the state university system. These nonprofits are not subject to the same checks and balances as other state economic development agencies and have argued that they’re also exempt from transparency measures like the Freedom of Information Law. All this, despite the fact they are spending billions of tax dollars.
“The lack of transparency and the lack of accountability and the very large amount of discretionary money the governor has is textbook risk for corruption,” said John Kaehny, executive director of Reinvent Albany, a good-government group.
Kaehny says it is little wonder that U.S. Attorney Preet Bharara is investigating a number of state economic development deals handled by these nonprofits.
“There’s been questions whether this has been a clean process and whether it’s been a sensible process,” said Kaehny.
LeRoy says other states that have experimented with privatizing economic development programs have run into problems.
“We see excessive compensation, resistance to basic accountability, exaggerated job creation claims, high cost per job, poor vetting of deals, sloppy packaging of deals,” said LeRoy.
New York’s new way of doing business is essentially being vetted by federal investigators. The outcome of that probe may do more to determine the model’s long-term prospects than the projects themselves.