Q&A: Howard Zemsky

Howard Zemsky is one of the most influential people in Western New York. And certainly one of its busiest.

He’s perhaps best known for his revitalization of the Larkin Building and the surrounding area into one of the hottest – and coolest –  commercial, residential and retail districts in the region. It’s only one of several of his business ventures, including Taurus Capital Partners.

Zemsky, 53, has emerged as a key community leader and political player in recent years. Most significantly, he is co-chairman of the Western New York Regional Economic Development Council, which is guiding Gov. Andrew Cuomo’s initiative to spend $1 billion to revitalize the regional economy. One of the governor’s “go-to guys,” in WNY, Zemsky is also chairman of the Niagara Frontier Transportation Authority.

But there’s more. He’s also president of the Richardson Center Corp., which is overseeing the redevelopment of that historic complex, and chairman of the Buffalo State College Council. His other board memberships include the Darwin Martin House Restoration Corp.

Zemsky sat down Dec. 11 with Investigative Post Editor Jim Heaney to talk about the blueprint unveiled the week before for the Billion To Buffalo program. A 4 minute, 34 second video clip including interview highlights is posted above. The full 22 minute, 20 second interview is posted deeper in the transcript, which has been edited lightly for clarity.

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Heaney: We are going to talk about the blueprint the governor flew into town recently and unveiled. We’re going to talk about the Western New York economy and how you folks envision getting it fixed. So let’s start out talking about, from your perspective, what ails this economy. What are the two or three major fault lines to be addressed?

Zemsky: We have a lack of entrepreneurship; I think that is one missing component. An obvious missing component, if you look at the medical campus, is that we haven’t generated enough private-sector jobs. We have people looking for jobs and jobs looking for people, so we have a mismatch of skills. And if you think about a lost generation behind an aging generation, this ability to fill positions that have become increasingly open is extremely important. So those are two issues we really have to address and are challenges for the economy.

Heaney: We talked about a couple issues off camera. I’d like you to expand a little bit on the lack of venture capital and the consequences of sprawl – how they played into our problems here economically.

Zemsky: Sprawl, for example, has burdened us in a number of ways.

Not only do you have the cost of infrastructure to begin with, then you’ve got the cost of maintaining the infrastructure. Then with the environment of sprawl you make it very difficult for people to get to work. You make it difficult for public transportation to provide service at an affordable level. In all of that you sort of imbed some degree of poverty, segregation around making the job market inaccessible to some people, and then you also suffer from lack of urban density.

If you think about we need to keep young people, we need to attract young people – what are young people looking for? Those young people that have the skills to be mobile, they’re looking for creative, exciting, fun, dense, culturally rich, vibrant communities. And if we’re going to take what has been an ever-declining population and spread it over three times the land mass, which is what we’ve managed to do, then Western New York almost miraculously …

Heaney: Only in Western New York.

Zemsky: Only in Western New York. The only region in the State of New York that’s lost population in the last 20 years and at the same time sprawl has been unabated. We haven’t really had any land use planning regulations or restrictions, so that’s not really been good for the Western New York economy I think, and those are some of the issues we’re trying to address, as well.

Heaney: To what degree can government be part of the solution? You’ve got some folks who say leave everything to the market. The governor’s approach with the billion dollars clearly takes a different point of view, but what can government do, or not do, to fix the problem?

Zemsky: Government, of course, can provide key infrastructure. You can have the right regulation around preventing sprawl like we talked about. You can create an environment that’s attractive to people to live, work and play. So you don’t want government so much to pick winners or losers all the time. We’re not creating a Soviet-era plan to convey. We’re trying to create an environment where the market place works. We’re wanting to attract private sector investment more than public sector investment – by a lot. So creating an environment that’s conducive to commercial investment, residential investment across the board. So I would say if you look at the way our council has approached things, really when it comes to supporting businesses, we’ve typically supported what you’d call businesses in tradable sectors.

Heaney: What’s a tradable sector?

Zemsky: You make stuff and you export it, even if it’s just outside the borders of New York State.

Heaney: And the idea is that you want to do things that bring new money into the community.

Zemsky: Exactly. So if you think about a manufacturer that’s selling refridgeration equipment or medical devices or anything overseas or to neighboring states, that’s bringing a lot of jobs and dollars in this economy.

 The approach to economic development is 180 degrees different than what it was.

Heaney: That’s to say as opposed to retail, which is just recycling dollars within the community. If one store opens up and adds 10 employees, that probably means that some other store is going to lose 10 employees because there’s no more retail purchasing.

Zemsky: It’s basically shuffling the deck chair. And if you look statistically, more and more of our economy over time has come to depend on local consumption and less and less on exporting. We need to focus more on tradable sectors. And by the way, tradable sectors doesn’t just have to be manufactured products. It could be services too. We have a lot of large regional banks that service a region including the Mid-Atlantic and New England. They’re servicing people all over those regions and employing people here locally.

So there’s an example of a tradable sector in the service sector, but we have a ton of manufacturers. And so a lot of them are exporting product,s and I think as we know manufacturing generally pays more, so the wages are generally higher. The multiplier effect is greater …

Heaney: So, more bang for the buck.

Zemsky: More bang for the buck. Their network of suppliers is more extensive. The impact on the economy is greater. Our economic strategy can’t just be ‘Let’s build tons of office buildings.’ It can’t be ‘Let’s just build a ton of supermarkets.’ We have to make stuff. We have to sell stuff. We have to export it – goods and services. The more that we do that, the more we’ll also get the domestic consumption in the industries around that. We have to focus on that.

Our strategy, our projects, the ability to direct the resources – that’s way more local than it used to be. It used to be, I’d say, irrational.

Heaney: Before we get into the details of the blueprint, let me ask you for your critique on what has been the problem with government economic development policy over the last generation, because clearly you wouldn’t be co-chairing anything right now if we weren’t in a mess. What have economic development policies not gotten right in the last 20 to 30 years?

Zemsky: I would say, and I’m going to tip my hat to the governor because I think the approach to economic development is 180 degrees different than what it was. You say for a generation – keep in mind we’ve been struggling economically for the past 50 years now, which is more than just a bad streak. It’s pretty serious stuff.

So our approach now is very decentralized. We’ve got these regional economic development councils that are engaged with hundreds of people throughout the community in developing a strategy. That’s the competition we won last year. You’ve got way more collaboration, so if you look at the composition of the council, you’ve got public sector, private sector,  academic, community organizations, foundations. So you’ve got all the oars in the water rowing in the same direction.

And then you’ve got – and this is very unusual, and I don’t think like anything we’ve seen – the council has the opportunity to then prescribe, or at least recommend, where state dollars go in a way that advances the strategy. So you’ve got a strategy based on collaboration, and then you’ve got a stick, in a way, or a real opportunity to say, “Look, these are the types of investments that will advance the strategy.”

Heaney: Implied in what you said is the problem to this point has been a lack of strategy and a lack of real collaboration.

Zemsky: And just a decentralized decision-making process. So we developed the strategy locally. It wasn’t sent to us from Albany. We evaluate potential projects locally. So our strategy, our projects, the ability to direct the resources – that’s way more local than it used to be. It used to be, I’d say, irrational. I mean, if you look at our strategy, I think it’s rational, so let’s start there. But in the past I think it would be more like the squeaky wheel – who knew who, how much noise did they make, things like that. So I think it’s changed a lot.

Heaney: Or how many people could be invited to the ribbon cutting.

Zemsky: And the other thing I think is really good for this community is there’s a lot more people now around the table of economic development, a lot more input, a lot more voices. I think that’s sort of energizing for the community. I think we end up with a better product.

 We want to get people to stay longer, spend more money.

Heaney: Let’s talk about the blueprint, and there’s six components. For our viewers, I’m going to check off what those are. And then from your perspective, what are the three or four noteworthy talking points? You’re going to focus on three industry sectors – advanced manufacturing, life sciences and tourism. And you’re also going to focus on three elements that help those things go, which is workforce development, entrepreneurship and revitalization of some neighborhoods in the City of Buffalo. Of those, within that, what are the highlights?

Zemsky: So tourism – we’ve got 8 million people just at Niagara Falls. We have this internationally recognized destination. Any good plan builds on its strengths, so the whole concept behind our planning is, ‘What are our core indigenous strengths?’ You can’t think of our Western New York economy without acknowledging that Niagara Falls is clearly – we only have so many internationally recognized major destinations. That’s one of them.

Heaney: What are you going to do in Niagara Falls, or what do you propose to do?

Zemsky: So we’ve got 8 million people, and the idea is to really enhance the experience in Niagara Falls – extend stays, get people to spend more money. I mean if you want to distill it down, we want people to stay longer, spend more money, and employ more people. So we have a lot of strategies around doing that, but if you want to cut to the chase, which it sounds like you do, that’s what you want to do. We want to get people to stay longer, spend more money. And by staying longer throughout the region – we have assets in Niagara Falls, but we have these amazing tourist assets also in Buffalo.

Heaney: Through architecture and culture.

Zemsky: But you look at hotel occupancy in downtown Buffalo, it’s through the roof – 500 new hotel room projects that have been announced. We’ve got a lot of traction. Look at the success of the National Trust for Historic Preservation conference, the Congress for New Urbanism coming in ’14. We have a lot of traction and we have world-class art, architecture, history, heritage. So working together – we have a waterfront now that’s a magnet. I think regionally, getting people to stay longer, spend more money, employ more people.

You’ve also got many hundreds of millions of dollars of annual research funding that’s spent in the community, primarily in the medical campus. But we don’t have enough private sector spinoff from that.

Heaney: Life sciences: I think part of the thinking there is you need to take the research and development and commercialize it to actually translate that work into businesses and jobs.

Zemsky: Right. So we’ve got great anchor institutions at the Buffalo Niagara Medical Campus. Think of the anchor institutions we’ve got – there is Roswell or Hauptman or UB Centers of Excellence. We’ve now got Gates Hospital, the Global Vascular Institute. You’ve got core anchor institutions.

You’ve also got many hundreds of millions of dollars of annual research funding that’s spent in the community, primarily in the medical campus. But we don’t have enough private sector spinoff from that.

So if you look back – if you just take an objective view, which was what the whole planning process was about – it was about not having preconceived notions, but looking at the facts. It was very fact-based. We just haven’t spun off enough private sector jobs.

So the life sciences, it’s about streamlining the intellectual property process, tech transfer around that, developing accelerators so that the research can make it to market and create jobs and private sector business.

Again, venture capital, yes, we have a lack of that throughout the community. But also a significant piece of our strategies around life sciences is company attraction. So we’ve spent almost a billion dollars around these anchor institutions, in the last 10-plus years. If you show businesses what we have, the assets we have on the medical campus pretty compelling. So how do we accelerate private sector activity on the medical campus? And one of our focus areas is definitely around recruitment of life science companies.

Heaney: Before we move on to advanced manufacturing, let me ask you about the first project out of the barrel, so to speak, Albany Molecular Research. We reported recently that the governor has committed $50 million to create some facilities and buy some equipment to help them. The company lost $112 million in the last three years. Its stock over time has tumbled from more than $60 a share down to $2-something;  it’s back up to five. But it’s clearly a company that has had its financial struggles.

It begs two questions: Is this the kind of company that taxpayers ought to be helping out? To what degree did the state vet this outfit before deciding to bank this much money by bringing them here.

Zemsky: I’m excited about Albany Molecular coming to Buffalo and the buzz on the medical campus is good and I think the response among pharmaceuticals and other life science companies to the medical campus folks has been strong already.

Heaney: But they’re losing a lot of money.

Zemsky: And so let’s talk about that for a second. You’re looking at a snapshot in time, so they did lose some money. They still have a market cap that’s substantial. So they have a $150 million market capitalization, which indicates investors are really looking at their pipeline and are optimistic about the prospects of the company. This is a not an insignificant sized company – 1,300 people, hundreds of millions of dollars in sales.

So I think you’d have to look at it and say, you know drug discovery companies are all about the pipeline and research. Some of the most popular companies and the most successful companies, if you look at a snapshot of time, also lost money during some of the formative years in some development stages.

Heaney: Well these guys have been around for – this is not a formative year company. This is a 20-year company.

Zemsky: I think every company is particularly in an industry as dynamic as life sciences is always reinventing themselves. You’re only as good as your pipeline to some extent. So I think that’s an important piece of life science businesses. I think it’s cyclical that way.

Heaney: How about the vetting?

Zemsky: I would say there’s zero chance that wasn’t thoroughly vetted given where it’s located, given the involvement of SUNY and that, given the importance of this. I’d say there’s zero point zero chance that wasn’t properly or thoroughly vetted.

Heaney: And the decision to go forward was made anyways. Let’s move onto advanced manufacturing.

Zemsky: I have to add one other thing to that, which is the template is very similar to CNSE, the Center of Nanoscale Science and Engineering, in Albany. So the public investment is in public institutions, not the private institutions. The equipment is SUNY research foundations. The building is Buffalo Niagara Medical Campus.

So even in an industry, if the worse were to happen in an industry that has a lot of disruption, a lot of dynamism and change, if Albany Molecular for some reason over 20 years didn’t make out, that investment is protected in entities where those assets can continue to be used. The state provides a platform for R and D, and that platform is a way of hedging the public money and then you use it to induce a lot of private sector investments. The model is the best of both worlds in that way, so I’m pretty optimistic, very optimistic.

Heaney: And $200,000 a job is not too steep of a price?

Zemsky: I think it’s how that company ends up growing and if you look at what a lot of other places have done incentives, I don’t think it’s too high a price for what we’re getting and for  just what I can tell initially around the excitement and enthusiasm around us actually taking some concrete steps to bring life science companies and private sector jobs, the billion dollars is very serious. It’s very real. We’re attracting business, so I think it will prove to be a really good investment.

 Roughly a third of the billion dollars will be (spent) for company recruitment.

Heaney: They’re telling us we only have a couple minutes left, so let’s hit briefly on advanced manufacturing. And then I’d like you to break out where you think the billion dollars is going to wind up getting spent.

Zemsky: We’ve got many thousands of dollars in mid- to small-sized manufacturing companies that are a significant part of our economy for reasons that we talked about. So we’re trying to help these companies grow given the economy of scale as though they were a larger company by having shared R and D, by providing processing skills, by providing export assistance skills, and by providing workforce development skills. Helping manufacturers with R and D, with customer acquisition, with processes and with the workforce as a way of identifying manufacturing as a business we’re going to stay in long term, which I think is really important for this region. We’ve been good manufacturers. We’re going to stay a great manufacturing community. It’s really important. It’s very private sector driven is what we’re hearing from manufacturers.

Heaney: The blueprint did not spell out how the dollars are going to get spent. But in a general sense, how do you think that money’s going to get whacked up in the next five to seven years?

Zemsky: I think roughly a third of the billion dollars will be for company recruitment.

Heaney: Similar with what you’ve done with Albany Molecular.

Zemsky: Similar to that. So with a focus on these three sectors, it doesn’t mean every penny would go against one of these three sectors. We have eight primary sectors in the economy, so if the right opportunity presents itself, we would take it. We won’t say, “Well, I’m sorry it doesn’t follow the blueprint.”

Heaney: So you might move outside of one of those three if it’s …

Zemsky: If it’s the right opportunity. You’ve got to be flexible. Any plan, you’ve got to have some flexibility.

Heaney: And the idea, if I understand correctly, is that the goal is for every public dollar, you’re trying to leverage $4 to $5 in private sector investment.

Zemsky: Absolutely.

Heaney: And the other six, seven hundred million dollars, how does that get spread out?

Zemsky: I would say for the purposes of just thinking about it generally, you know, day one so to speak, think of the three sectors and the three enablers and then dividing that money relatively evenly.

Heaney: A hundred million bucks a pop, more or less.

Zemsky: More or less. So that will change with time, but the recruitment dollars would of course go against the ‘sectors’ than what we call the ‘enablers.’

Heaney: I’m going to ask you one more question. I really want to touch on this competition to promote entrepreneurship. Briefly explain what the thinking is there, because clearly Buffalo lacks small business. How are you trying to change that?

Zemsky: Well we want this to be dynamic. We want to accelerate the number of entrepreneurs that are here. There aren’t enough role models of entrepreneurs here. There isn’t really the whole ecosystem around entrepreneurship, so we’re trying to accelerate that. That’s what part of the billion dollars is about.

Heaney: So you’re going to host an international competition.

Zemsky: Right. And it’s open to folks locally. It’s open nationally and internationally.

Heaney: And you’re going to give up to $500,000 per winning entry? Ten entires?

Zemsky: Exactly. Ten entries a year, so we plan on doing that each and every year. I think there’s been a lot of good buzz about that. The response in the media has been good. I’ve heard a lot of great comments. Our council is extremely excited about it.

Heaney: I even said something nice about it.

Zemsky: So that’s the litmus test.