A rich, but tolerable development subsidy deal

Reporting, analysis and commentary
by Jim Heaney, editor of Investigative Post

Anyone who has followed my work the past dozen years knows I am not a fan of economic development subsidies. And the deal announced Tuesday of a manufacturing plant involves a lot of public money – some $25.9 million over the next decade in grants, tax breaks and power discounts.

That works out to nearly $151,000 per job, which ranks this as one of the region’s richest subsidy deals ever. It’s not the obscene $2.1 million per job subsidy awarded a few years back to Yahoo’s data center in Lockport. But it’s more than all but a handful of deals that have come down the pike in the time I’ve been reporting on economic development.

That said, the subsidy package as outlined in a state document is not as offensive as many that came before it.  In fact – let me swallow hard before saying this – I can see some downright positives.

There are two biggies.

First, those in government doling out the goodies are moving away from the discredited practice of showering firms with cash and tax credits in the hope companies deliver on their promises. The Alita deal involves $6.4 million in state credits under the Excelior program enacted under Gov. Andrew Cuomo and a $2 million loan from the Erie County Industrial Development Agency that becomes a grant if Alita meets certain benchmarks, presumably tied to investment and job creation.

The second positive involves incentives provided by the New York Power Authority.

A big chunk of the hydropower generated at the authority’s plant in Lewiston is earmarked for sale to local industries. Some of the power has gone begging for customers over the past decade and the authority has sold it on the open market for a big markup and pocketed the profits. Thanks to legislative action, those profits are now earmarked to promote economic development in Western New York, and the Alita project is receiving $2 million in such funds. Better them than authority HQ in White Plains.

Moreover, the allocation of 4 megawatts of deeply discounted hydropower represents smarter use of the incentive than what I’m used to seeing. The power ought to be allocated to energy-intensive industries, preferably those with a future.

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For too long, a lion’s share of the power has flowed to long-term customers, regardless of merit, as though it was some sort of birthright. I did an investigation for The Buffalo News in 2006 that showed, at its worst, the discounted power saved companies up to $150,000 per job – each and every year. Some of the major recipients were firms on the decline. It was crazy – and remains that way in some instances. At least in Alita’s case, the power is going to a company with a future.

There are other things to like in this deal.

The plant will be built in the city, on a restored brownfield, to boot. Far too often, subsidies have promoted sprawl.

Economic planners, i.e. the Western New York Regional Economic Development Council, i.e. Howard Zemsky and Company, have targeted advanced manufacturing as a sector to grow using the $1 billion pledged by Cuomo. While the Alita project is not technically part of that program, it does involve smart manufacturing. Which means economic planners are actually working off a game plan. And creating good paying jobs ($58,000 a year, in this case). And promoting development that has a good ripple effect, as manufacturing requires a supply chain that can generate a lot of spin-off jobs.

So, for all these reasons, I’m less agitated than I otherwise would be over the size of the subsidy package, which a certain local car dealer might describe as HUUUUGGGEEEEEE!

At nearly $26 million, it’s certainly more than I’d like to see. But I can see logic in the thinking that went into it. Which is to say it doesn’t entirely smack of the desperation that has driven too many deals in the past.

In short, it’s a richer deal, yet a smarter deal, than what we’re used to seeing in these parts.

It’s part of a national trend, according to Greg LeRoy, executive director of Good Jobs First, a national subsidy research organization who I used as resource and sounding board for years. He’s the most knowledgable subsidy expert I know.

I described the Alita deal to him. His reaction: “It’s emblematic of two trends we see, more money and more accountability.”

Which means, for once, Buffalo is with a trend, rather than light years behind.