Buffalo Billion audit: shock and ugh
by Jim Heaney, editor of Investigative Post
The audit released Friday by state Comptroller Thomas DiNapoli told us a lot of things we already knew or strongly suspected: the Cuomo administration failed to assess the value of high-tech projects like the Tesla plant in South Buffalo both before and after the investment of tax dollars, and largely kept the public and press in the dark in between.
But the audit added a lot of detail and included some new eye-popping findings, two in particular:
- The Tesla project fell way short — way, way short, actually — of the state’s desired return on investment. The audit said Empire State Development, the Cuomo-controlled development agency, has a benchmark of $30 of economic benefit for every $1 of state investment. The ROI on the Tesla project was 54 cents for every $1 of public money. Talk about falling short.
- Employment in the technology sector actually fell in Western New York between 2011 and 2017, despite the infusion of Buffalo Billion money. Employment in advanced manufacturing fell by 2.1 percent, in life sciences by 2.6 percent. That’s what happens when you invest most of your money in high-risk projects that don’t pan out.
Also damning is the reciting of numerous concessions the Cuomo administration made to Tesla over the years as the project stumbled. For starters, Tesla was allowed to occupy the plant for 2½ years before job creation requirements kicked in. The number of jobs Tesla was required to create was cut, and the mandate for good-paying, high-tech jobs was watered down in favor of “any old job will do.” (My words, not the comptroller’s.)
The audit concluded: “The reduction in the total number of jobs that needed to be created, including the total number of jobs specific to manufacturing operations, and the flexibility to create any type of job as opposed to only high-tech-specific jobs, combined with Tesla being able to hire en mass up to four weeks before the deadline, have not only allowed Tesla to avoid penalties by meeting reduced employment goals, but undermined the intent of the project to bring good-paying jobs to the Western New York region.”
The audit considered high-tech projects, particularly several funded through the Buffalo Billion initiative, across upstate since 2011, shortly after Andrew Cuomo took office. The state has thrown $2.2 billion at projects with claims they would create 8,000 jobs and spur an equal number of indirect jobs.
Until corruption claims hit the fan in the spring of 2016, Cuomo criss-crossed the state announcing projects, acting like Santa Claus at Christmas. His chief elf was Alain Kaloyeros, the nanotech guru turned convicted felon.
The comptroller’s audit concluded the Cuomo administration — let’s face it, Empire State Development and the SUNY-affiliated development agencies charged with managing economic development projects were only following orders — failed to do any serious analysis before doling out taxpayer funds to projects.
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“Initial project assessments lacked sufficient detail, such as reviews of the financial viability of beneficiary companies and cost-benefit analyses to assess the overall benefits of the projects, to justify the use of State funds,” according to the audit.
More than once, the audit lamented ESD’s “lack of due diligence.”
For example, the audit said ESD’s assessment of the Riverbend project consisted largely of a memo about the finances of the Fort Schuyler Management Corp., which was managing the project, and a one-page profile of SolarCity, which at the time was in line to benefit from the state’s investment. Investigative Post produced a more in-depth — and troubling — assessment of the financially shaky company.
“Additionally,” the audit said, “the cost-benefit analysis performed by ESD was mainly informational and limited to a comparison of the proposed amount of economic assistance and the project’s construction budget.”
Likewise, the audit said ESD has failed to assess projects once they’re completed to determine if they were a good investment.
“There is a lack of consistent and rigorous performance and evaluation standards for measuring whether programs and projects attain their intended goals,” the audit said.
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Also lacking, the audit said, was transparency involving state investments. ESD has done a poor job releasing information, such as job updates.
The comptroller’s office was being kind. State officials have gone out of their way to be difficult with reporters, refusing interviews and dragging their feet in response to Freedom of Information requests.
The stonewalling started in 2014, as I documented in my story that broke open the SolarCity scandal, and it continues today. Earlier this year, officials from ESD and the Fort Schuyler Management Corp. refused to answer questions or provide documents as I researched a story on the failed IBM data hub that had been proposed for downtown Buffalo.
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While the audit spent a lot of time on the Buffalo Billion, it considered projects across upstate. Most striking was the failure of state funding to spur growth in the technology sector. Western New York wasn’t the only region to actually lose jobs in advanced manufacturing and life sciences.
“Multiple regions receiving significant state high-tech investments saw a decrease in total jobs among both industries,” the audit said.
Indeed, statewide employment in the high-tech sector fell by 2.9 percent. Growth in life sciences was a paltry 1 percent. This, at a time when the technology sector was booming nationally.
Left unsaid in the audit is the corruption that afflicted the Buffalo Billion, resulting in the convictions of Kaloyeros, the governor’s top economic development officials, and Louis P. Ciminelli, one of Cuomo’s biggest campaign contributors.
ESD’s response to the audit was predictable, essentially “it’s not our fault” and “the comptroller doesn’t know what he’s talking about.” The comptroller replied that ESD’s response was “misleading and disingenuous.” Sounds about right, given my experience with ESD over the years.
ESD, whose chairman is Buffalo developer Howard Zemsky, took issue with the audit citing an economic return of 54 cents, saying it overlooked other activity by Tesla that would have boosted the number. Even if true, 54 cents times whatever is a long way from $30. All I know is last time I crunched the numbers, the state’s investment amounted to more than $500,000 per job, many of which pay in the $16 an hour range.
Kelly Dudzig of WGRZ asked me on air the other day if I expect things to change because of the audit. Not really, I told her.
So long as Cuomo is in office, the state’s economic development agencies will focus on projects designed to generate positive press for the governor. Actual job creation is a secondary concern. They’ll likewise attempt to thwart reporters who ask questions. That’s how Cuomo operates.
Our best hope is that the state’s fiscal distress resulting from the pandemic curtails the amount of money available for ESD to throw willy-nilly at projects. As the comptroller’s audit illustrates, this administration is incapable of making smart, informed investments of taxpayer dollars.