Upstate Cities See New Growth Amid Fiscal Crisis

In January, Gov. Andrew Cuomo made a state budget address that looked to raise the minimum wage, along with spending on schools and Medicaid. His proposal included $6.1 billion in aid for victims of Superstorm Sandy, as well as a big bump for the state’s Environmental Protection Fund.

But for upstate New York’s struggling cities, he didn’t mention much – just a plan to restructure their finances by pushing troublesome pension costs into the future. Those who wanted a more comprehensive approach toward urban upstate were left wanting.

Many of those upstate cities were once booming industrial hotbeds, some with populations that rivaled the biggest cities in the country – Rochester was once in the top 20 and Buffalo peaked at eighth in the nation at the turn of the 20th century. Decades after the industrial peak, these locales are still in flux, as the industrial elements of their respective local economies continue to die off.

But these cities are not fading away quietly – some are overhauling their economic structures to reflect modern times, and an upstate resurgence does not seem entirely out of reach. The workforce is generally trending from labor-based to knowledge-based, according to numbers shown in a recent state Labor Department report. Many upstate cities have seen considerable job growth in their higher institutions, with nearly 70,000 jobs added by different private higher education institutions from 2000 to 2010 – a 38 percent increase.

However, as several upstate cities look to make this transition towards a new economy rooted in higher education and healthcare, they still face glaring budgetary concerns. The reality is that the budget math just doesn’t work upstate cities anymore, spurring support for a complete overhaul in how those towns go about collecting and spending their tax dollars. They fear dire consequences are on the horizon if these reforms are postponed. As Yonkers Mayor Mike Spano put it, “We don’t need bailouts. We just need to come together and try to work on a new model that works for cities, because the current one is broken.”

Here’s an update on what problems are facing the state’s four big cities outside the five boroughs:

Buffalo
(Population 2000: 292,038. Population 2010: 261,200)

Once within the top 10 urban populations in the country, Buffalo has slowly made the transition from being a bustling steel and manufacturing town to being an “eds and meds”-based city. Still, unlike other upstate cities, population continued to decline pretty rapidly over the past decade, falling by another 10.7 percent to just over 261,000 – the sixth straight Census in which the city showed population decline.

Many big-time manufacturing companies like the Buffalo Forge Company were gone by the 1990s, if not before that. However, in comparison to other upstate cities, Buffalo is not in quite as tough of a fiscal bind, as YNN Buffalo reported in February that the 2013 budget gap was found to be $9 million – not insignificant but manageable compared to what’s confronting some other cities. There are also high hopes for institutional research, innovation and entrepreneurship to drive the city’s economy forward in future years, according to the University at Buffalo’s Marnie LaVigne, the school’s Associate Vice President for Economic Development.

LaVigne says that Buffalo has become the centerpiece of the statewide “knowledge economy initiative,” and that she’s working to make sure the research and innovation being done in labs can be brought over to the workplace. Ideally, this would lead to companies being founded, jobs being created, further innovation and perhaps even a resurgence in the manufacturing industry that still employs a significant part of the state’s workforce, despite its sizable decline over the years.

“Fully transforming ourselves into a knowledge-based economy is really crucial,” she says. “A public/private tandem approach seems like the most realistic way to get there – one where private citizens can contribute funds the city doesn’t have and see a return on their investment.”

When it comes to the potential for business development coming directly from school-conducted research and innovation, LaVigne admits the biggest problem is entrepreneurship. Few people looking to start cutting-edge technology companies in Buffalo have the experience, or the means, to effectively gain investment and funds necessary for the business building process. LaVigne hopes that will soon change, as she plans to create an “ecosystem” for great innovation and the business savvy to get new inventions and technologies out on the market. She finds that there’s a bit of a gap now between institutional research and real world business application when there should be a system in place that smoothly paves the way for one to lead to the other.

Despite 8.6 percent unemployment (reported by the state Department of Labor in December), Buffalo has hope for the future through Cuomo’s $1 billion investment plan for the city, put in place to create thousands of jobs and stimulate economic activity in the years to come. The Western New York Regional Economic Development Council has come up with strategies to push growth in areas like manufacturing, research, business, job training and community development. Companies like Albany Molecular Research have already been attracted to Buffalo through the plan.

Rochester
(Population 2000: 221,148. Population 2010: 210,578)

Eastman Kodak used to dominate the economic landscape in Rochester, employing 60,000 people at one point. Now, the company employs about 4,000, and the number continues to decline as they make moves to emerge from bankruptcy, for which they filed in early 2012.

“What is going on in our community is it’s sort of the final rung of a transition from an industrial base to a different economy, and the bankruptcy of Eastman Kodak is the epitome of that,” says Rochester Mayor Thomas Richards.

Rochester, currently home to just over 210,000 residents, serves as a model of the shift in economic orientation from industrial-based to knowledge and healthcare-based, as the University of Rochester is now the city’s largest employer. U of R put out a report in 2010 that claimed that 8.8 percent of the Rochester metropolitan labor force could be considered a part of the institution’s workforce, more than any other employer in the area, and they reported a 5 percent increase in employee numbers between August 2008 and April 2010. According to Richards, this change was relatively organic, as U of R and other institutions like Rochester Institute of Technology and St. John Fisher College simply grew and required a greater work force to staff their expansion. The university hosts a small number of undergraduates, but it is also a renowned biomedical science, engineering and humanities research institution with an extensive medical center.

“Also, one of the positives that came out of the demise of Eastman Kodak is that they employed a lot of engineers, and those people left, went into the community and just started their own small, high-tech businesses,” Richards says. “That doesn’t mean we haven’t paid a price, but [along with the growth in education and healthcare], these are all things that have certainly mitigated the impact.”

As for unemployment, Richards stated that the city’s 7.9 percent unemployment rate is not “too far out of line” with the state’s, which was reported at 8.2 percent last month. Population has decreased in every census since 1960, although now, Richards says, the population has been stable “for the better part of a decade.”

The glaring problems facing the city today include a very high concentration of poor residents downtown – several neighborhoods have poverty rates over 50 percent, as reported in 2009, while the 2010 Census reported a citywide rate of 25.9 percent. Such high concentration in certain areas, along with the exceedingly high general poverty rate, is a product of a number of problematic factors, according to Anthony Plonczynski, a legislative aid for Rochester Council Member Jackie Ortiz.

“Rochester, per capita, is underfunded in comparison to our upstate sister cities,” he says. “At best we have a city that is attempting to work diligently to address the effects of poverty on our underfunded, under-resourced schools, as well as its negative impact on crime. But until the disparity in state funding can be addressed for our area, we will continue to be a city focused more on triage of these issues and not on proactive solutions that help stop us from getting to this point.”

Despite the major problems that abound, Plonczynski added that some success has been seen with “small-scale initiatives” such as Project Hope, which looks to empower families through advocacy, education and support.

The budget gap is another issue – it has remained at $30 million in recent years. Richards says the gap was as high as $42 million, but general cuts, falling unemployment and a successful negotiation with city unions to revise their healthcare program have all helped to reduce the city’s financial burden. Richards estimates the city workforce is down around 2,700, from well over 4,000 20 years ago.

But the sizable gap that remains, Richards says, is evidence that the prevailing fiscal model of cities predominantly relying on property tax revenue to fund their budgets is outmoded.

“Property taxes are an 18th-century solution to a 21st-century problem,” he says. “We need to move beyond it to be successful. You have to go where the money is, and today, money isn’t really in real estate. It’s in income and things of that nature, and that kind of taxation is at the state level.”

Richards holds that he would be able to raise more money to deal with all the challenges facing Rochester if taxation were altered to better fit the city’s current economy. He adds that the fix has to be a general overhaul within the state, since imposing an income tax on his current residents would just drive them to move to another place in the region.

Syracuse
(Population 2000: 145,921. Population 2010: 145,222)

Much like Rochester, Syracuse has lost a number of residents since its post-war industrial boom, and it has also seen recent population stabilization and an economic shift towards education and healthcare. Once home to over 220,000 people at its peak in 1950, Syracuse currently has 145,170 residents.

Big manufacturing employers like General Electric and Rockwell International moved out of Syracuse decades ago, leaving the local economy in flux for quite some time. Currently, the city’s big employers include Syracuse University, Saint Joseph’s Hospital and Upstate Medical University and Hospital, the three of which employ over 19,000 people, according to employment numbers from January 2011. Upstate Medical and Syracuse University are the top two employers in the city.

The stabilizing of the population can partially be attributed to the city’s Refugee Resettlement Program, which has brought new residents to the city from all over the world ever since the late 1970s. According to Paul Driscoll, Syracuse’s Commissioner of the Department of Neighborhood and Business Development, most of these newcomers “aren’t really going to balance [our] financial books and in fact, many of them require output of social services.” However, he does remain optimistic about the potential for this new population base, estimated at 5,000 to 7,000 over the past 10 years, after they settle into a new country.

The city faces a number of problems common to New York’s upstate urban areas. Syracuse is being slammed with skyrocketing pension bills – the city’s pension fund contribution is up to $30 million, compared to just $2 million in 2002. Syracuse Mayor Stephanie Miner has been particularly vocal about this problem, saying that Cuomo’s budget only serves to push the problem of increasing pension costs further into the future, worsening the current situation and putting several of the state’s cities on “a path to insolvency.”

The city’s school district has not been healthy either; it faced a $35.1 million budget deficit last year. Syracuse is set to see some state help for its public education system, as Cuomo announced that base aid to schools would increase by $611 million, with most of the increase going to high-need districts like Syracuse. The city faces a number of tough choices, but Driscoll is not putting all the blame on the state, which he says also has a lot of issues to address.

“We’re doing a lot on our own,” he says. “We’re just going to have to work with less – the basic services provided by the city are in trouble unless we find a way to pay the bills. We’re not looking to cut, but that’s inevitable. The revenue just isn’t there to pay ourselves.”

Some worry that essential services are in danger of getting the axe. Last month, firefighters protested out of fear that Syracuse’s Fire Station No. 7 would be shut down, despite being the city’s most active station last year.

Driscoll added that the city could use some state help to restructure contract agreements with its current and past labor force. He says that most of the rules for what it costs to employ people were established by the state, and that modifying the contracts could lessen some of the burden on the city. The city’s unemployment rate is 8.5 percent.

Syracuse has, however, seen a resurgence in residential living in its downtown area. Driscoll also mentioned success with the city’s “Land Bank Concept,” which was started after getting the go-ahead from the state in 2011. The program looks to make better use out of the tax-delinquent properties seized by the city, which comprised 10 percent of taxable city properties at the beginning of the program. Previously, the city lacked the means to do anything with these properties, but now they are being handed to “vetted developers” with a plan for the land, putting more of the city back on the tax rolls.

“I think over the next three to five years, the city should see a lot of increased revenue and more responsible development of property within the city,” Driscoll says. “That should help the tax base and increase the taxable value of the property.”

Yonkers
(Population 2000: 196,313. Population 2010: 196,275)

Although just across the northern border of the Bronx, Yonkers faces problems that are more similar to the plight of upstate cities than the troubles faced by the five boroughs. At the same time, the city never experienced a manufacturing boom like its counterparts further upstate, nor has it enjoyed any significant educational resurgence because of its lack of large institutions of higher learning. Yonkers Mayor Spano spoke passionately about the state’s need to change how it deals with its tax issues, saying there’s only so far a city can go with budget cuts.

“Last year, we were forced to make cuts when class sizes grew by 1,700,” he says. “So we had to allow class sizes to grow. We already cut Pre-K, gym, art, music and formalized sports throughout the district. What else can you really cut?”

Spano says the city has cut back its social costs as much as possible, cutting staff in libraries, information technology, finance, parks and other areas, but that only addresses the tip of the iceberg. Yonkers now is looking down the barrel of an $89.1 million budget gap, and if remedial measures aren’t taken, that number is expected to swell past $200 million within the next few years. As tough as the financial situation is for most of the state’s struggling cities, Yonkers may be facing the most difficult test.

Last April, an independent commission produced a report on Yonkers’ budget that “sharply attacked the city’s dependence on debt and ‘one-shot’ revenue sources,” in the words of the Wall Street Journal. Others have found that the city is simply too generous and ready to spend money it doesn’t have on city workers – data on SeeThroughNY.net shows that Yonkers’ 1,100 police and firefighters were paid an average $118,000 in 2011, and many police pensions are six figures long. Pension and healthcare costs respectively went up a whopping $17 million and $16 million last year.

“What’s amazing is that [despite all this], all our revenues are up this year,” Spano says. “The home sales are up 20 percent, although home prices are down. Income taxes are up, sales taxes are up. So all that is up, but when you have an $80 million problem, you’re never gonna have revenues that keep pace with your expenditures.”

Spano agrees with the taxation critique articulated by Rochester’s Mayor Richards, saying that he is doubtful that property taxes will provide an effective way to continue funding the nation’s cities in future years. He claims he wants to address the city’s huge financial issues by getting together the states’ biggest urban stakeholders in a convention atmosphere and get a long discussion going on how to “clean up this mess.”

“The elected leaders of this country are ignoring the plight of the cities, and it’s going to have catastrophic consequences at some point, some time in the near future,” he says.