The Hunger Games: not everyone is a winner

An edited version of this post appeared in the December 18th edition of the Rochester Business Journal

My wife and I have moved around the country quite a bit, following one professional opportunity or another – nine states at last count.  When it came time to settle into semi-retirement, we decided to return to Rochester for one simple reason:  it’s a great community. 

When you live in many regions of the country, you notice differences – those things that most people don’t think about because they’re ingrained in the local culture.  They’re taken for granted. 

So, what sets New York apart from other places we’ve lived? 

A broad swath of the population expects the government to affect positive social and economic outcomes. 

Last week’s award of $500 Million in economic development funds is a perfect example.  It was greeted with enthusiasm by one and all.  The common refrain from all those interviewed by WXXI’s Morning Edition was “everyone is a winner!”

Everyone, that is, except the New York taxpayer.

New York and other northeast states have been losing jobs and population for decades; and, it’s not just because Florida, Texas and Arizona have better weather.  It’s because of high taxes and overbearing regulation. 

The Empire Center reports, “Between 2010 and 2014, all regions of New York have lost population due to domestic migration – the movement of residents to other states”.  Meanwhile, the independent Tax Foundation ranks New York 49th on its State Business Tax Climate Index and further points out that, in the first decade of this century, New York lost more than 1.9 million taxpayers representing some $119 Billion in adjusted gross income.  That’s investable and taxable income.

“So what?” you might say.  We’re getting something back for our tax dollars.  The plan developed by the Finger Lakes Regional Economic Development Council (FLREDC) “leverages” tax dollars to great effect.  Businesses will be enabled to grow by virtue of the governance of a local steering committee that guides the investment of funds and reports on its activities and results to the state government.  Private capital will be attracted to the region, jobs will be created and the region will be revitalized. 

Here’s an alternative view. Government consistently misallocates capital.  When the FLREDC’s plan mentions “leverage”, they’re talking about contributing taxpayer dollars to the projects of private developers and enterprises pretending to free market status. The coalition of business leaders, non-profits and government agencies that will determine how the funds will be invested each have their own agendas.  There is a real cost to this kind of oversight. Capital doesn’t necessarily go where it will get the best return. 

It’s hard to blame business leaders for playing the hand they’ve been dealt.  But, is that how we want things to work?

At some level, the governor recognizes these problems.  He has created tax-free zones at college campuses to attract new businesses.  And, the recent restructuring of regulations affecting craft brewers was an uncharacteristic response to the needs of small business owners.  

So, why hasn’t that awareness translated into broad-based tax and regulatory reform?  Why does he – and, by extension, we – prefer high taxes and state control of the investment of capital? 

Your guess is as good as mine.  

When I have challenged business people on this matter, I get one of two responses.

“At least we got our share,” is a common refrain. Hence the competition’s nickname:  The Hunger Games.  We win and someone else loses. 

A more thoughtful response is the assertion that we should be happy to have government collaborating rather than regulating.  It’s a move in the right direction.  But, is it really? 

New York’s problems in retaining jobs are structural.  The right direction would be to restructure – to reduce taxes and reform our regulatory regime.  A one-time grant of a large sum of money does nothing to advance the process. 

What if this project does not yield the expected results?  We would be back where we started.  The high cost of doing business in New York will continue to drive away businesses and population.

Wouldn’t it make more sense to emulate the policies of states that are taking our jobs?