School Segregation is Increasing in New York’s Cities and Suburbs

Recent articles in the New York Times and The Nation have focused on efforts to resegregate schools in the South, by carving new predominantly white school districts out of larger county-wide school districts that are predominantly black and Hispanic.  The articles examined a recent federal court decision that permitted the creation of the Gardendale School District near Birmingham, Alabama.  The new district is 75% white, in a county school district that has a majority of black and Hispanic students.

In 1954, the United States Supreme Court, in Brown vs. Board of Education, outlawed the creation of segregated school systems by law.  While first efforts to combat segregation focused on legally created barriers to integration in the South, later, courts ordered busing to combat segregation in northern school districts, like Boston.  These efforts were met with fierce resistance from parents who did not want their children to be bused to schools that had large minority student populations outside their neighborhoods .

Resistance to school integration has been has been widespread.  While legally created separate schools in the same school system for white and black students have been eliminated, opposition to efforts to combat segregation based on residential patterns has been widespread and largely successful.  Today, the schools attended by black and Hispanic students typically have far higher concentrations of minority students than those attended by white students.  While segregation in the South was the result of laws that created separate school systems for white and black students, today much of the segregation results from the concentration of black and Hispanic students in cities with majority black and Hispanic populations.

In an earlier post, I examined the growth of segregation of black and Hispanic students in metropolitan areas in New York State.  In this post, I compare the concentration of black and Hispanic students with white students in schools in cities and suburbs in New York metropolitan areas.

Changes in School Enrollment 

In upstate metropolitan areas, and in the suburbs in the New York metropolitan area, enrollments of black and Hispanic students have increased substantially between 1990-91 and 2014-15 – by more than 50,000 upstate and by 140,000 in the New York suburbs.

  • Black student enrollments increased in upstate metropolitan areas grew by 23,000, while Hispanic enrollments grew by 32,000.
  • In Westchester, Orange and Rockland counties in the New York metropolitan area, black student enrollments grew by 15,000 and Hispanic enrollments grew by 45,000.
  • In New York City, black student enrollments decreased by 113,000 while Hispanic enrollments increased by 68,000.

White student enrollments decreased significantly both upstate (by 125,000) and in the New York metropolitan area (by 113,000).  Nationally, enrollments of black and Hispanic students increased by 7.4 million, between 1994 and 2014 (1990 data is not available) while white student enrollments decreased by 4.2 million.

Overall, school enrollments increased in New York City and its suburbs between 1990-91 and 2014-15, while they decreased in upstate metropolitan areas. Nationally, enrollments increased 12.6% between 1995 and 2014.

In percentage terms, school enrollments nationally were 49.2% white and 42.1% black and Hispanic in 2014-15.

  • Upstate metropolitan areas (66.3% white) and New York City suburbs (55.2% white) had higher percentages of white student enrollments than the nation, while New York City had higher percentages of black and Hispanic students.
  • National level data for 1990 showed a student population of 27.2% black and hispanic students, and 69.4% white students.

By 2014-15 the composition of student populations in schools had changed significantly from the 1990’s, nationally, in upstate New York metropolitan areas and in the New York metropolitan area, with large increases in the percentage of black and Hispanic students. New York City was the only exception – black and Hispanic students decreased as a percentage of the total.

Increasing Minority Student Concentrations in City Schools

In cities in upstate metropolitan areas, black and Hispanic student populations grew substantially as a percentage of the total – by nearly 25% on average.  Black and Hispanic student populations as a percentage of the total grew in suburbs as well, but the growth was much smaller – only 6.4% on average.  In the Orange-Rockland-Westchester portion of the New  York City metropolitan area, the growth of black and Hispanic students as a percentage of the total was about equal in cities and suburbs – 16% on average.

Most upstate cities have student populations that are majority black and Hispanic, while most suburban areas in upstate metropolitan areas have student bodies that are less than 10% black and hispanic.  On average, the gap in black and hispanic student percentages between upstate cities and suburbs grew from 44% to 63%.

Schools attended by Typical Black and Hispanic Students Differ from those attended by Typical White Students

This section compares the racial and ethnic composition of schools attended by typical black and Hispanic students with those attended by white students in 2014-15.  It does so by finding the percentage of black/Hispanic students at schools for a median student in each racial/ethnic group.  Computing the median involves sorting all the students in a group (black/Hispanic or white) in a metropolitan area by the percentage of minority students in the schools that they attend, and finding the percentage of black/Hispanic students in the school attended by a student who is at the exact middle of the sort.  Half of the white or Hispanic/black students would be attending schools with an equal or higher percentage of Hispanic/black students, while half would have an equal or lower percentage.

The data shows that in both cities and suburbs upstate, black and Hispanic students typically attend schools with higher concentrations of black and Hispanic students than do white students.

  • For example, in the Buffalo-Niagara Falls MSA, black and Hispanic students living in cities typically attend schools where 78% of the students are black or Hispanic.
  • White students in those cities typically attend schools whose student bodies are 46% black – a difference of 32%.
  • In other upstate Metropolitan areas, the concentration of black and Hispanic students in city schools ranges from no higher in the city of Binghamton to 20% higher in Utica-Rome.

Within suburban school districts in New York’s metropolitan areas, black and Hispanic students typically attend schools that have higher percentages of black and Hispanic students.

  • In the Rochester metropolitan area, black and Hispanic students living outside Rochester typically attend schools with 24% black and Hispanic students, while white students typically attend schools with 9% black and Hispanic students.
  • In other upstate metropolitan areas, the differences ranged from 2% to 11%.

Since most black and Hispanic students in metropolitan areas live in cities, while most white students live outside them, it is useful to compare the percentage of black and Hispanic students in schools typically attended by black and Hispanic students in cities with the percentage of black and Hispanic students in schools attended by typical white students outside cities.  Here, the contrast is stronger.

  • For example, In the Albany-Schenectady-Troy metropolitan area, a typical black or Hispanic student living in a city would attended a school that had 67.5% black and Hispanic students.
  • In contrast, typical white students living outside Albany, Schenectady and Troy attended schools that had 5.1% black and Hispanic students, a difference of 62.4%.

Differences were large in other upstate metropolitan areas, as well.  The difference in the percentage of black and Hispanic students in city schools attended by typical black and Hispanic students and schools outside cities attended by typical white students was 80.6% in the Rochester MSA, and 73% in the Buffalo-Niagara Falls MSA.


Since the 1954 Brown vs. Board of Education Supreme Court decision, it has been illegal to maintain separate schools for minority students and white students in a school district.  But, efforts to create racial balance in schools in cities and metropolitan areas in New York state and elsewhere have largely been unsuccessful.

In fact, the data shows that over the past 25 years, changes in living patterns have seen large increases in black and Hispanic populations in central cities in New York state, but relatively little change in areas outside them.  As a result, because school districts in New York State often follow city and town boundaries, black and Hispanic students are increasingly concentrated in city schools.

  • School districts in cities in upstate metropolitan areas have seen substantial increases in the percentage of students who are black and Hispanic – from 47.6% to 72.4% between 1990-91 and 2014-15.
  • In contrast outside Upstate cities, the average percentage of black and Hispanic students only grew from 2.8% to 9.2%.

The increasing concentration of black and Hispanic students within cities is not the full explanation of their increasing segregation.  Within cities and outside them, black and Hispanic students are likely to attend schools with higher percentages of black and Hispanic students than are whites.  This is largely the result of residential housing segregation within communities in our metropolitan areas.  As a result, the difference between the racial and ethnic composition of schools typically attended by black and Hispanic students and white students has grown larger – in five of seven metropolitan areas typical black and Hispanic students attended schools that had 65% or more black and Hispanic students, while in five of seven metropolitan areas typical white students attended schools whose populations had 5.1% or less black and Hispanic students.

The growth of racial segregation in New York schools is paralleled by its growth nationwide:  The U. S. General Accounting Office found in 2016 that “Over time, there has been a large increase in schools that are the most isolated by poverty and race. From school years 2000-01 to 2013-14 (most recent data available), both the percentage of K-12 public schools that were high poverty and comprised of mostly Black or Hispanic students (H/PBH) and the students attending these schools grew significantly. In these schools 75 to 100 percent of the students were eligible for free or reduced-price lunch, and 75 to 100 percent of the students were Black or Hispanic.”

Although there are significant potential benefits from schools that are more representative of the diversity of the population as a whole, the barriers to change are substantial.  While New York state has not seen the creation of white enclave school districts carved out of larger majority minority districts, the existing structure of local school districts has a similar effect.

There is no silver bullet that will remedy the growth of segregated schools in New York state, or elsewhere.  Remedies tried in the past, like school busing, have been very unpopular, and have generally failed.  Historically, federal housing policies in the 20th century supported racial segregation.  Similarly, suburban zoning laws and resistance to low and moderate income multi-family housing continue to play a role in preventing minority residents from living in them.  In the current political environment, with an administration in Washington, D. C. that is not supportive of federal intervention to promote integration, segregation in our schools is likely to continue to increase.


Note:  For the Orange-Rockland-Westchester portion of the New York City Metropolitan Area, cities are:  Mount Vernon, New Rochelle, White Plains and Yonkers.

New York’s Dysfunctional School Spending Patterns

For many years, government spending in New York State has far exceeded the national average. State and local governments in New York had the second highest per capita spending in the nation in 2013.[1]


Local government spending contributes significantly to New York’s high spending levels. Local government spending in New York averages $9,800 per person – the highest spending level in the nation.

screen-shot-2016-12-08-at-8-53-54-amSchools contribute the largest amount of local spending in New York.  They account for 49% of all local spending, and 61% of local taxes.  The contribution of schools to taxes is greater than to spending because a substantial portion of county spending is for social service programs funded by the State government.

New York school spending per student is far higher than the average for the nation – 87% higher.  Spending is particularly high in the suburbs surrounding New York City.  Because of the large regional disparities in school spending levels in New York State, they are likely to exacerbate educational inequality.

School Spending In New York State

screen-shot-2016-12-08-at-8-56-48-amCompared to other states, New York State spending per pupil is very high – 87% higher than the national average, and is significantly higher than the second state — Alaska (67% higher).[2] Even compared to neighboring states in the Northeast and Midwest, New York school spending is an outlier. New York’s spending per student is 16% higher than the states with the next highest expenditures – Connecticut and New Jersey and is much higher than the average for the northeast, excluding New York State – $20,610, vs. $15,639 – a difference of 32%.  The difference between New York and the average per pupil operating spending in the Midwestern states in the group was even larger – $20,610 vs. $11,556 – a difference of 78%.

This post will examine regional variations in school spending in New York state and in neighboring states, and regional variations within New York and neighboring states.

Household Income and School Spending

screen-shot-2016-12-08-at-8-58-18-amOperating spending per student is related to median household income at the state level, with income explaining about 40% of the variation in state average per pupil operating expenditures.  Schools in states with median household incomes below the national median of $51,939[3] spent $9,549 per student on average in 2014, compared with $14,268 for those above the average.  But, New York’s school spending is much higher than would be predicted from its residents’ median income.  New York’s median household income was $58,687, 13 percent higher than the national median.  The State’s average operating spending, $20,610, was 87% higher than the national average.

Regional Variations in Education Spending

screen-shot-2016-12-08-at-9-00-49-amAbout two-thirds of New York State’s 19,500,000 residents lived in the New York metropolitan area in 2014.  In that area, there is a sharp income division between the 8.4 million residents of New York City, whose median household income is $52,737 and the 4.9 million residents of suburbs in New York State around the city, which average $89,047.  The remaining 6.3 million New York residents who live outside the New York City metropolitan area have median household incomes that are like that in New York City and in the nation, about $53,000 on average.

Per pupil spending for current operations in New York State largely reflects regional household income differences.  Per pupil spending is much higher in the New York City suburbs than elsewhere, averaging $23,680 in 2014.  Spending in New York City was $18,579, while the average for upstate metropolitan counties was $16,846.

School spending in New York City suburban counties is much higher than for the rest of the state, and far exceeds per pupil expenditures measured at the state level outside New York State.   Expenditures in New York City, and in areas outside the New York City metropolitan area are lower, but are like those in the states with the highest spending levels in the region – Connecticut and New Jersey, and significantly higher than the Northeast median of $15,639 and the Midwest rust belt median of $11,556.

Cities and Suburbs – Income Disparities
screen-shot-2016-12-08-at-9-04-33-amTo understand spending differences between regions within New York State and areas outside the State, it is useful to look at per pupil spending within the major metropolitan areas in neighboring states, and outside those areas.  This is so because median incomes in metropolitan areas like New York City, Boston, and Philadelphia are significantly higher than in the rest of the states where they are located.  By comparing spending within and outside those areas, we can get a better understanding of how school spending differs in comparable areas within New York State and outside it.

Each of the four Northeastern states examined for regional disparities showed similar patterns of median household incomes.  Central City incomes were near or below state averages, as were incomes in areas outside major metropolitan areas.  Suburbs in major metropolitan areas showed very high incomes compared to state averages and central cities.

In each of the three major metropolitan areas studied median household incomes in central cities were between 32% and 52% less than in the suburban communities around them.  Philadelphia’s median household income is very low – $37,460, which is 51% less than median household income of the surrounding suburbs.  New York City’s median household income was 41% less than the surrounding suburbs in New York State.

Regional Spending Patterns
screen-shot-2016-12-08-at-9-10-37-amThe median household income for upstate metropolitan counties was like that in areas of Pennsylvania outside the Philadelphia metropolitan area, and below those in Massachusetts and New Jersey outside major metropolitan areas.  Per student operating expenditures in upstate metropolitan counties was higher than in neighboring states, averaging $16,846 compared with 12,641 in Pennsylvania and $13,883 in Massachusetts.

Median household income in suburbs around New York city was higher ($89,000) than in New Jersey ($71,000 around Philadelphia, and $75,000 around New York City), Pennsylvania ($76,915) and Massachusetts ($80,000).  New York City suburbs’ school spending per pupil was much higher than similar areas in nearby states – averaging $23,680 compared with $17,000 in New Jersey, $13,000 in Pennsylvania and $14,810 in Massachusetts.

New York City’s median household income was near that of Boston – $52,737 vs. $54,485, but per pupil expenditures in Boston were significantly higher than in New York city – $21,567 in Boston vs. $18,579 in New York City.  Philadelphia’s median household income was much lower than New York’s or Boston’s – $37,460, and per pupil expenditures were also relatively low for the region – $13,013.

The Impact of Disadvantaged Students on City Schools

Academic studies have consistently demonstrated that the cost of educating economically disadvantaged students is substantially higher than those from more affluent backgrounds.  For example, William Duncombe and John Yinger[4] of the Maxwell School at Syracuse University estimated the additional cost of estimating poor students and those with limited English proficiency to be 111% to 215%.

screen-shot-2016-12-08-at-9-11-45-amSince city school districts have much higher percentages of economically disadvantaged students than the suburban schools around them, to successfully educate their student bodies, per pupil spending should be higher in the cities than in the suburbs.  And, in Massachusetts, that is the case – Boston schools spend 48% more per pupil than the suburban schools around them.  But in New York State, the reverse is true – suburban schools spend 22% more per student than New York City schools.

Suburban areas around New York City, Philadelphia and Boston have significantly higher median incomes than those in the remainder of the states within which they are located.  In Massachusetts and Pennsylvania, per capita operating spending differs little from the suburbs of major cities to areas outside those metropolitan areas.  But in New York State, New York City metropolitan suburban school spending per student is far higher than in the remainder of the state.  Overall, there is substantially more regional spending inequality between suburban areas and New York City and the rest of the state than in similar areas in other states.


Overall, school operating spending per student in New York State is substantially higher than in neighboring Northeast states, and in the rust belt states of the Midwest.  Not surprisingly, the contrasts between New York’s high school spending levels are greater compared to schools in places like Ohio, Michigan, Indiana and Illinois than they are with New York’s immediate neighbors, like Massachusetts, Connecticut, Pennsylvania and New Jersey. When the State is broken down into regions – New York City, the suburbs in the New York Metropolitan area, and the rest of the state, only New York City shows spending levels that aren’t out of line with comparable regional entities.

The high spending levels found in New York State and its regions cannot be explained by differences in median household incomes, which are small compared with locations outside the state.   New York’s per student operating costs are 32% higher than the average of other Northeast states, and 78% higher than Midwest rust belt state.  Yet, New York’s median household income is significantly lower than some of its neighboring states, including New Jersey, where the median household income is 23% higher than in New York and in Massachusetts, where the median household income is 16% higher.

At the same time, New York has larger, regional variations in per pupil school spending that appear to exacerbate educational inequalities.  While the costs of meeting educational needs of students in districts with high concentrations of disadvantaged students are substantially higher than those in places with few of these students, wealthy New York City suburbs spend far more per student than New York City or other parts of the state. These large differences are not found in other nearby states.

[1] State and Local Finance Initiative – Data Query System:

[2] Source: U. S. Census Bureau:

[3] In 2014.

[4] William D. Duncombe and John Yinger, “How Much More Does a Disadvantaged Student Cost?”  (2004) Center for Policy Research, Maxwell School of Citizenship and Public Affairs, Syracuse University. Paper 103.

Rex Smith’s Albany Times-Union Column, “Development Dollars Draw on Politics”

The Albany Times-Union carried a column by its Editor, Rex Smith on August 6th, concerning decision making by NewYork’s Regional Economic Development Councils, questioning whether their efforts are directed at areas of the state with greatest need.  His column may be found here.  The column draws on research that I recently published on this site.  It may be found here:

I have also written about Empire State Development’s use of tax incentives here: and about the Solar City project here:

Poverty in Upstate Metropolitan Areas – Characteristics and Change: 1999-2013

A paper, based, in part, on data previously presented on this blog site.

This paper examines the incidence of poverty in upstate New York cities, compared to the surrounding suburbs.  The data shows that while residents of upstate suburbs enjoy incomes that are substantially higher than the national average, and poverty rates that are substantially lower, upstate cities have higher levels of poverty and lower incomes than the nation, and it shows that the level of poverty in upstate cities is growing more quickly. Compared with other rust belt cities, the economic separation of central cities and suburbs is greater in upstate New York.

  • The data shows that poverty levels are particularly high for families with children under 18 – more than 50% in some cases.
  • The ratio of families with children living in poverty in upstate cities to those living in poverty in suburbs is greater than the average of rust belt cities outside New York State – as much as twice as great in some cases.
  • The residents of upstate cities are becoming increasingly economically segregated from those outside them. While nearly half of families with children in upstate cities are poor, only 5% to 15% of those in suburbs live in poverty.
  • Residents living in poverty in upstate central cities are less educated and less likely to work than people not in poverty outside those cities.
  • Households in poverty are far more likely to be headed by a single householder – usually a woman.
  • Minority group members are greatly over-represented among those living in poverty.

Read more here:

New York’s Ineffective Business Tax Incentives

In 1987, New York State enacted legislation to create an Economic Development Zones Program, modelled after the enterprise zones concept, championed by Congressman Jack Kemp.  Proponents argued that by reducing taxes in specific geographic areas with high concentrations of poverty and unemployment, existing firms would be more likely to create jobs, and other firms would be encouraged to locate in the areas and create jobs.

Enterprise Zones programs were attractive to policy makers, in part because they were “off budget.”  The programs provided financial benefits to companies that, unlike incentive grants, did not require the appropriation of state budget dollars to pay for them.

There is scant evidence that Enterprise Zones programs have been effective.  See, for example, this GAO report,[1]  which concluded that evaluations of Federal Empowerment Zones and Enterprise Communities could not demonstrate effectiveness, and this study,[2] which was did not show any impact as a result of Enterprise Zones programs in Florida and California.  Evaluations of the New York State program found significant administrative problems, but did not find significant benefits.[3]  The major problem with the Enterprise Zones concept was that because the tax advantages provided by the program were insufficient to offset the perceived disadvantages of inner city locations, the program did not result in job creation within the zones.

The program generated a cottage industry of consultants who advised businesses on how to take advantage of the benefits, by reorganizing in to new organizations so that existing jobs could be counted as new ones and by modifying zone boundaries, creating gerrymanders, to incorporate specific businesses.

But, over the years, the program was expanded and the benefits deepened.  It was renamed the Empire Zones program.  More areas were made eligible, yet the areas that the program was initially intended to benefit – distressed inner city communities in New York State – did not see improved conditions.  In fact, 20 years after the program’s enactment, they were in significantly worse economic condition.  In 1969, upstate cities had poverty rates that were slightly higher than the average for the state.  By 2013, most upstate cities had poverty rates that were more than double the state’s.

poverty cities

(Data for cities with populations of less than 100,000 is not available before 1999)

In the end, Economic Development Zones/Empire Zones became an embarrassment to successive governors and Empire State Development because of the difficulties in policing the abuses of the overly complex program, and its lack of success in inducing job creation.  Successive legislative efforts to “clean the program up” were met with continued creative approaches to exploit it by businesses.  The program was ended in 2010.

Despite the failure of the tax benefits contained in the Economic Development Zones and Empire Zones programs to induce job creation, and despite the administrative difficulties associated with administering the programs, Governors Paterson and Cuomo continued to rely on tax incentives as key elements of their economic development efforts.  Governor Paterson initiated the “Excelsior Jobs” tax credit that focuses on providing benefits to companies in industries that make capital investments and/or create new jobs in manufacturing and other sectors of the economy.  Governor Cuomo proposed the Start-Up NY program that offered tax-free benefits to certain businesses in selected locations connected to universities and colleges.  Both programs were promoted as major initiatives that would significantly improve New York’s economy.  But like the Enterprise/Economic Development/Empire Zones, the programs have failed to create significant numbers of jobs.  And, the job creation figures reported for them contain many jobs that would likely have been created without the loss of tax revenues.

Problems with Business Tax Incentives

Business tax incentives are similar to incentives provided to buyers of electric cars or insulation for their homes, in that people or companies become eligible by doing something that government considers desirable – conserving energy or creating jobs. But, they contain no “but for” test – users of the credits are not required to show that without the credits they would not do what is being incentivized.  As a result, some credits are always wasted on “free riders” — people or companies that would have acted if the credit was not available.

The use of tax policy to incentivize behavior is widespread, and if large enough, credible arguments can be made for their effectiveness.  For example, the available federal tax credit for the purchase of a Nissan Leaf, an electric car, is $7,500.  The advertised price of a Leaf begins at about $30,000.  Similarly, federal credits for energy conserving improvements in households have been as much as a quarter of the cost.  While we do not know how many of the people who purchased Nissan Leafs or weatherized their homes did so because of the availability of financial incentives from government, it is likely that some did.

But, while energy conservation incentives have been designed to be large enough to change people’s purchase decisions, state taxes are too small as components of business revenues to make a significant difference in most cases, particularly given the large differences in wage rates, which are a larger portion of business costs, between the United States and competitive locations.

The Tax Foundation published[4] a comparative analysis of total state and local tax costs for representative businesses in seven industries, including manufacturing, distribution, corporate headquarters, research and development, call centers, and retail.  From their data, I calculated total state and local tax costs as a percentage of firm operating costs, and compared New York with national medians, and with nearby states.[5]  The data shows that state and local tax costs are a very small percentage of total firm operating costs, and that differences between states are even smaller.


New York State had higher total state and local tax costs than the national median for most types of businesses, but the differences ranged from 0.7% more for call centers, to 1.8% more for research and development facilities.  For manufacturers, New York’s total tax costs were lower than the national median, but again the difference between state and local tax costs for manufacturers in New York State and for manufacturers in other states was less than 1% of operating costs.

comparable states

Compared to neighboring states, the picture was similar.  New York state and local tax costs were higher for some businesses, but lower for others.  But, in most cases, variations in other factors in the cost of production could be large enough to significantly change the relative advantage of differing locations.

In many cases, state taxes are too small a component of business revenues to make a significant difference in comparative location costs.  Fifty years ago, American businesses competed with businesses in other locations in the United States.  Differences in wages, construction and transportation costs were relatively small.   Today, with globalization, for manufacturers and other businesses that can move operations offshore, the large difference in wage costs between any state in the United States and in low wage locations outside the United States would swamp differences in company operating costs resulting from differences in state and local taxes.

While manufacturing cost structures vary widely,[6] on average, labor is estimated to account for 21% of manufacturing costs.[7]  In an article examining China’s manufacturing cost advantage, Peter Navarro, Professor of Economics at the University of California, Irvine, estimates that the cost of labor in China, adjusted for productivity differences, is 18% of that in the United States.  As a result, Navarro estimates that manufacturers would save 17% of manufacturing costs by producing in China, compared to the United States.

Business locations are not based solely on cost factors – labor availability, site quality, transportation, quality of life and other factors come into play.  But, available evidence shows that differences in state and local tax levels are relatively small factors in business costs, and that adjusting state tax structures to reduce business tax burdens has limited impact.

Repeating Failed Policies:  The Excelsior Jobs Program

When the Excelsior Jobs program was created in 2010, Governor David Paterson said “I’m pleased that the Excelsior Jobs Program, a streamlined economic development effort that will support significant potential for private sector economic growth, is now available in the marketplace to encourage businesses to grow and invest in New York.[8]

Eligible industries are those that could create net new jobs in New York State, not those, like most retail jobs, that simply move jobs from one company in New York State to another in the State.  The program description states, “The Program is limited to firms making a substantial commitment to growth – either in employment or through investing significant capital in a New York facility…The Job Growth Track comprises 75% of the Program and includes all firms in targeted industries creating new jobs in New York.”  While the program requires a commitment to job growth and/or investment, it does not limit program benefits to firms that would not expand or locate in New York State without the assistance.

The program requires that participants receving credits for job creation or investment have a positive benefit/cost ratio, defined as “total investment, wages and benefits divided by the value of the tax credits, or 10 to 1 or greater.  The program provides a refundable credit equal to 6.85% of new employee wages, or two percent of qualified capital investment, or 50% of the Federal Research and Development Credit.  Various employment and investment thresholds along with an aggregate benefit cap limit eligibility.[9]  Aggregate benefits were initially limited to $250 million annually.

Though the program had a generous dollar allotment for credits, credits actually issued never came near the $250-million-dollar annual limit.  In its best year, it provided $18.4 million in credits. Activity decreased to $745,000 in 2015.  The program has had a small job creation impact.  Empire State Development reports that companies receiving credits during that time period created 15,582 net new jobs, at a cost to the state of $47,357,602. The program’s impact has decreased in each of the last two years, with only 531 jobs credited as being created by companies receiving the tax credit in 2015.[10]


Because the program does not have a “but for” requirement, ESD’s job figures certainly overstate the program’s true job impact.  While the exact percentage of “free rider” jobs is not known, one study estimated that nine of ten jobs created by companies receiving business tax incentives would be created without them.[11]  If that is true for the Excelsior Jobs program, the true program impact would be only about 1,500 jobs,  three tenths of one percent of New York’s private sector employment growth during the period.

Additionally, a recently issued audit from the State Comptroller’s office points to issues with ESD’s administration of the Excelsior Jobs Program.  The describes weaknesses in ESD’s processes in evaluating applications in in confirming job creation claims (note that the agency disputes a number of the audit’s findings.)[12]  In particular, the audit noted that “ESD generally authorizes tax credits based on the job numbers and investment costs that businesses self-report without corroborating support….[13]

Why has the program failed to have a significant impact?  The evidence points to the fact that because much of its emphasis is on manufacturers and other companies that could locate outside the United States, it does not offer benefits that are sufficiently large to offset the cost disadvantages of creating jobs in New York State, or anywhere else in the United States.[14]

Repeating Failed Policies:  Start-Up NY

In announcing the Start-Up NY program, Governor Cuomo said, “Upstate New York has seen too many years of decline, and our communities have lost too many of their young people,… We desperately need to jumpstart the Upstate economy and these new tax-free communities will give New York an edge like we’ve never had before when it comes to attracting businesses, start-ups, and new investment. Today’s agreement on the START-UP NY legislation is a major victory for our Upstate communities as we are now set to launch what will be one of the most ambitious economic development programs our state has seen in decades.”[15]

 The promotional materials for the program advertise tax free benefits, and give the impression that the program is relatively easy to access:

“START-UP NY offers new and expanding businesses the opportunity to operate tax-free for 10 years on or near eligible university or college campuses in New York State.

 Partnering with these schools gives businesses direct access to advanced research laboratories, development resources and experts in key industries. 

To participate in START-UP NY, your company must meet the following requirements:

  • Be a new business in New York State, or an existing New York business relocating to or expanding within the state
  • Partner with a New York State college or university
  • Create new jobs and contribute to the economic development of the local community”[16]

The State Comptroller found[17] that between October 2013 and October 2014, ESD committed $45.1 million to advertise the program, generating more than 15,000 applications during the period.  However, despite the heavy advertising for the program, which continued after the period examined in the Comptroller’s report, the program has had almost no job creation impact.

Empire State Development has issued two reports on the program’s progress.  In 2014, companies assisted by the program created 76 jobs, while in 2015, assisted companies created 332 jobs.  The state tax benefits provided per job through the program were even smaller than those offered by the Excelsior Jobs Program, averaging $1,121 per job created (not including local property tax exemptions).[18]  And, because Start-Up NY has no requirement limiting assistance to companies that would not create jobs in New York without the tax credits offered, it is likely that the jobs reported substantially overstates the program’s actual impact on job creation.


The reality is that Start-up NY is extremely complex, the value of benefits to participating companies is small, the program is available in very small areas, and its requirements are difficult to meet.  One economic development professional described it as “the worst program I ever saw.  I was glad I never had to explain it to a client.”[19]

Effective Approaches to Job Creation and Retention

 The tax incentive based approaches used by the State in its Empire Zones, Excelsior Jobs, and Start-Up NY programs have not met the claims made by the governors that championed them.  But, other economic development efforts of state and local governments have been shown to be effective.  Among them are:

  • Regional Economic Development Councils: Regional councils are required to create strategic plans, set clear goals, and disclose progress in meeting established goals as a condition to receive funding for proposed projects.  While Regional Council strategies and reports vary in quality, some are well grounded and provide good disclosures of project performance.[20]
  • Project Based Assistance: Assistance from the State and localities for plant and equipment capital costs and for customized job training that employs a “but for” test can be effective in inducing companies to create and retain jobs because the amount of assistance offered may be large enough in relation to project size to affect company decisions.  ESD, for example, uses “but for” tests in making grants, employs benefit/cost benchmarks, and monitors company performance in meeting performance goals.
  • Develop Long Term, Well Integrated Industry Development Strategies: For example, New York, through Empire State Development and other agencies, provided substantial assistance to the development of nanotechnology research and development capacity at the College of Nanoscale Science and Engineering, and with local partners, significant financial assistance to the development of the Global Foundries chip-fab facility.  In Buffalo, the State has assisted in the region’s effort to enhance its bioinformatics and life sciences concentration at Roswell Park and related institutions.  Efforts like these take an integrated approach to industry development.
  • Recognize that Retaining Existing Jobs Should be as High a Priority as Job Creation: Because decisions of existing businesses about expansion, contraction or closing can have large effects on a state’s economy, state and local economic development agencies need to focus on understanding the needs of local business and assisting them, where appropriate.
  • Support Entrepreneurship: Evidence shows that entrepreneurial training programs increase business startups.[21]  New York has an existing program, the Entrepreneurial Assistance Program, that focuses on minorities, women, dislocated workers, public assistance recipients, disabled persons and public housing residents.  While the focus on disadvantaged workers is commendable, broader availability could increase the program’s reach.

New York State’s Economic Condition

 There has been longstanding concern about the impact of the decline of manufacturing, particularly in upstate New York.  The region’s population growth has been very slow, while its central cities have seen significant population declines.  Compared to thirty years ago, the residents of upstate central cities are far more likely to live in poverty.  These are all significant concerns.  But, even upstate, the region’s overall economic health is as good as, or better than the average for nearby states.[22]


Each of the Metropolitan areas in New York State, including those in upstate New York had greater growth in real gross domestic product per resident than the average for metropolitan areas in nearby states.  But, the growth of poverty in New York metropolitan areas was below the average for nearby metropolitan areas.


Private sector wage growth in New York State presented a more mixed picture – Buffalo, Albany, and New York City did better than regional average, while Syracuse and Rochester did worse.



While the economic condition of metropolitan areas in New York State, including those in upstate New York, improved relative to nearby areas, in most cases, some places in the state are in very poor economic condition.  Upstate cities continue to lose population and have increasingly great concentrations of low income populations.  Upstate downtowns have large amounts of vacant commercial space, and upstate cities suffer from blighted, abandoned housing.  Minority group residents of upstate cities have average household incomes that are about one third of white suburban residents.

If the lives of residents of central cities are to be improved, New York must address the factors that create concentrations of economically disadvantaged people.  These include:

  • Schools with high concentrations of economically disadvantaged children. Evidence demonstrates that children from disadvantaged families perform substantially better in schools that have higher percentages of students who are not disadvantaged:
  • Single parent families face significant obstacles to success, that also damage the prospects for their children:
  • Racial segregation is highly related to poverty and poor student performance.
  • Cities have high concentrations of low income residents living in blighted neighborhoods, because most cannot afford to live in better quality housing. More housing vouchers, additional income supplementation, particularly for part-time workers, and increased job accessibility for low skilled workers would help central city residents find better places to live.
  • Cities need help in tearing down vacant housing, cleaning up and reclaiming vacant industrial sites and rehabilitating blighted neighborhoods.

But, the focus of highly publicized and expensively marketed economic development initiatives in New York State has been on ineffective programs that have led to negligible job creation.  By all accounts they have not succeeded in “supporting significant potential for private sector economic growth” nor do they “give New York an edge, like we’ve never had before.”  While many existing economic development efforts at the state and local level produce tangible results, few of them focus on the places in New York State that have done the worst, from an economic perspective. Given the growing bifurcation of the economic conditions of city and suburban residents, more attention should be given to them.



[3] Findings of many of these studies are summarized here:


[5] The Tax Foundation calculated state and local tax costs as a percentage of net profits.  But since companies seek to minimize overall costs, I compared taxes to total costs. (operating expenses, interest, taxes and preferred stock dividends, but not common stock dividends).

[6] Depending on the capital or labor intensiveness of a manufacturing process, the productivity of labor and labor demand and supply factors.

[7] Peter Navarro, “The Economics of the China Price,”, p. 3.

[8] “Governor Paterson Announces Excelsior Jobs Program Launch”





[13] Ibid., p. 7.

[14] Manufacturing firms continue to operate in New York and the United States because of other kinds of location advantages, such as labor productivity, the need to be close to markets, or insensitivity to production costs.



[17] “Marketing Service Performance Monitoring” Audit 2014-S-10.

[18] The small benefits provided by the program may reflect the fact that many of the firms participating in the program are start-ups, and have little taxable income.

[19] Communication with this writer.

[20] See for example:

[21] Benus, J. M., Wood, M. and Glover, N. “A Comparative Analysis of the Washington and Massachusetts UI Self-Employment Demonstrations,” Report prepared for the U. S. Department of Labor by Abt Associates.

[22] Source for this and following tables: U. S. Cluster Mapping Project.


SolarCity: The Risk Embedded in Buffalo’s Billion

.pdf version here:

Note: This post is also published on The Empire Center website.

The decision by the nation’s largest solar panel provider to locate a state-of-the-art manufacturing plant in Buffalo, and to create other jobs in Western New York, could be a needed shot in the arm for a city and a region that’s been declining economically for many years. But there are significant risks and unanswered questions associated with the state government’s willingness to commit the bulk of its “Buffalo Billion” resources to the massive SolarCity factory on the site of the former RiverBend steel plant.

A review of key documents for the project reveals the following:

  • State taxpayers will be exposed to an unusually high degree of risk by the unprecedented structure of the SolarCity deal, under which Fort Schuyler Management Corp., a non-profit subsidiary of the State University’s College of Nanoscale Science and Engineering, is building the factory for the company, and will retain ownership. SolarCity’s up-front capital investment in the project is thus limited, weakening its incentive to remain in Buffalo after its dollar-a-year lease of the building expires in 10 years.
  • The project’s net employment impact has been greatly overstated. Some of the promised 5,000 new jobs to be generated in New York by the SolarCity project will be sales and installation positions that would be created in the state even if the same factory was successfully constructed and operated anywhere else in the world, while others will be jobs at other companies that are not parties to the jobs agreement between SolarCity and FSMC.
  • The relationship between CNSE/FSMC and Empire State Development leaves a number of open questions around the job requirements associated with the project and the responsibility for ensuring that job creation promises will be met.
  • Although FSMC is a state-created entity, controlled by the State University and CNSE, it lacks fundamental mechanisms to ensure transparency and public accountability, including publicly disclosed decision processes, criteria, and analyses of project fiscal and economic benefits and costs.

SolarCity is one of three high-tech companies ultimately controlled by Elon Musk, the visionary entrepreneur who also founded Tesla, a maker of high-performance electric cars, and SpaceX, which makes rockets and spacecraft.

After a series of financial maneuvers designed to improve SolarCity’s financial condition, Musk recent announced that Tesla would acquire the solar panel company. It remains to be seen how or whether the Tesla-SolarCity merger will ultimately affect the Buffalo project.

The Use of Business Location Incentives

The use of financial incentives by governments to attract businesses has long been controversial.

From a critical perspective, incentives can be seen as inefficient and prone to favoritism, because they offer benefits to particular firms chosen by a government agency. Incentives are inherently unfair to competitors who do not receive them. The existence of economic development incentives encourages businesses to game the system by claiming that, without government assistance, they might not locate within a state or expand or otherwise upgrade operations. And by offering targeted incentives to selected companies, governments avoid changes in tax policy that would be more costly, politically as well as fiscally.

From the perspective of elected officials, incentives are often viewed as a necessary evil. By offering incentives to particular businesses that promise to create or retain jobs, the state can avoid giving expensive tax breaks to all businesses. The discretionary nature of such programs reduces the overall cost of business retention and attraction compared to a universally available tax break. And, because most states (and localities) use some form of incentive as an attraction and retention tool, no one dares unilaterally disarm.

However, public money should not ultimately supplant private investment. The purpose of economic development agencies is to encourage private sector businesses to invest their own resources to create or retain jobs. These agencies do so by providing financial assistance for capital projects and worker training. In determining whether to provide assistance, and how much to offer, these agencies must assess how much assistance is necessary, the return on public investment that would result, and the risk that promised outcomes will not be achieved. As public agencies, they must operate in a relatively transparent fashion, providing public information about project assistance, benefits and costs, and company compliance with investment and job commitments.

The largest incentive package in New York’s history—packaged a decade ago by Empire State Development[i] for the AMD/GlobalFoundries semiconductor chip fab in Malta—was consistent with these guidelines. It involved State grants totaling $650 million (and more in potential tax breaks) to create a promised 1,200 jobs.

To be sure, the state’s subsidy of the GlobalFoundries plant was criticized in some quarters as “corporate welfare” and an unprecedented “giveaway.” However, the company’s initial investment of $1.7 billion was much larger than the state government’s.[ii] In seeking to become the site of a planned new chip fab plant—of which there are only a handful in the world—New York faced competition from the State of Saxony in Germany, where the company had an existing facility, and which had made an equally large offer.

The GlobalFoundries plant was paid for and equipped by the company itself, with the state providing a grant equivalent to 27% of the total cost. Ten years later, the plant has been expanded to directly employ 3,600 people, with a total investment for building and equipment of $6.9 billion.[iii]

A Nice Deal if You Can Get It

Governor Andrew Cuomo has favored a new model of economic development financing while championing a number of high-profile, high-technology projects, managed by the State University of New York’s College of Nanoscale Science and Engineering (CNSE) through a non-profit subsidiary, Fort Schuyler Management Corporation (FSMC). The state sends money through the Empire State Development Corporation to FSMC, which builds manufacturing facilities at no capital cost to the companies that will use them.

Fort Schuyler Management Corporation is one of several private non-profit organizations created to facilitate SUNY’s mission. FSMC, for example, was created by the SUNY Research Foundation and the Institute of Technology Foundation at Utica/Rome, Inc (ITSC). Although FSMC and ITSC are private, 501(c)3 corporations, not public entities, each has a Board of Directors whose members largely come from the ranks of SUNY administrators.

The largest of the technology projects—SolarCity, a solar panel manufacturer—like other CNSE/FSMC developments, is financed in a completely different way than earlier business attractions in New York state.[iv] The CNSE/SUNY-related 501(c)3 non-profit is building and equipping the solar panel factory at a total cost to the state of $959 million, including $200 million for environmental remediation of the former steel plant site on which the factory is being built. Fort Schuyler will continue to own the facility once it is completed.

The SolarCity project originally promised 1,450 jobs at the manufacturing facility. In late 2015, however, the commitment was reduced by almost two-thirds to 500 jobs, which must be maintained for five years after creation. Specifically, SolarCity promises[v] to “employ and hire as [SolarCity] employees, personnel for a minimum of 1,460 jobs headquartered in the City of Buffalo, New York, with…500 of such jobs for the manufacturing operation at the manufacturing facility over the initial two (2) years of the collaboration commencing on the Manufacturing Facility Completion date…[SolarCity] commits to the retention of these jobs for a period of no less than five (5) years.”[vi]

In addition, the company promises, “in addition to the 1,460 jobs [above], to employ for a minimum of 2,000 jobs over the five years of the collaboration following manufacturing completion to be located in New York State. [SolarCity] commits to the retention of these jobs for a period of no less than five (5) years.”

Finally, SolarCity promises to employ 5,000 people in total in New York state (which may include sales and installation support jobs) by the 10th anniversary of the factory completion date.

As long as SolarCity meets the agreed-upon job requirements, it has access to a fully equipped facility, totally free of capital costs. (It is also eligible for significant tax breaks)[vii]. As a result, no private capital dollars towards the cost of the facility and its equipment are leveraged by the state’s contribution of more than $900 million in public dollars. In effect, they are a gift to SolarCity from the people of the State of New York, for a lease cost of $1 per year.

Here is the language of the Memorandum of Agreement[viii] (MOA) governing the project:

[Fort Schuyler Management Corporation] is responsible at its cost to achieve manufacturing facility completion, including to acquire all manufacturing equipment and to provide for all manufacturing equipment to be delivered to the manufacturing facility. Once manufacturing facility completion has been achieved, including all manufacturing equipment has been acquired and delivered to the manufacturing facility, [SolarCity] is responsible at its cost to achieve manufacturing equipment commissioning and full production output, provided however, that the cost of manufacturing equipment commissioning shall be funded by [Fort Schuyler Management Corporation].

[SolarCity] shall lease the manufacturing facility and manufacturing equipment for the manufacturing equipment from [Fort Schuyler Management Corporation] for a period of ten years for the sole consideration of one dollar $1.00 US per year….

To understand the value of this gift, recognize that for SolarCity to undertake the project itself, it would have two alternatives. It could go to the credit market and attempt to sell bonds, perhaps at junk bond interest rates, given the young company’s limited track record. Or, it could sell part of itself, by issuing additional stock. Either approach would result in existing owners holding a smaller portion of the company.

Because SolarCity has access to free capital from New York State to construct and equip the manufacturing facility that it will operate, the financial risk to the company’s operations is greatly reduced. As long as it meets the contractual employment target for ten years, it need not worry about paying substantial fixed costs.

Through Fort Schuyler, New York State will face significant risks, however. And unlike the company’s shareholders, FSMC and New York State will not receive a direct financial benefit from any profits that SolarCity generates.

Shifting Risk to New York State

The first risk that New York faces is that the company will be unable to meet its employment objectives or fail outright, despite the state’s huge investment. The SolarCity MOA contains a rigid set of job creation and retention requirements for a ten-year period that will be difficult to enforce.

The MOA’s recapture requirements provide that in any year that the company fails to meet its employment mandate, it must pay a penalty of $41.2 million. Because of the long 10-year term of the job creation and maintenance requirements, it is quite likely that a significant recession could occur during the contract period. But because the job maintenance requirements do not include any tolerance for such an event, there is a significant likelihood that the company will be in default at some point during that period.

A 30 percent federal tax credit for residential solar installations is scheduled to begin ramping down after 2019, hitting 22 percent before expiring after 2021. But even assuming that credit is extended, SolarCity plant’s output is likely to be highly cyclical. During recessions, consumers tend to postpone discretionary spending, including home improvements such as solar panel installations. Imposing the required penalty at a time when the company is faced with reduced revenues because of a recession may weaken the company’s financial position to a significant degree, creating pressure on FSMC to renegotiate the agreement to reduce employment targets. Or, if the employment penalties are imposed, the company’s long-term health may be weakened.

Similarly, since SolarCity operates in a competitive environment, it may find it to be difficult to maintain its market position over a full 10 years—a relatively long period, particularly for firms operating in environments where technology is rapidly evolving. For those reasons, economic development agencies typically offer smaller amounts of financial assistance to companies and impose contractual job requirements for shorter time periods—in many cases five years. Even with these shorter job commitments, contract enforcement policies often provide some leeway for adverse events affecting assisted companies.

It should be noted that SolarCity’s operating position has not been robust. The company has lost more than $50 million in each of the last four years and, as of late June, was is in the process of awaiting a cash transfusion in the form of a proposed acquisition by Tesla Motors, another company founded by Elon Musk. While net losses are not uncommon in emerging technology companies bringing new products to market, the nature of these ventures is inherently riskier than that of more established operations.

The contract also contains provisions providing for recapture if the company totally ceases operations, as in the event of bankruptcy. But if that occurs, Fort Schuyler will be one among a large group of creditors, none of whom is likely to be made whole.

Proponents of the approach used to finance SolarCity might argue that state ownership of the facility provides a significant advantage to state taxpayers. But in fact, public financing and ownership of the entire facility create a significant liability for the Fort Schuyler Management Corporation and potentially to New York taxpayers.

Assume, for example, SolarCity meets all of its commitments, occupying and operating the new plant for 10 years—but, in year 11, the company decides it would be more profitable to make the solar panels in China. Having met its commitment to New York, the company can walk away from the facility, having risked no capital of its own to build and equip it. Because SolarCity has no capital investment at stake, leaving it would not affect the company’s balance sheet in a negative way. Nor would it face the task of disposing of the property, or of paying the cost of remediating any new environmental impacts.

Under this scenario, Fort Schuyler would be stuck with a facility that was designed and equipped for a specific purpose, for which it would be unlikely to find a tenant. Like the many abandoned industrial sites in Western New York, it would require demolition and potentially an environmental cleanup, the cost of which could be borne by New York taxpayers.

Changing and Inflated Job Commitments

The language of the MOA makes clear that 2,000 of the required jobs in the first five years are not manufacturing related, but are instead in part “to support downstream solar panel sales and installation activities within New York State.” In other words, SolarCity can count these salespeople and solar panel installers towards its promise to locate 3,400 jobs in New York within five years of completing the new factory. But salespeople and solar panel installers are not moveable employees—they must be located near the markets that they serve. If SolarCity built the same plant in Pennsylvania, it wouldn’t employ fewer installers or salespeople in New York.

Similarly, the agreement with SolarCity specifies that the company must commit to employ 5,000 people total in New York state by the 10th anniversary of the factory completion date. But, in addition to the sales and installation support jobs that are included in the first-five year requirements, the agreement allows support jobs at SolarCity contractors and suppliers to be counted toward meeting the contract requirements (Section 4.4 (c) of the Agreement).[ix] And the agreement makes the SUNY Research Foundation along with SolarCity responsible for attracting and retaining the jobs. As a result, many of the 5,000 jobs that SolarCity commits to at the end of 10 years may neither be at the facility that New York State ultimately is paying for, or at the company that it is assisting.

There are justifications for states to offer economic incentives to companies to encourage them to locate employees in a state that they might not otherwise choose, but there is no real justification for giving incentive dollars to companies for employees whose locations depend on where their customers live. Nor should incentive deals count employment gains at companies not contracted by a state-related entity to create or retain jobs.

But given the shrinking job numbers at the solar panel facility, perhaps it is not surprising that SolarCity and CNSE/FSMC were anxious to find ways to make the impact of the project appear to be larger, including jobs that would not necessarily be located in New York state, and jobs at other companies in New York that contract with and supply the company.

What is the Real Value of the Project and Who Will Enforce Employment Requirements?

 One of the more curious aspects of the SolarCity project and others managed by FSMC, including a light-emitting diode manufacturing facility in the Utica area, is the funding mechanism and the assignment of compliance responsibilities.

Empire State Development’s board package for April 21, 2016[x] for SolarCity includes a cost-benefit analysis for the project. ESD’s analyses are rigorous, and are based on a widely used economic model. The published result was surprising: an economic return of 54 cents for each dollar invested in the project. In other words, for every two dollars invested in the project, the state is expected to lose one dollar. There is an explanation for this, however, because the analysis published by ESD includes only the impact of construction-related activity, not the ongoing employment at the facility.

It appears that ESD’s analysis did not include the impact of ongoing employment because ESD’s contractual relationship is with Fort Schuyler Management Corporation, not SolarCity. Since ESD has no relationship with SolarCity, it is not a party to job commitments or enforcement of them.

To date, FSMC has published[xi] few relevant documents on its website. Since FSMC is a private, non-profit corporation, it initially claimed not to be subject to the public meetings and freedom of information requirements that state entities must meet.[xii] FSMC does not publish cost-benefit analyses of its projects, so we have no idea if the project will generate a positive economic return to the state if it is executed as the contracts specify over 10 years.

But, it turns out that the Memorandum of Agreement on Fort Schuyler’s website provides that “Once the process is complete, ESDC’s role evolves into acting as compliance agent on behalf of the State of New York, with all expenditures being submitted as invoices to ESDC…. Furthermore, ESDC requires quarterly or yearly reports on employment and investment targets as outlined in the GDA, and reserves the right to withhold funding if targets are not met on a pre-determined schedule.”

So ESD is responsible for contract compliance between CNSE/FSMC and SolarCity, even though ESD not a signatory to the Agreement. This is necessary because, as noted, FSMC is a separate, private entity that owns the facility and equipment that will be leased to SolarCity. Though the contractual jobs commitment is between Fort Schuyler and SolarCity, FSMC would have a perceived conflict of interest if enforcing the contract’s job-creation provisions affected the company’s ability to meet other contractual commitments with Fort Schuyler.

ESD’s board ultimately is providing state funding for the plant. The directors’ materials for the SolarCity project, dated April 21, 2016, include this statement: “Although there is no job creation or retention requirement for this project, this effort is expected to create more than 5,000 jobs …”.[xiii] In a separate reference to the project, page 10 of the same ESD board materials states: “There is no recapture based on the created jobs.” Thus, at this point, ESD’s board actions do not reflect the terms of the agreement between SolarCity and CNSE/FSMC.

The fact that a state-related entity owns SolarCity’s manufacturing facility and its equipment complicates the enforcement of job requirements. The language contained in ESD’s latest board action suggests that unresolved issues exist regarding the means by which job-related contract enforcement will be implemented.

In the same regard, the contract between Fort Schuyler and SolarCity does not make clear which entity, the public Empire State Development Corp. or the private non-profit FSMC would receive and retain any repayments made in the event of the failure of SolarCity to meet contractual requirements. Repayment provisions in earlier contracts by Empire State Development, such as that with AMD/GlobalFoundries, provided that repaid money would be returned to a state entity.

Undiversified Risk for Western New York and New York Taxpayers

The commitment of three-quarters of a billion dollars of state money to a factory and equipment for SolarCity, and an additional $200 million for cleanup of the former steel factory site on which it is located, is being done in pursuit of a worthy goal. The Western New York economy, and that of Buffalo, in particular, continues to be among the weakest in New York state. For that reason, the decision to put a particular focus on the area’s needs is sensible.

But, the approach taken raises risks and questions in several ways:

  • First, by committing a huge portion of “the Buffalo Billion” to one project, there is a great risk that most of the dollars available to help the region’s economy will go to waste.
  • Second, by choosing to build and equip the SolarCity facility without cost to the company, New York and SUNY/CNSE fail to leverage any private sector capital investment in the building and its equipment. In effect, since Fort Schuyler owns the means of production managed by SolarCity, this is a form of socialism for the benefit of a particular company.
  • Third, because the company has not invested its own capital in the facility, it has less reason to remain in Buffalo after the lease period ends than if it had invested its own money.
  • Fourth, because Fort Schuyler owns the building and equipment, this state-related entity has assumed the liability that will result from its ownership if SolarCity fails or leaves after the lease term.
  • Fifth, because the agreement between SolarCity and CNSE/FSMC inflates the company’s job commitment with local sales and installation jobs, and jobs that are not at SolarCity, the project job impact is overstated.
  • Finally, the relationship between CNSE/FSMC and Empire State Development leaves a number of open questions around the job requirements associated with the project and the responsibility for ensuring that job creation promises will be met.

Every time government assists a business, by providing a financial incentive, it assumes risks. Companies operate in a competitive market in which the demand for their products or services may decrease or disappear. This can be the result of a variety of factors ranging from poor management, to changes in consumer tastes, to the development of newer technologies that obsolete existing products. The locations of markets may shift, or the cost of production in a particular location may become increasingly uncompetitive because of factors like labor and materials costs in other locations, exchange rates, or the cost of shipping. Finally, assisted companies may game the state, by asserting the need for incentives to retain or create jobs within New York’s borders, or by claiming that they will hire or retain more employees than they actually intend to.

Because the SolarCity project is being carried out by a private non-profit corporation, accountability safeguards used by public agencies have not been implemented. While state entities like Empire State Development provide public records of decision processes, and full information about project benefits and costs, this information has not been available until recently for SolarCity and other FSMC-managed developments, and even now does not provide project benefit/cost information. This is true, despite the fact that the SUNY related non-profits are owned and directed by boards of directors whose members are largely representatives of New York State agencies.

Economic development carries inherent risks. Decision makers must evaluate them when deciding how many public dollars, if any, to commit to a project. And, they must consider, when helping a company make a large capital investment, how much risk they are willing to assign to taxpayers, and how much can be avoided by structuring assistance packages and compliance requirements. In this case, the public has little information about how decision makers evaluated risks and benefits, and why a SUNY related entity (FSMC) chose to assume so much of the cost and risk associated with the development of the solar panel manufacturing facility for SolarCity.

All of this suggests some recommendations:

  1. Despite their “private” status, FSMC and other non-profits operated by SUNY should be subject to the same transparency requirements as public entities. They should publish meeting proceedings and board materials on their websites; and they publicly disclose all available information about benefits and costs, and about criteria used in making project decisions.
  2. The decision of FSMC to keep ownership of manufacturing facilities and equipment should be reconsidered, because public ownership creates a significant liability for FMSC and New York State in the event that the company fails or decides to terminate the lease at the end of its term.
  3. To ensure a reasonable return for taxpayer-funded assistance, and to maximize company stakes in assisted projects, public investments should seek to leverage private capital investment in plant and equipment, not replace it. Companies that receive public assistance should be required to make a significant capital contribution to the cost of facilities and equipment.
  4. Job commitment requirements should be constructed to provide real benefits to New York state. Companies should not include local sales and installation forces in commitment numbers, and should not include employment at companies that are not part of the assistance agreement with the state related entity.

[i] Empire State Development is New York’s lead economic development agency. The author was a senior executive there between 1995 and 2007.

[ii] A portion of the state’s indirect subsidy (for GlobalFoundries) took the form of promised corporate tax breaks, whose value has likely been diminished by the Legislature’s 2014 vote to phase out all corporate taxation of manufacturing companies.


[iv] Other projects managed by FSMC are financed in much the same way. They include a hub for nanotechnology related film and television in Syracuse, and a computer chip commercialization center in the Utica area.


[vi] In these quotations, “SolarCity” has been substituted for the name of the predecessor company, “Silevo,” which had the original agreement with CNSE/FSMC.

[vii] The agreement with SolarCity provides that the property be included in a Start Up zone, eligible for generous tax incentives. See Section 4.8 of Amended and Restated Agreement…


[ix] Note that the fact that some of the jobs counted towards the job creation requirement are not at entities that are part of the agreement may make it difficult get data from them to verify claims about employment levels at their locations.

[x] Available on Empire State Development’s website at: (pp. 60-96)

[xi] Note that after public pressure, in a press release dated June 22, “Fort Schuyler Management Corporation Board of Directors Unanimously Votes to Open Meetings to Public” FSMC agreed to open its meetings to the public, agreed that it was subject to FOIL, and agreed to publish documents online.

[xii] To the contrary, Robert Freeman, the head of New York’s Committee on Open Government has opined that FSMC is subject to the State’s Freedom of Information Law.

[xiii]  (pp. 67-69)

The Shrinking Middle Class in New York State – Cities and Suburbs

Pew Research has been releasing a series of studies showing that the percentage of Americans who have middle class incomes has been declining.  The most recent of these is  America’s Shrinking Middle Class:  A Close Look at Changes Within Metropolitan Areas.  The report received extensive coverage in many newspapers, including the New York Times.  It concluded that in nine of ten metropolitan areas, the middle class lost ground – from 61% of the population in 1971 to 49.5% in 2014.

The Pew findings are a result of the widely reported increase in income inequality that has developed in the United States since about 1980.


Source:  Doug Short – U. S. Household Incomes: A 47 Year Perspective.

The data shows that income gains were concentrated among those with higher incomes. In fact, middle to low income households have seen no significant real (inflation adjusted) income gains since 1967. And, since 2000, real household incomes have stagnated at all levels.  Because income gains between different income groups have diverged, the percentage of Americans who live in the middle class has declined.

The Shrinking Middle Class in New York State’s Metropolitan Areas

Pew found that in New York Sate, each metropolitan area studied saw a decline in the percentage of residents whose incomes were classified as middle class.  For the purpose of their study, middle class was defined as the range between two thirds of the median household income and twice the median.  Albany-Schenectady-Troy showed the largest decrease- 5%.  On average, the percentage or residents with middle class incomes decreased by 3.9%.

Five of the seven metropolitan areas saw increases in the percentage of residents with high incomes – Albany-Schenectady-Troy, Glens Falls, New York-Newark-Jersey City, Syracuse and Utica. Four of seven metropolitan areas saw increases in the percentage of low income residents, with Buffalo-Niagara Falls showing the largest increase – 8.3%.

Change In Income Distribution
New York State Metros 2000-2014
Low Middle High
Albany-Schenectady-Troy  (1.90)  (5.00)  7.00
Buffalo-Niagara Falls  8.30  (7.40)  (0.90)
Glens Falls  0.10  (3.30)  3.00
New York-Newark-Jersey City  (0.10)  (2.60)  2.70
Rochester  3.00  (2.90)  (0.20)
Syracuse  (1.20)  (2.10)  3.30
Utica  0.50  (3.80)  3.30

Source:  Pew Research Center – America’s Shrinking Middle Class:  A Close Look at Changes within Metropolitan Areas.  

The 3.9% average decrease in middle class residents in upstate metropolitan areas was very close to the 4% decrease that Pew found nationally.  But the Pew data does not examine the way the increase in income inequality affects city residents compared to residents of suburban areas around them.  This is a significant issue because cities in New York state have become increasingly separated economically from their suburbs.

For example, in upstate New York in 1969, cities had rates of poverty that were only slightly higher than for the state as a whole.  But, by 2013, most upstate cities had rates of poverty that were at least two times the state rate.

Percent of Residents Living in Poverty
1969 1989 1999 2013
Albany 14.20% N/A 21.50% 25.30%
Buffalo 15.20% 25.60% 26.60% 31.40%
Rochester 12.40% 23.50% 25.90% 33.90%
Syracuse 14.10% 22.70% 27.30% 36.50%
Schenectady N/A N/A 20.80% 24.80%
Troy N/A N/A 19.10% 27.30%
Utica N/A N/A 24.50% 31.70%
New York State 11.10% 13.00% 14.60% 15.60%

(Data for cities with populations of less than 100,000 were not available for years before 1999).

Inflation Adjusted Median Household Income Change in Cities and Suburbs

The same dynamic played out with respect to household incomes in cities and their suburbs.  Between 1999 and 2014, the median inflation adjusted household income for residents of 14 New York cities declined, while those of households outside those cities in the counties within which they were located increased in all but two cases. Moreover, those cities with poorer populations saw greater income losses on average, while those suburbs with higher incomes saw larger income gains.

median income

(Income adjusted by CPI-U for 1999 and 2014 – Northeast Urban Class B&C Metropolitan Areas).

Several cities saw particularly large adjusted median income declines between 1999 and 2014.  Adjusted household income declined by 23% in Elmira and Newburgh, and 20% in Rochester.  Overall, households in poorer cities lost 15% of inflation adjusted income, while those in wealthier cities lost 9.2% of income between 1999 and 2014.

In contrast, suburban areas saw gains, on average, with suburban areas around wealthier cities seeing increases of 6.3% on average, while those around poorer cities saw increases of 4.5% on average.  Household income in suburbs outside Elmira increased by 13%, compared to the 23% decline in the city.  In suburbs around Syracuse, adjusted household income increased by 10%, while in the city, it decreased by 9%.

Chautauqua County outside Jamestown, Duchess County, outside Poughkeepsie, Monroe County, outside Rochester, and Ulster County outside Kingston saw declines in inflation adjusted median household income.  But, even here, central cities far worse than suburbs.  In Rochester, adjusted median household income declined by 20%, while Rochester suburbs decreased by 3.8%.  In Poughkeepsie, real median household income declined by 11.4%, while in the rest of Dutchess County, median income declined by 3.5%. Jamestown saw a 15% decline, while the remainder of Chautauqua County saw a decrease of 2.3%.

Inflation Adjusted Income Change in New York City

nyc household

Three boroughs in New York City saw declines in inflation adjusted household income between 1999 and 2014 – Bronx with a decline of 15%, Queens with a decrease of 7.7%  and Staten Island with a decrease of 7.9%. Manhattan saw an increase, while Brooklyn’s income was stable.

Middle Income Shrinkage in Cities and Suburbs


middle income

Both cities and suburbs had smaller percentages of middle income residents in 2014 than in 1999, but started from different positions.  In cities in 1999, on average only 43% of residents were middle class, compared with 55% in suburban areas.  In 2014, 38% of city residents on average were middle class compared with 50% in suburbs.  So, both cities and suburbs lost the same percentage of middle income residents.


The decline of middle income households is a significant concern, but, even more significant are the overall growth of inequality, and the overall decline in real household income that has taken place this century.

For the United States as a whole, by 2014, inflation adjusted median household income had decreased by 8% from 1999.  While more recent data suggests that incomes have recovered since 2014, the lack of growth in median household incomes is a significant concern.

adjusted income

Source:  Federal Reserve Bank of St. Louis

But the impact of income stagnation has been unequal.  The chart and table below show that the impact of recent income declines has been greatest on lower income groups.



Source:  Doug Short – U. S. Household Incomes: A 47 Year Perspective

Because of the concentration of low income residents in cities, city households saw significant declines in inflation adjusted income over the past fifteen years – averaging a decrease of 12%, compared with an increase of 6% in suburban areas.  As a result, the average difference in household incomes between cities and suburbs increased from 46% in 1999 to 74% in 2014.

Our society has become increasingly divided economically over the past 35 years.  More recently, the U. S. economy has not provided income growth for the country’s residents.  In New York State, the impact of these changes has been significantly different for suburban residents, who have been largely insulated from these economic problems, and for city residents who have suffered from them.



Racial Divisions in Upstate Metropolitan Neighborhoods

In my last posting I described income differences in 800 upstate metropolitan neighborhoods in Albany, Erie, Monroe, Oneida, Onondaga, Rensselaer and Schenectady Counties.  The data comes from the United States Census Bureau which divides the nation into census tracts, the most detailed level publically tabulated. Overall, there are 73,000 census tracts nationally, averaging 4,200 residents each.

While there are significant differences in incomes, unemployment and poverty among upstate neighborhoods, the differences in racial patterns, particularly between people identifying as black or African-American and those identifying as white are much stronger, and the racial differences are strongly related to neighborhood economic conditions.

Racial Divisions – Two Neighborhood Types

Census Tracts with High Concentrations of Black Residents

Upstate Metropolitan Census Tracts – 2014
Sorted by Percentage of Black/African-American Residents
High Concentration Average Concentration Low Concentration
  30% of of all Black Residents 40% of all Black Residents 30% of all Black Residents
%Black 83.4% 38.6% 4.4%
%Hispanic 5.0% 16.7% 3.8%
%White 8.6% 36.2% 86.4%
Black Residents 105203 143812 109430
All Residents 126153 373030 2471015
Low Income 64.0% 58.6% 29.5%
Medium Income 31.4% 34.8% 47.7%
High Income 4.6% 6.6% 22.8%
Mean Household Income $37,238 $44,171 $76,175
% Unemployment 19.8% 14.1% 6.7%
% Poverty 34.0% 32.4% 6.8%

More than eight of every ten residents of neighborhoods with high concentrations of black residents identify as black or African-American, even though only 12% of all residents of upstate metropolitan census tracts were black.  Residents in typical neighborhoods with high concentrations of black residents had very few residents identified as white, not Hispanic – only eight in one hundred.  About five percent of residents with high concentrations of black residents identify as Hispanic, about the same percentage as upstate urban neighborhoods, overall.

When average concentration neighborhoods are added to the picture, 70% of residents live in neighborhoods that average 50% black or African-American.  These neighborhoods have concentrations of black residents that are more than four times the average for all upstate neighborhoods.  When combined with those who identify as Hispanics, people who live in neighborhoods that have average concentrations of black/African-American residents are more than 60% minority residents.

Note that the income, unemployment and poverty levels of neighborhoods that had average levels of black residents were only slightly better than those of neighborhoods with high levels.  For neighborhoods with high and average concentrations of black residents, mean household incomes in 2014 were only slightly higher ($40,176) than those for residents of neighborhoods with high concentrations of black residents ($37,238).


In neighborhoods with high concentrations of black residents, 64% of households had low incomes – almost as high a percentage as was found in neighborhoods with high concentrations of low income residents.  About three in ten residents of these neighborhoods had middle incomes, while about 5% had high incomes.

Typical residents of neighborhoods with high concentrations of black residents, had incomes of  $37,200 in 2014, only slightly higher than the average income in neighborhoods with high concentrations of low income residents.  Similarly, the concentration of poverty in neighborhoods with high concentrations of black residents averaged 37%, like that of low income neighborhoods, which averaged 37%.

Unemployment among residents of neighborhoods with high concentrations of black residents was nearly 20% in 2014, the highest of any of the groups in this analysis.

Census Tracts with High Percentages of Hispanic Residents

Upstate Metropolitan Census Tracts – 2014
Sorted by Percentage of Hispanic Residents
  High Concentration Average Concentration Low Concentration
  30% of all Hispanic Residents 40% of all Hispanic Residents 30% of all Hispanic Residents
%Hispanic 29.8% 9.2% 2.4%
%Black 35.8% 20.8% 7.3%
%White 27.5% 62.3% 85.5%
Hispanic Residents  48,205  65,181  50,189
All Residents  161,994  704,899  2,103,305
Low Income 65.5% 46.4% 28.4%
Medium Income 30.2% 41.8% 47.7%
High Income 4.3% 11.8% 23.9%
Mean Household Income $39,943 $52,818 $78,526
% Unemployment 18.0% 10.1% 6.6%
% Poverty 38.4% 19.7% 6.2%

Only 5.5% of residents of upstate metropolitan census tracts are of Hispanic descent.  So, even in those places where there are relatively high Hispanic concentrations, they make up only a minority of residents.  In the neighborhoods with the highest concentrations of Hispanic residents, on average 30% of residents were Hispanic, compared with 36% Black/African-American and 27.5% White (not Hispanic).


Like people who identify as Black/African American, Hispanic households most often have low incomes (66%).  About 30% of Hispanic households in upstate urban areas are middle income, while 4% are high income households.  When neighborhoods including high and average concentrations of Hispanics are combined – 70% of all Hispanics, their average income reached $49,642, lower than the average income of those who identify is white, not Hispanic, but higher than that of people who identify as black or African American (40,176).

Neighborhoods with high concentrations of Hispanics had high levels of unemployment (18%).  The concentration of poverty in neighborhoods with high concentrations of Hispanic residents (38.4%) was slightly higher than that of low income neighborhoods and those with high concentrations of black/African-American residents.

Census Tracts with High Concentrations of White Residents

Upstate Metropolitan Census Tracts – 2014
Sorted by Percentage of White Residents
High Concentration Medium Concentration Low Concentration
  30% of all White Residents 40% of all White Residents 30% of all White Residents
%White 96.2% 89.8% 55.8%
%Black 0.7% 2.9% 25.6%
%Hispanic 1.5% 3.1% 9.6%
White Residents  662,506  922,262  707,720
All Residents  688,680  1,014,263  1,267,255
Low Income 24.7% 26.2% 46.7%
Medium Income 49.5% 48.9% 40.3%
High Income 25.8% 24.9% 13.0%
Mean Household Income $80,921 $80,710 $55,793
% Unemployment 6.3% 5.9% 10.6%
% Poverty 4.4% 4.7% 20.5%

Neighborhoods with high concentrations of white residents look very different from those with high concentrations of black or Hispanic residents, and from the average of all residents.  Thirty percent of all white (non-Hispanic) residents live in neighborhoods that average 96% white, with less than one percent of black residents, and 1.5% of Hispanic residents.  Overall, 77% of residents of upstate metropolitan areas are white, 12% are black and 5.5% Hispanic.


They also differ significantly in their economic characteristics.  About 75% of residents of neighborhoods with high concentrations of white residents have middle or high incomes.  For black and Hispanic residents, the corresponding percentage is 35%.  The median household income for neighborhoods with 70% of all white residents of upstate urban neighborhoods is more than $80,000, compared with $40,176 for neighborhoods with 70% of all black residents, and 49,642 for neighborhoods with 70% of Hispanic residents.

The average unemployment percentage in 2014 in neighborhoods with high concentrations of white residents was 6.3%, compared with 20% in black neighborhoods, and 18% in neighborhoods with high concentrations of Hispanic residents.  Very few residents of neighborhoods with high concentrations of white residents lived in poverty in 2014 – 4%.  For black neighborhoods, the percentage was 34% and for neighborhoods with high concentrations of Hispanics, the percentage was 38%.

Concentrations of Residents by Neighborhood Types

Chart 1.

black hispanic white 

Chart one shows that blacks and Hispanics are particularly overrepresented in the upstate metropolitan neighborhoods where they lived in 2014.  65% of blacks lived in neighborhoods with more than twice the overall percentage of blacks in upstate metropolitan counties.  Forty percent of blacks live in neighborhoods with more than four times their overall percentage.  Forty percent of Hispanics live in neighborhoods where they are more than twice their overall percentage in upstate metropolitan counties.

Chart 2

ratio of races


Chart two shows the concentration of the group populations in each census tract, sorted by the concentration of group population.  It shows that black and Hispanic populations are far more concentrated than low income, high income and white populations. While most blacks and many hispanics live in neighborhoods with more than twice their overall concentration, almost all low and high income households live in neighborhoods that are less than twice as concentrated as the overall low and high income households in upstate metropolitan counties.


In earlier posts, I pointed out disparities in poverty and income between upstate cities and their suburbs, and between white, black and Hispanic residents.  This research extends the analysis to the neighborhood level, and shows that residents with low incomes, black and Hispanic residents are separated by neighborhood from a substantial majority of white residents.  Most white residents live in neighborhoods that have fewer than 5% black and Hispanic residents.  In contrast, 70% of all black residents live in neighborhoods that have more than 60% minority residents, despite the fact that blacks make up 12% of the population of upstate urban neighborhoods.

Equally important, the economic conditions of neighborhoods with high concentrations of black and Hispanic residents closely resemble those of low income neighborhoods.  Black and Hispanic neighborhoods have percentages of low income residents, unemployment levels, and percentages of households in poverty that are very similar to poor upstate urban neighborhoods.  The next post will provide some additional documentation of the economic differences between census tracts with high concentrations of minority group members and those which are primarily white.

The fact that neighborhoods with high concentrations of black/African-American residents are more separated from neighborhoods with high concentrations of white residents than predominantly low income neighborhoods are separated from high income neighborhoods suggests the continuing need to address the racial separation of upstate residents as well as the prevalence of low income neighborhoods if upstate is to remove the barriers that separate its residents.