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Cuomo Capitalism

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Cuomo Capitalism

High taxes have chased private companies away from upstate New York and enabled corruption. November 28, 2016
New York
Economy, finance, and budgets

United States attorney Preet Bharara’s Thanksgiving gift to New York governor Andrew Cuomo—the formal indictment on official corruption charges of his former top aide and seven others—is a political embarrassment to a man now considering a run for president in 2020. But it’s also a stinging condemnation of a cornerstone of Cuomo’s economic-development strategy for New York.

Last week, a federal grand jury indicted Joseph Percoco on charges of running a pay-to-play scheme out of the governor’s office. Percoco is a man so close to the Cuomo family that Andrew once described him as “my father’s third son,” but he wasn’t the only Albany player with ties dating to the Mario Cuomo administration to feel Bharara’s wrath. Alain Kaloyeros, the now-former president of the State University of New York’s sprawling Polytechnic Institute, was also indicted on three counts of conspiracy to commit wire fraud. The charges—and those against six other more-or-less bit players—will be settled in a courtroom. Whatever the eventual outcome, however, the cases against Percoco and Kaloyeros represent human failings of the sort wryly noted by nineteenth-century Tammany Hall honcho George Washington Plunkitt: “I seen my opportunities, and I took’ em.”

Such opportunities abound in the nostrums promoted by not only the Governors Cuomo, but by many chief executives of Rust Belt states whose economies have been laid low over the past half-century. While foreign competition has played a role in the deindustrialization trend, the deeper cause of economic malaise in such states is an almost universal compulsion by government to promote social policies that state and local tax bases can’t sustain. Private companies are unable to compete in such environments, and they won’t even try.

Andrew Cuomo is a master at pumping taxpayer money into parts of New York where the free market fears to tread—that is to say, into the vast swaths of the state north of Westchester County. The point is to seduce—bribe is such a harsh word—the private sector into returning to localities where it has become too expensive to create or sustain jobs. Cuomo’s signature Buffalo Billion program—which figures prominently in Bharara’s indictments—is a case study in this sort of thing. The governor has poured hundreds of millions of wholly discretionary tax dollars into a scheme meant to build a solar-panel manufacturing plant in Erie County. Maybe the plan will work; maybe not. The results have so far been unspectacular, and the discretionary nature of the spending underlies the corruption allegations.

Buffalo’s days as a heavy manufacturing hub were doomed by postwar global competition. The same is true of much of upstate New York—an early-twentieth-century manufacturing powerhouse that time has seemingly passed by. But Albany made matters much worse than they needed to be. Governor Nelson Rockefeller was a particularly corrosive agent in this respect. He and his legislative confederates seized on Medicaid—the federal health-care program for the poor—sweetened it beyond reason, and then apportioned the costs in such a way that staggered local governments. By the late seventies, the entire property-tax levy of many upstate counties went to support Medicaid.

Added to that ever-growing burden were unfunded mandates governing everything from public education to the environment to local-government labor relations; they combined to create a total tax burden almost purpose-built to drive business from the state. New Yorkers today carry the nation’s heaviest per capita state-and-local tax burden, as they pretty much have for decades. And while New York City, with its unique economic synergies, can shrug much of this off, upstate can’t.

No governor has significantly alleviated upstate’s government-directed economic woes, and most haven’t even tried—the political blowback from unions and other special interests being too terrible to contemplate. But New York governors do pay lip service to the need for upstate economic revival. The result has been a proliferation of local development agencies operating in the Buffalo Billion model, with politicians doling out discretionary grants in return for promises of renewal down the road. Few jobs have resulted, and mini-scandals of the Buffalo Billion sort have been common.

Kaloyeros’s SUNY Polytechnic Institute has proved a small exception. It has helped generate a vigorous, if nascent, nanotechnology industry in Albany and Saratoga counties. But the subsidies have been enormous, and who’s to say the jobs wouldn’t have popped up anyway if New York’s tax and regulatory barriers weren’t so high? In any event, there’s no need to speculate about the actual outcome: if Bharara’s indictments are to be believed, human nature once again stepped to the fore, with bid-rigging and kickbacks the result.

If nothing else, Preet Bharara has demonstrated that corruption of all sorts is deeply ingrained in New York public life. But while the spotlight understandably and correctly falls on the accused when charges are brought, some attention also should be paid to the underlying causes of corruption. Opportunities, as Plunkitt noted, almost always will be taken.

Photo by Spencer Platt/Getty Images

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