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What does the ongoing cost of Beech-Nut say about NY economic freedom?

In July, Montgomery County enlisted an engineering firm, LiRo Engineers, to study demolishing the remains of the old Beech-Nut plant in Canajoharie.  The study alone will cost $475,000.  That sounds like a lot of money, and it is.  But that $475,000 is just the latest in a long line of expenses to the public.

Earlier this year, Montgomery County received a total of $6.5 million in grants from New York State to demolish the eastern section of the plant. The remaining buildings that might still be usable will require additional funds to renovate.

The companies that owned the plant after Beach-Nut never bothered to pay millions of dollars in taxes, which resulted in the county seizing the property last year.

And even though the EPA found Beech-Nut Corporation liable for cleaning up the massive amount of friable asbestos at the 26.9 acre site, the corporation disputes the claim and refuses to pay for it.

And that’s just the stuff we know about.  Projects like this tend to become more expensive over time as more things become uncovered.

Of course, those numbers (and the future expenses) are dwarfed by the $104.5 million in state and local incentives given to Beech-Nut to help them relocate the plant from Canajoharie to its current location in 2010. Without that hundred million dollar in tax breaks and grants, the story goes, the company would have been forced to move out of state.

What does the public get for all the expense and trouble?  According to the company, the plant employs 365 people, which is about what they employed eight years ago when they moved.  The fanfare of the 135 new employees promised when the new plant was announced a decade ago, seems to have been premature.  From press reports, one can discern that about 220 or so are involved in production with the balance being involved in administration, business operations, and human resources.

According to Glassdoor.com, a website that lets employees anonymously share reviews and information about their current and former employers, salaries at Beechnut range from six figures for executives down to $15 per hour for some production workers.  When asked, Beech-Nut declined to share the median salary of their employees, but described their compensation as “competitive.”

So if we take the $104.5 million in state and local incentives, divided by the 365 employees, it comes to $286,301 per employee, some of whom only make about $30,000 per year.

It’s difficult to discern how long it will take various governments and the local economy to recoup that $104.5 million.  Beech-Nut does pay about a million dollars per year under a payment in lieu of taxes (PILOT) agreement to the county, school district, and town.

One can certainly understand the plight of county officials.  Montgomery has the third highest poverty rate in the state.  If officials in Albany want to pay a major employer to stay, how can they say no?  And due to the potential toxicity of the site to the surrounding community, officials had an obligation to clean the site up as quickly as possible.

However, I believe the entire idea of giving various government handouts, grants, and tax breaks to companies like Beech-Nut, or GlobalFoundries, or companies such as FoxConn in an outrageous example out  in Wisconsin, needs to be called into question.  Yes, you can get companies to relocate or stay in a state if you throw enough cash at them.  Politicians are eager to do this because it means high profile announcement with lots of photos.

The problem is that the growth created from economic freedom is often unseen.  There are no ribbon cuttings and press releases when a company doesn’t shut down and move away.  There are no politicians to line up and take credit for a million private transactions that create economic growth.  It only shows up in statistics and reports from think tanks.

Wouldn’t it be far better to create an environment where people actually want to do business in New York without requiring a handout?  The Empire State is consistently ranked poorly among states to do business.  Unsurprisingly, US News & World Report ranks New York State as 40th in job opportunities.  Last month when the Cato Institute published its annual Freedom in the 50 States study, New York was yet again ranked 50th in the nation.

Economic freedom and growth go hand-in-hand.  Rather than create an environment where people want to work and live, New York smothers businesses and then has to offer handouts to them so they don’t move away.  Lack of freedom is why many people pack their bags and leave.

It is no longer just retirees looking to avoid ice and snow in the winter.  Everyone reading this has a friend or family member who has left New York for greener economic pastures of other states, often rapidly growing metro areas south of the Mason-Dixon such as Charlotte and Nashville.  New York ranks 34th in population growth among US states.  No doubt it would be far lower if New York City wasn’t always drawing people from all over the world.

We are all painfully aware of the heavy local tax burden in New York.  But consider the additional difficulties imposed by occupational licensing.  Now you may be glad that your doctor has to have a license, but what about the people who reupholsters your dining room chair?  New York is one of only 10 states where upholsterers require a license from the state.  No doubt licensed upholsterers appreciate the barrier to potential competitors, but do we really need the state to require licenses for these types of businesses?  How about we require licenses for travel guides, or shampooers,  or make-up artists?

As a practical matter, 365 jobs is a lot for a struggling county, and the $104.5 million it cost to keep them may one day prove to be worth it. But what is the long-term cost of New York State’s policies which created the situation such that the public has to pay $286,301 per job to keep a company from leaving? When the various government entities subsidized the Beech-Nut move, they also indirectly bought in to New York’s burdensome economic policies and put us on the hook for it all.

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