This Is the Biggest Threat to U.S. Industry (And It’s Not Offshoring)

BUFFALO, NEW YORK—Today, I noticed something incredible on my tour of the Rust Belt states.

As I cruised along the highway, one minute I saw smoke billowing from factories and trucks hauling heavy equipment on a smooth road…

And the next minute, I was bouncing over potholes… factories were shuttered… and weeds were sprouting from buildings.

The difference?

I just crossed the border from Fort Erie, Canada, into Buffalo, New York.

Fort Erie is thriving… Buffalo is struggling.

I’ve been traveling through the Rust Belt states the past couple weeks and have witnessed an industrial renaissance.

Two of the supposedly hardest-hit cities—Detroit and Indianapolis—are on the rebound.

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In Indianapolis, I saw more “for hire” signs than I could count. In Detroit, I saw a downtown resurgence.

Here at the Daily, I travel all over to pull back the curtain on what’s really going on with the economy. The media will have you believe the entire Rust Belt is struggling as industrial jobs leave for China and Mexico.

But that’s not what’s happening. On this trip, I found out jobs are coming back to these areas.

But Buffalo is the exception. Jobs are leaving. But offshoring isn’t the main culprit.

In a moment, I’ll tell you the two main reasons Buffalo (and other cities like it) is missing out on this renaissance.

What’s Wrong With Buffalo?

Buffalo’s population peaked in the 1950s with almost 600,000 people. Today, that’s been cut by more than half to 257,000.

Jobs and people have left… And they’re not coming back.

Today, I’m talking with Carl Paladino to find out what happened.

Carl is the founder and chairman of Ellicott Development, a real estate company. He’s also a former gubernatorial candidate.

As I walked into his office, Paladino’s 12-year-old American Staffordshire terrier named Duke guarded the couch. Duke comes to work with Carl every day.

Carl is 70 but still loves what he does. He founded his company 38 years ago.

“I didn’t know a thing about real estate,” he said. “I just flew by the seat of my pants.”

Today, his company controls over $1 billion in real estate.

No one has a better understanding of what’s going on in Buffalo than Carl.

I asked him why Buffalo’s economy was lagging behind other industrial cities.

Carl wasn’t one to mince words. “Regulations and taxes the liberals in Albany keep piling on the state are killing us.”

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Albany is New York’s capital. But the state legislature is controlled mostly by people from New York City… That’s where the bulk of the state’s population (and money) resides.

The financial metropolis is very different than industrial Buffalo.

Downstate politicians force their agendas on industrial regions. But that’s just causing costs to skyrocket… And causing companies to flee.

Carl tried to change things when he ran for governor against Andrew Cuomo in 2010. But he ran into a problem: He’s an upstate Republican.

He won the western counties and rural areas of New York and finished with 38% of the vote… the most ever for an upstate Republican. (Former Republican Gov. George Pataki was from the downstate area.)

He told me New York has one of the highest state income taxes at 12%. That’s 40% higher than the national average of 8.7%.

New York City can get away with imposing high income taxes. It’s the financial center of the country.

But high taxes are killing industrial areas like Buffalo. Unlike the major financial companies in the Big Apple, industrial companies can move shop to cheaper places.

On top of high taxes, the Cato Institute says New York is the most heavily regulated state in the union.

The state has some weird regulations, including requiring a license to hang clothes on a clothesline and prohibiting the purchase of alcohol before noon on Sundays.

Taxes and regulations are the main reasons businesses (and people) are leaving Buffalo.

Talent Exodus

Carl told me, “My son had a good group of friends in high school. Very driven kids. But out of his 16-person group, only one stayed in New York. The rest all left the state.”

That exodus of talent is common. In fact, Carl counsels young people to do the same. There’s no need to give away so much of your earnings to taxes.

Plus, opportunity is limited… Tyson Foods left Buffalo in 2015, taking away 300 jobs. The year before, Niagara Ceramics left, taking away 110 jobs.

Business is so bad that Buffalo and the state need to bribe companies to come here.

For instance, solar panel manufacturer SolarCity announced it would open a factory and bring in 4,500 jobs. In return, the state would finance the $750 million factory.

This was the cornerstone of the “Buffalo Billion” plan spearheaded by Gov. Cuomo.

The process quickly became mired in corruption. And it delayed the completion of the factory.

SolarCity might have overpromised how many jobs it’d bring… Carl said the company lowered the number of new jobs to 500.

With the cost overruns, the state has paid almost $1 billion for 500 jobs… That’s $2 million per job. Hardly a good investment.

But that’s how desperate the state is.

What It Would Take to Fix Buffalo

I asked Carl what it would take to fix Buffalo.

“We need a strong governor like a President Trump,” he said. “We need someone to go and cut regulations and lower taxes. That’s the only way businesses will ever come back.”

Now, Carl is hardly impartial. He ran Trump’s state campaign last year. But that doesn’t mean his message is wrong.

Regulations and taxes are two of the biggest impediments to growth right now.

It’s clear the difference a pro-business government can make.

Indianapolis and Detroit are now business friendly. Their economies are thriving. Buffalo is not business friendly. And it’s struggling.

Here is a list of states with the most regulations, according to the Cato Institute.

If you’re running a business, you might not want to headquarter your business in these states.

Regards,

Nick Rokke, CFA
Analyst, The Palm Beach Daily

P.S. If you live in one of the 10 states with the most regulations, we want to hear from you. Have regulations hurt your business or personal freedoms? Let us know right here.

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