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Manufacturers need energy-cost relief

Wrong. New York’s economic strength depends largely on the future of manufacturing. Because manufacturing has a multiplier effect–where one new employee at a facility leads on average to 1.4 additional jobs in the community–losing even one firm in New York has serious consequences.
Manufacturing is the lifeblood of our economic system because nearly half of total economic activity in New York depends on it. Manufacturers in the United States spend more than $30 billion a year on education and training, and employees are paid 23 percent more than any other job.
Today, there are 27,000 manufacturing firms in New York, employing nearly 1 million workers and generating $38 billion in payroll annually. While those numbers may seem big, in fact New York no longer is the nation’s leader in manufacturing.
The last two decades have witnessed a significant decline in manufacturing in New York and a sharp turn in the health of our economy. In 1992, we dipped below 1 million manufacturing workers for the first time since Teddy Roosevelt was president. That is down from a historic high of 2.2 million in the mid-1950s.
Since 1980, New York has lost one-third of its manufacturing employment.
Many factors have contributed to this decline: including high taxes, high state and local spending, escalating workers’ compensation and unemployment insurance costs, and a difficult regulatory environment. One factor that needs our attention now is the rising cost of electricity.
In large part because of misguided state policies, average electric rates in New York were 55 percent higher than the national average in 1994. In 1993, they were 44 percent higher. New York rates are significantly higher than those found in the rest of the country, and that disparity is growing fast.
The three cost factors where most New York utilities are out of line are taxes, wages and benefits, and operation and maintenance. The overall tax burden imposed on utility bills in New York is three times higher than the national average.
In addition, New York utilities must purchase power from independent power producers, whom they were legally required to contract with years ago, at prices well above market rates.
The key to energy pricing in the future will be competition. Fortunately, energy policy around the country is moving in this direction. New York must not be left behind in this movement; otherwise, we will become even less attractive as a place for manufacturers to invest and create jobs. Most CEOs of the state’s utilities are planning for the new area of competition, but they want to compete on a level playing field. This means removing state-imposed requirements on utilities that impede competition. As for other areas where the costs are high, utility management must aggressively address these issues.
A more competitive environment will allow businesses, and ultimately all consumers, to consider buying electricity from sources other than the utility in whose service area they reside. A market based on competition will offer the hope of lower energy costs. California, Michigan, Massachusetts, New Jersey and other states have begun proceedings that will move them toward competition.
In the short term, however, we must aggressively seek legislative and regulatory reforms for moderate industrial rate relief. The Manufacturers’ Council of the Business Council recommended policy changes this year that would have helped meet this immediate objective including a proposal to phase out the gross receipts tax, saving industrial customers as much as 5 percent on their electrical costs, and a reduction in demand-side management programs. These programs were designed to reduce the demand for energy consumption, but have ended up costing utilities and ratepayers hundreds of millions of dollars.
These issues and others relating to energy competition are not likely to be finalized this year. However, implementation of a short-term plan next year will demonstrate to manufacturers that New York is serious about improving the economy and saving jobs. And it may provide incentive–and hope–for manufacturers that things will get better in our state.
(Daniel B. Walsh is president of the Business Council of New York State Inc.)

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