How Business “Partnerships” Flopped at the US’s Largest University

The State University of New York (SUNY) — the largest university in the United States, with nearly 600,000 students located in 64 publicly-funded higher education institutions — has served an important educational function for the people of New York and of the United States. But its recent “partnerships” with private businesses have been far less productive.

In the spring of 2013, New York Governor Andrew Cuomo, joined by businessmen, politicians, and top SUNY administrators, embarked upon a widely-publicized barnstorming campaign to get the state legislature to adopt a plan he called Tax-Free NY. Under its provisions, most of the SUNY campuses, portions of the City University of New York, and zones adjacent to SUNY campuses would be thrown open to private, profit-making companies that would be exempt from state and local taxes on sales, property, the income of their owners, and the income of their employees for a period of ten years.

Tax-Free NY, Cuomo announced, was “a game-changing initiative” that would “transform SUNY campuses and university communities across the state.” According to the governor, this program would “supercharge” the state’s economy and bring job creation to an unprecedented level. Conceding that these tax-free zones wouldn’t work without a dramatic “culture shift” in the SUNY system, Cuomo argued that the faculty should “get interested and participate in entrepreneurial activities.”

Despite criticism of the program by educators, unions, and even some conservatives, SUNY administrators and local officials fell into line. Reluctant to challenge the governor and oppose this widely-touted jobs creation measure, the state legislature established the program, renamed Start-Up NY and including some private colleges, in June 2013.

Start-Up NY quickly acquired considerable momentum. Hundreds of tax-free zones were established at New York colleges and universities, most of them on SUNY campuses, with numerous administrators hired to oversee the development of the new commercial programs. New York State launched a very expensive Start-Up NY television advertising campaign around the nation, with ads focused on the theme: “New York: Open for Business.” SUNY’s chancellor, Nancy Zimpher, proclaimed: “Nowhere in the country do new businesses . . . stand to benefit more by partnering with higher education than in New York State, thanks to the widespread success of Governor Cuomo’s Start-Up NY program. With interest and investment coming in from around the globe and new jobs being created in every region, Start-Up NY has provided a spark for our economy and for SUNY.” This was, she declared, a “transformative initiative.”

Although no one seems to know — or at least has revealed — just how much Start-Up NY has actually cost New York State, it has certainly been quite expensive. Back in 2013, the governor’s budget office estimated that it would cost $323 million over the next three years. That figure did not include the lost tax revenue to localities.

And what has it produced for the state? After three years of operation — 2014, 2015, and 2016 — that question is answered by the official reports of Empire State Development (New York’s official economic development agency). In 2014, Start-Up NY produced 76 jobs. In 2015, it produced 332 jobs. And, in 2016, it produced 757 jobs. Deducting 30 jobs apparently lost somewhere along the way, Empire State Development claimed a grand total of 1,135 jobs were developed by Start-Up NY.

Although 1,135 jobs might strike observers as a remarkably small increase in the state’s total workforce of over 9 million people, it’s actually an inflated figure. According to Empire State Development, only 722 of these jobs could be considered “net new jobs.” Many of the participating companies did not really create new jobs at all, but simply moved their operations to another region of the state to avail themselves of Start-Up NY’s tax breaks.

Moreover, it’s far from clear that Start-Up NY’s tax breaks were necessary for businesses to hire these 722 workers. After all, 2014, 2015, and 2016 were years of recovery from the Great Recession, during which employment in New York State grew by 168,401 jobs.

What about the benefit of the program to SUNY? According to the SUNY administration, at the beginning of 2017, half of all SUNY schools had become sponsors of Start-Up NY businesses, with 201 campus “partnerships.” Although Chancellor Zimpher has spoken enthusiastically about the program’s “academic benefits for our faculty and students,” her examples are less than convincing. Yes, the participating companies paid SUNY a modest rental for their use of campus facilities. But this business use deprived SUNY faculty and students of their ability to avail themselves of these same facilities — including buildings, classroom space, labs, and advanced machinery and equipment. The chancellor also pointed to 134 students who had interned at Start-Up businesses and 121 who had gone to work for Start-Up firms. But these figures are not impressive when set against SUNY’s student enrollment of nearly 600,000.

Perhaps most significant, what is the academic merit of devoting university teaching or education to producing or marketing corporate projects? Shouldn’t the role of higher education be the advancement and diffusion of knowledge?

Actually, New York State has developed another — and certainly larger — university-business “partnership”: SUNY Polytechnic Institute. In some ways, it is much like Start-Up NY, for it involves the use of public funding and SUNY resources to assist profit-making businesses. In the case of SUNY Poly, however, the participants are giant corporations and the capital investments, by the state and by the corporations, are enormous: an estimated $43 billion. SUNY Poly’s College of Nanoscale Sciences and Engineering (located in Albany and usually referred to as the NanoCollege) alone is reportedly a $24 billion enterprise, whose onsite corporations include IBM, Intel, GlobalFoundries, Samsung, and TSM — in all, hundreds of corporate “partners,” many of them Fortune 500 tech companies.

SUNY Poly’s operations are very opaque, and it is extremely difficult to determine how much money is going where. An Albany Times Union journalist told me that he has been working for more than thirteen years to “crack the SUNY Poly secret,” but, “like the meaning of life, I can’t figure it out.” His problems were enhanced by the fact that, until recent, SUNY Poly didn’t recognize Freedom of Information law requests and, even since then, delayed responding until the last possible date set by the law.

Even so, it appears that SUNY Poly owes its meteoric rise to the opening, in 1997, of the Center for Environmental Sciences and Technology Management as a component of SUNY/Albany. Developed and headed by Alain Kaloyeros, a colorful, wheeler-dealer physicist, this entity was eventually expanded into the NanoCollege with the assistance of a $1 billion investment by the New York State government. This public funding was supposed to attract business investment. And it did, with the money soon rolling in.

When Governor Cuomo took office in January 2011, he made the NanoCollege a centerpiece of his statewide economic development program. Kaloyeros became not only the highest-paid public employee in New York, but a key advisor to the governor on economic development and university-corporate “partnerships.” Drawing upon Cuomo’s staunch backing, as well as upon the vast corporate and state funding he amassed, Kaloyeros began buying up property across the state for new facilities under his control. The first, Nano Utica, was announced in October 2013, and involved a $200 million state investment in a computer chip manufacturing and research center to be run by the NanoCollege and the SUNY Institute of Technology. Announcing the venture, Governor Cuomo declared that “this partnership demonstrates how the new New York is making targeted investments to . . . take advantage of the strengths of our world class universities.”

As Kaloyeros’ empire grew, he decided to pull the NanoCollege out of SUNY/Albany and, in 2014, announced the formation of SUNY Polytechnic Institute, headquartered in Albany and Utica. According to the SUNY website, SUNY Poly is now “New York’s globally recognized, high-tech educational ecosystem,” with “over 300 corporate partners and multiple technology and innovation hubs.”

But how, exactly, does this “ecosystem” work? Unfortunately, answering that question presents quite a problem. Not only are the relevant details largely hidden from public scrutiny, but a variety of non-profit entities — such as the Fuller Road Management Corporation and the SUNY Research Foundation — play intermediary roles. It does appear, though, that New York State “partners” with giant corporations by pouring hundreds of millions of dollars into developing research and production facilities they desire. In turn, the corporations pay “rent” or make other contractual payments to the SUNY Research Foundation for SUNY space and access to SUNY equipment. SUNY Poly also rents out its employees. In 2016, it agreed to send up to 50 of its top scientists and engineers to work for two years at GlobalFoundries’ chip factory in Malta, NY. SUNY Poly was supposed to receive as much as $18 million in exchange for these employees, who, in turn, would be paid by the SUNY Research Foundation.

Who benefits from these arrangements? Well, certainly the corporations do, for it is cheaper for them to handle their research, development, and employment needs with the infusion of large amounts of cash from the state’s taxpayers than for them to fund it entirely themselves. Also, by operating within SUNY, they are shielded from state, local, and business taxes. Meanwhile, Kaloyeros, as president and CEO of SUNY Poly, saw his annual salary rise to nearly $1.4 million, almost $900,000 of which came through the SUNY Research Foundation.

New York State does not fare as well. Although spurring business investment and job growth sounds good, it does not always help New Yorkers. There are substantial costs for public services that the state’s taxpayers provide, especially if these corporations are shielded from taxes through their “partnership” with SUNY. There are also environmental costs. Furthermore, the jobs the corporations bring with them do not always go to New Yorkers. When GlobalFoundries moved to Saratoga County, thousands of new jobs were created at the NanoCollege and at Global Foundries. Although some jobs went to local people, most of them went to outsiders from across the nation and the world. Thus, New York added jobs, but few of them went to unemployed New Yorkers.

Moreover, the NanoCollege has been of dubious benefit to the City of Albany. Although the presence of the NanoCollege has increased local employment, most people working within its walls live outside Albany and, therefore, do not pay property taxes to the city. An even more significant loss to Albany is the exemption of the NanoCollege from property taxes. Nearly two-thirds of Albany’s land is now tax-exempt, putting the burden of city services, such as schools, police, and roads, on the city’s homeowners, rather than on the NanoCollege or its hundreds of corporate “partners.” This situation put Albany in such a financial bind that, thanks to complaints from city officials, the NanoCollege’s nonprofit real estate arm, the Fuller Road Management Corporation, ultimately began paying $500,000 a year to the city in lieu of the NanoCollege’s taxes. But numerous Albany officials consider that sum insufficient and quite out of line with what a multi-billion-dollar operation can afford.

Finally, what about SUNY Poly’s impact on the SUNY system? SUNY Poly now owns a very large amount of real estate, which its rents out to a substantial number of firms. But whether SUNY receives any significant overhead from this “educational ecosystem” remains unclear.

What is clear is that, in September 2016, after a lengthy investigation by the U.S. Attorney’s office, Kaloyeros was arrested along with a former top aide to Cuomo, plus developers in Syracuse and Buffalo, in an extensive corruption case. Two months later, Kaloyeros turned up in a federal grand jury’s 14-count indictment. According to the Albany Business Review, the indictment outlined “several alleged bribery schemes overseen by SUNY Poly in Albany involving some of Gov. Andrew Cuomo’s signature economic development projects spanning from Buffalo to Syracuse, Albany, and the Hudson Valley.” Kaloyeros now faces federal criminal charges that he steered lucrative development contracts awarded by SUNY-affiliated nonprofits to preferred companies in exchange for bribes, as well as state criminal charges that he and another individual were engaged in a bid-rigging scheme involving a student dorm project at the NanoCollege. The trial is slated to occur this fall.

SUNY Poly continues, although tarnished by the scandal. It has lost several of its high-profile programs, as well as a number of top scientists and engineers. Global Foundries abruptly pulled out of its massive chip factory deal, terminating the employment of most of its rented SUNY Poly workforce.

Several questions arise from this history of SUNY-corporate collaboration. Does this “partnership” produce enough economic benefit to be worth the cost? Is assisting private business research, development, and sales an appropriate role for higher education? Finally, is using public funds to subsidize profit-making corporations an appropriate role for government? These questions are certainly worth considering before states rush into promoting further ill-fated university-corporate “partnerships.”