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Shrinking Giants & Gentleman Farmers
July 14, 2005: Upstate New York was once a land of corporate and manufacturing giants whose kingdoms were rooted in its cities, towns and villages. The giants represented a wide spectrum of economic endeavor. Among them were such well known entities as GE, Bethlehem Steel, Dow, Nestles, Eastman-Kodak, International Paper and IBM. Though these giants were indeed powerful, other forces counter-balanced their weight. Not every company was unionized, but organized labor had attained major strength. Hence even non- union companies tended to stress responsibility to employees and sought to be perceived as socially beneficial to the communities in which they thrived. And thrive they did. As did their employees. As did the cities, towns and villages which depended on their presence. No human community is ever perfect but for a few decades a rare degree of economic balance existed in upstate New York. As it did in much of industrial, post WW2 America.

By the 70's, the balance was getting wobbly. Whole swaths of the country were turning rust belt. Major corporations were decamping for cheaper locales. At first domestic, ultimately foreign. In upstate New York, like many places, the argument is made that demands of organized labor, plus corrupt unions, helped drive the giants away. And that government didn't crack down sufficiently on the excesses of organized labor. The opposite is also argued; that the absence of unions elsewhere led corporations to drop the social responsibility bit and opt for 2 dollar a week workers in Pollutionville. And that government didn't crack down sufficiently on corporate flight. Whatever. Rust belt reasons can be argued elsewhere. This is a story about a chain of events in one post-giant town-- and about the magic development beans being planted by New York State politicians and assorted agencies.

The village of Endicott (pop: 13,038) is in Broome County. West of the Catskill Mountains. Near Binghamton. Just above the Pennsylvania border in New York's Southern Tier. Endicott is the birthplace of the company that later became IBM. Though IBM expanded far beyond Endicott, they maintained a sizable presence in their home town. By 1980 IBM employed some 14,000 people in the Endicott area. In 2005 they employ 1600. This May an announcement was made that more job cuts are imminent. While IBM shrank in Endicott and other New York locations, state government clung to its knees like a jilted lover. Gifting it with years of lucrative tax breaks, power deals, grants and low interest loans. In return, IBM promised to love New York forever. While sneaking out the back Jack. In India IBM now employs 38,000 workers. According to a recently leaked in-house memo, they expects that number to grow by 14,000 in the upcoming year1.

New York Governor George Pataki is IBM's most recent state house suitor. An avid one. As example, when IBM wanted to rebuild its corporate headquarters in Armonk and rid itself of unwanted properties in other places, convoluted deals were struck whereby the state (and its taxpayers) could help finance the new facility and take the old ones off IBM's hands.

Real Free Enterprise

IBM's facility in Endicott included one of their principal production sites for interconnect products. Such as printed circuit boards and chip carriers. But by 2002 their manufacturing sector was declining. IBM was outsourcing more production processes and the Endicott complex was up for sale. Sanmina-SCI, an electronics manufacturing services provider based in California, but with facilities near Endicott, was said to be interested. But so were a group of investors based closer to home. The group launched a company called Endicott Interconnect Technologies (EIT or EI) which was going to produce interconnect products. Part of the EIT business plan was that IBM would be among their customers-- and could also lease part of their old facility for ongoing operations.

EIT was headed by local business heavyweights from two prominent families with political connections in state places: the Maines family of Maines Paper & Food Distribution and the Matthews family, members of which owned a number of companies, including Matco Technologies and Matco Electronics. Also on board for the purchase and as legal council was attorney James Orband, of Hinman, Howard and Kattell. Another attorney from the firm, Robert Nielsen Jr., is chief of staff to Binghamton State Senator Thomas Libous and 2004 treasurer of the Friends of Senator Libous Committee. Rep. Libous is a nine term veteran and close ally of Governor George Pataki. One of upstate New York's most powerful pols. Libous threw his full weight into EIT becoming IBM heir in Endicott. As did Governor Pataki and Charles A. Gargano, chairman of Empire State Development (ESD). A state agency which dispenses grants, loans and various tax breaks via a number of development programs and agencies.

The deal that ultimately emerged between EIT and IBM rested on promises of full support by ESD and a pledge by Governor Pataki of "aggressive"2 state support. Among the deal sealers was a favorable lease arrangement for IBM. Which, according to EIT, would insure that IBM would remain in Endicott (albeit in truncated form) and retain 2000 of its 4000 employees. Plus, EIT would employ the other 2000 workers when it took over IBM's interconnect production business. Empire State Development chimed in on the job retention aspect; expressing belief that another, unidentified company who was interested in buying would eliminate local jobs within 12-18 months.

EIT paid roughly $63 million for IBM's facility at Endicott. (Though the market value of the 4 million square feet of property as reflected in property tax assessment, seemed considerably higher.) Binghamton's Press & Sun Bulletin reported it was estimated3 that state economic development aid would finance roughly 84 percent of the purchase. To make the purchase, members of EIT formed a Limited Liability Company (LLC) called Huron Real Estate. Yet Huron didn't buy the IBM campus for EIT.

According to a 2005 report (Toxic Plume: Who Owns the Former IBM Property?) by News Channel 34 in Binghamton, Huron sold the land to the Broome County Industrial Development (BC IDA) Agency in late 2002. The BC IDA then leased the land back to Huron/EIT. Yet contrary to how it sounds, Broome County doesn't own IBM's former Endicott property either. IDA board members are appointed by local county executives-- but IDA boards don't answer to the county executive's office. The Broome County Industrial Development Agency is regulated by the state. As are all New York IDAs. So when IBM sold its land to Huron LTD, the latter was in seeming effect, reimbursed by New York State. Though perhaps the leasing arrangement makes it more like a rent-to-own.

(Incidentally, the "ownership" of IBM's former property by EIT or BC IDA didn't make either liable for the environmental clean- up connected to the "toxic plume" referenced by News Channel 34; an ongoing disaster caused by a 1979 chemical spill and overall pollutant leakage at IBM. The situation impacts the land beneath its old property plus a wide swath of the Endicott area. The responsibility for the clean-up still lies with IBM.)

Though the IDA lease-back deal with Huron may seem convoluted, and far from free enterprise, the arrangement is thoroughly legal in New York State and common IDA practice. IDA leasing arrangements carry more advantages than just the reimbursement aspect. When an IDA takes title to a property and leases it back to a company, the company becomes eligible for assorted property and sales tax breaks. For instance, the IDA leasing deal with Huron/EIT meant freedom from mortgage tax. And since the Empire State Development Corporation (an ESD sub-agency) included EIT in Endicott's Enterprise Zone (EZ) the company was also eligible for assorted property and sales tax breaks.

Direct financial assistance flowed to EIT from both state and federal sources. ESD grants to EIT included four million dollars for machinery and equipment. The U.S. Department of Housing and Urban Development (HUD) contributed one million to EIT through its Community Development Block Grant (CDBG) program by way of the Governor's Office for Small Cities (GOSC). Broome County's Economic Development and Planning and Finance Committee also took part in the process.

During the period New York State assisted EIT in its purchase of IBM's Endicott facility, and the Governor's Office For Small Cities and Broome County officials were dispensing CDBG funds to EIT, an EIT principal, James Matthews, along with several of his companies including Matco Electronics, Matco Technologies and U.S. Assemblies of Georgia, were embroiled in a lengthy bankruptcy dispute with creditors. Eventually the creditors prevailed in court. Over several years accounts of Matco's problems appeared in various financial publications and a number of court documents re Matco et al became public via the Internet.4 Facts contained within these documents include that Matco's largest secured creditor, the National Bank of Canada, reached a point where it refused to advance further funds to Matco. Another creditor, a distributor, described how Matco Electronics had consistently presented a false picture of the financial well being of Matco's affiliate company American Board Companies (ABC), and Matco itself, in order to keep credit extended to ABC.

Relevant government officials may have been unaware of the Matco bankruptcy. Or perhaps the solidity of other EIT participants made it irrelevant-- local officials often have up-close knowledge of the reliability of local businesses. Which may be why info such as projected business debt schedules, income schedules, cash flow projections, balance sheets, letters of support, business financial statements from recent years, etc. seem not to have been required on EIT's Small Cities grant application.5 Or perhaps HUD never requires such info when it comes to CDBG/Small Cities grants. Furthermore, the need for jobs in the Endicott area may have kept all eyes on the prize.

When EIT's deal with IBM was announced in July 2002, Governor Pataki said "All 4000 jobs will be protected and remain in Endicott for at least the next 10 years.". (Two thousand jobs at IBM, 2000 at EIT.) Those who feared another buyer might have meant firings could relax. Because as William Maines, EIT co- owner and chairman of its board of directors put it "The last thing we want is to cut this, cut that and everyone exit stage left". 6

Jobs Jobs Jobs

In November of 2002, immediately after becoming official heir to IBM and two weeks after election day, EIT started cutting jobs. Two hundred people, ten percent of the workforce, were fired. About 60 percent were managerial level, the rest were engineers or secretarial, maintenance and sanitation employees. Some had been with IBM for decades. EIT execs claimed a depression in the marketplace was behind the firings. A depression apparently invisible four months earlier.

The cuts kept coming. In groups. With one notable exception. Like IBM, EIT wasn't unionized. In December of 2002, a union organizer (Alliance@IBM/Communications Workers of America) named Rick White was fired at EIT. For making negative comments on a local Internet bulletin board about the management skills of EIT's owners. Rick White had already been warned by William Maines about dishing EIT in public places. White, a technical engineer and IBM employee of 28 years who'd transferred to EIT, had made comments to a local newspaper after the November firings about the impact of the loss of skilled workers on the quality of EIT products. Chairman Maines had also apparently taken umbrage over a union leaflet distributed at EIT by another, non-employee union organizer which advised employees that "IBM looked out for their interests, the new owners are looking out for theirs. Organize to look out for yours!" Allegedly Maines "didn't like the tone of the leaflet that he was looking out for his interest".7

(Rick White's firing was later declared null and void by a National Labor Relations Board judge, who declared his remarks to the newspaper and on the Internet bulletin board were protected as part of his union organizing activities. EIT is currently appealing the decision.)

In February 2004, an Empire State Development Corporation (ESDC) compliance report showed EIT falling short of projected employment levels by 15%. Exactly the percentage still considered compliance. Two more group firings followed in April and May. Totaling roughly 140. In November, another 85 employees were let go. Those fired included long time employees and temporary ones. Some of whom replaced long time employees fired earlier. Like the firings in 2002, these took place right after election day. EIT execs chalked up this round to "inconsistent order activity" in the printed board circuit industry. But the company voiced anticipation of improvement in all its business units after the first of the year. A big part of that anticipation was based on something called SureScan.

Weapons of Mass Destruction

While it's true the February 2004 ESDC compliance report showed EIT balanced on the edge of acceptable employment levels and firings followed soon afterwards, February also brought upbeat news. From Governor Pataki, State Senator Tom Libous, and Broome County officials. All issued press releases announcing EIT would be creating 700 new full time jobs at the Endicott site within 4 years. Because the "world class supplier of electronic interconnect solutions" would be "manufacturing a revolutionary high-speed explosive detection device that can be applied for homeland security purposes". In these releases Charles Gargano praised Governor Pataki's development strategy of "cutting taxes and keeping down the cost of doing business". Also mentioned was that in light of EIT's commitment to New York State and because they'd be creating 700 full time jobs over 4 years, the company was now eligible to apply to ESD for a "revised offer of a $1.4 million capital grant"."

SureScan is the detection device EIT plans to manufacture. Essentially, it's a high speed, computerized X-ray device intended for use at airports. ENSCO, the Virginia based engineering service company which designed the technology, says SureScan will provide "faster throughput and lower false alarm rates". ENSCO has a partnership arrangement with EIT. ENSCO provides the technology: the "value engineering, production, sales and support capabilities" will be provided by EIT. Or more accurately-- by the SureScan Corporation. A spin-off of EIT. While ENSCO's website in May referred to the SureScan Corporation as "a wholly owned subsidiary of Endicott Interconnect Technologies", the Press & Sun Bulletin on June 8th described SureScan as no longer a subsidiary but "an independent business unit, separate from its former parent".8

SureScan, both the company and the product, was supposed to be up and running in 2004. And starting to employ 700 new people. But in the article referenced above James McNamara Jr., president and chief executive at EIT and SureScan, explained you can't hurry to meet deadlines when producing something that will be "looking for weapons of mass destruction.". Developing SureScan's hardware and software had had its "frustrations". Then there was the federal bureaucracy.

SureScan has to receive certification from the federal Transportation Security Agency (TSA) so it can be sold to airports and to other government agencies. SureScan is in the process of being tested at the TSA facility in Atlantic City, New Jersey. According to a May 13th press release, U.S. Senator Charles E. Schumer was instrumental in getting the certification process rolling. Early this year, Schumer met with Homeland Security Secretary Michael Chertoff (then nominee Chertoff) and urged him to "consider EIT for TSA certification.".(Schumer probably meant the SureScan Corporation-- not EIT.)

On June 20th came another horn blow from the office of Chuck Schumer. A mighty one. The Senator had secured a measure in the Homelands Security Appropriations bill that had just passed in the Senate Appropriations Committee. The measure allocated $50 million for the next generation of homeland screening technology. In Schumer's press release words "a move that means SureScan will be one of a few companies able to compete for this money once they are certified by the Transportation Security Administration.

Those who worry lest Democrat Schumer's achievement re EIT puts Republican State Senator Tom Libous in the shadow, need not fear. Earlier this year, New York Senate Majority Leader Joe Bruno appointed Libous to Chair the State Transportation Committee. Any development assistance that flows to EIT from federal transportation agencies will most likely pass through the state pipeline. Plus in early 2004 Governor Pataki designated Binghamton a "High Technology Commercialization Center." A venture involving Binghamton University and linked to Pataki's billion dollar Centers of Excellence initiative. Local Rep. Libous will indubitably have a front row seat for any cutting edge tech developments that grow from the 15 or 20 million dollars of public funding.

If SureScan produces 700 new jobs in Broome County it will be a good thing. Even though the cost to taxpayers of creating those jobs will have been massive. Particularly if you factor in how much it cost to bankroll EIT as heir to IBM along the way to becoming SureScan. If you divided that amount among the projected SureScan employees and gave it to them in a lump sum they could go off and start small businesses for themselves. Like the kind from whence giants like IBM once grew. Sans such massive taxpayer support. And here's hoping new SureScan jobs turn out to be more secure than the old EIT ones. Perhaps unionization would help. Let's also hope the slack that pols tend to cut friends when it comes to government funded free enterprise is absent at SureScan. Since as EIT prez James McNamara put it, SureScan would be used to detect weapons of mass destruction. Not to mention box cutters.

More broadly, so much public money now goes into private development in New York that one wonders who really owns the entities on which it's lavished. The state? The taxpayers? Or the owners of often-difficult-to-ascertain record? Arrangements like the IDA lease-backs, made under the aegis of layers of semi public development agencies, obfuscate such questions even further. Plus, these agencies dispense billions in state and federal funds without being subject to the degree of oversight similar spending warrants in other government places. Little stabs at reform get made but both political parties have their arms entwined in the cookie jar.

Last year there was much talk about radically reforming Empire State Development's EZ program. The threat that it might not be renewed by the state legislature was heard. ESD Chairman Charles Gargano got a grilling about the program's alleged cronyism and poor job creation record. Gargano claimed to know nothing of such matters: he left EZ decisions up to local development agencies. Yet when renewal time rolled round this year EZ got the AOK till 2015. Albeit with a few reform tweaks. Plus 11 new counties were declared EZ eligible. Some of them mighty prosperous. (EZ was originally intended as an aid to disadvantaged areas.) Manhattan's Chinatown also got the nod. After all, there's so little enterprise in Chinatown. And Manhattan real estate needs property tax breaks. As do home owners in upstate New York. But for them-- it don't come EZ.

A few years ago the people of the Netherlands declared themselves among the happiest on earth; their society was so fabulous. The researcher who conducted the interviews should have visited upstate New York. Where people thank God daily for sending them an army of magic pols and players. Who can plant hopes of full employment with just a handful of shaky jobs and harvest bushels of public money. While back slapping their fellow gentleman farmers in the halls of government.

Carola Von Hoffmannstahl-Solomonoff

"Pataki stopped and shook Libous' hand on the way to the podium Wednesday. He said, Tommy, are you happy?'"

Pataki taps BU to spin technology into jobs, Todd McAdam & Rion A. Scott, The Ithaca Journal, 01/08/04

"Given the general lack in government to perform in an admirable and honest manner, I am leaning toward a career in the private sector. Should note, however, that I am not sure who it is that one should talk to and how you find the private sector."

The Autobiography of F.B.I. Special Agent Dale Cooper, Twin Peaks Books, Twin Peaks Productions, 1991

1IBM ruffles workers by expanding India staff, Stacy Cowley, IDG News Service, New York Bureau, 6/24/05

2How Aggressive ESD deal-making helped keep an Endicott plant and jobs in Endicott, EDC ADVANCE/NY

3IBM-Endicott site sold; 2000 jobs appear safe, Dom Yanchunas & Jeff Platsky, 7/1/02, Press & Sun Bulletin

4United States Bankruptcy Court Northern District of New York, In Re: Matco Electronics Group, Case No. 02-60835, In Re: U.S. Assemblies New England, Case No.02-60836, etc. November 27, 2002. United State Court of Appeals For the First Circuit, Northern Laminate Sales, Inc., v. Lawrence E. Davis. April 1, 2005.

5Written response by Broome County's Commissioner of Planning & Economic Development to a citizen FOIA request for documents regarding EIT, New York State Small Cities Program Community Development Block Grant and Broome County, 4/11/05

6IBM-Endicott site sold; 2000 jobs appear safe (see above.)

7United States of America Before The National Labor Relations Board, New York Branch Office Division Of Judges. Endicott Interconnect Technologies Inc And Alliance@IBM/Communications Workers of America, Local 1701, AFL-CIO. Case No.3-CA-24105

8EI's SureScan leaves no room for error, Jeff Platsky, Press & Sun-Bulletin, 6/8/05

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Copyright (c) 2005 by Carola Von Hoffmannstahl-Solomonoff. This material may be freely distributed subject to the terms and conditions set forth in the Open Publication License. This license relieves the author of any liability or implication of warranty, grants others permission to use the Content in whole or in part, and insures that the original author will be properly credited when Content is used. It also grants others permission to modify and redistribute the Content if they clearly mark what changes have been made, when they were made, and who made them. Finally, the license insures that if someone else bases a work on this Content, that the resultant work will be made available under the Open Publication License as well.

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