Can Solar Industry Save Buffalo?

20 11 2014

Can Elon Musk Save Buffalo? How About Perk It Up?

Local legend says it was 50 years ago when Teressa Bellissimo dropped fried chicken wings into a vat of hot sauce at the Anchor Bar. The result became Buffalo’s most celebrated export.

Now the city in western New York is banking on a different recipe that Mayor Byron Brown says will bring 12,000 jobs in the next three years: a collaboration among elected officials, businesses and universities. As part of the program, billionaire Elon Musk is opening the largest solar-panel factory of its kind in the Western Hemisphere.

Like Pittsburgh and Cleveland, two other former manufacturing hubs that lost about half their populations during the past 40 years, Buffalo is benefiting from the increasing allure of urban life for millennials. Musk’s SolarCity factory will be fed by engineering graduates from the State University of New York at Buffalo, Brown said.

“There’s an emerging younger cohort that’s very knowledgeable and very intent on living in cities,” said Richey Piiparinen, a senior research associate at the Center for Population Dynamics at Cleveland State University. “Companies are moving offices to Middle America, where the talent is being produced, and they can save on costs.”

Erie Canal 

SolarCity will be built on the site of a former Republic Steel plant. Once among the largest producers in the U.S., Republic shut its last Buffalo facility by 1983. It was part of a rapid downward spiral for the city, which rose from a wilderness outpost in the 1780s to a bustling hub after the Erie Canal connected the Great Lakes to the Atlantic Ocean in 1825.

After an environmental cleanup at the former Republic property, Buffalo purchased the tract in 2008 for $4.6 million to offer to developers, according to the mayor. Since 2012, more than $5 billion in projects have begun, he said. And for the first time in decades, cranes mark the city skyline.

“This restructuring of the Rust Belt economy has been very, very difficult,” said Brendan Mehaffy, who heads Buffalo’s office of strategic planning. “We were left a legacy from a lot of industrial activities that inhibited the potential of these cities but also left a lot of the great assets we have locally.”

Sharing Knowledge 

Cleveland is now home to the Health-Tech Corridor, a three-mile (five-kilometer) stretch of biomedical, health-care and technology companies centered around the Cleveland Clinic and Case Western Reserve University. In Pittsburgh, Carnegie Mellon University’s computer-science and robotics work helped attract Google Inc. (GOOG) to a formerly blighted neighborhood.

Technology and biomedical companies are driving the changes in the region, according to a May report by the Washington-based Brookings Institution. For the past 50 years, in Silicon Valley and other suburbs, they conducted internal research on isolated campuses where secrets were kept more easily.

Solitude is giving way to combined spaces. Companies seeking the next breakthrough, such as molecule-sized computer chips that fight cancer, need their researchers to mingle with counterparts at other businesses, the report found.

“When that happens, being physically close to each other is really important,” said Bruce Katz, director of the institution’s metropolitan policy program and one of the report’s authors.

Cuomo’s Investment 

New York Governor Andrew Cuomo has been tapping that trend. In 2011, he agreed to invest $400 million with the State University of New York’s Colleges for Nanoscale and Science Engineering in Albany. The school will build space to be shared by Intel Corp. (INTC)International Business Machines Corp. (IBM) and Samsung Electronics Co., among others.

The renewal of the former Rust Belt is based on a blueprint written largely in Pittsburgh. A 1993 report by Robert Mehrabian, then-president of Carnegie Mellon, said the former global steel capital was adrift after the region lost 54 percent of its manufacturing jobs during the previous two decades. To revive it, civic, business and political leaders needed to build clusters of industry that rely on existing infrastructure, including universities.

Two decades later, Pittsburgh’s U.S. Steel Tower is topped by the letters UPMC for the University of Pittsburgh Medical Center, now the city’s biggest employer. Among the 100 largest U.S. metro areas, it had the 17th best recovery from the recession that ended in 2009, with Buffalo at 32nd, according to Brookings measurements that used jobs, unemployment, house prices and economic output as indicators.

The Pittsburgh metro area had an unemployment rate of 4.6 percent in September, compared with 5.9 percent nationwide, according to the U.S. Bureau of Labor Statistics. In the Buffalo region, it was 5.7 percent.

Taking Notice

“Pittsburgh, with its successes, is still ahead of the curve,” Mehaffy said. “Buffalo is doing a very good job in terms of catching it.”

Cuomo is helping Buffalo by following through on a 2012 promise to invest $1 billion there. That commitment, some of which is being spent on building SolarCity, required Buffalo to bring together its universities, elected officials and business leaders.

A $55 million portion is being spent on an information-technology center, anchored by IBM, that will provide training and create new software. The state is also rebuilding a swath of Buffalo’s waterfront along Lake Erie and financing part of a $130 million renovation of Ralph Wilson Stadium, home of the National Football League’s Buffalo Bills. In October, Terry and Kim Pegula bought the team and promised to keep it in Buffalo following the death of the team’s founder and longtime owner Ralph Wilson.

Inspiring Confidence 

“Having an NFL team and a renovated stadium does help to inspire confidence that the community is of national caliber, that it’s world class,” Brown said.

Even with the progress, Buffalo still faces challenges more enduring than the blizzard that has blanketed the city a month before the onset of winter. About 30 percent of its residents lived below the poverty line in 2012, compared with 15 percent nationally, according to the U.S. Census. Only 56 percent of public high-school students graduated in 2013, and one in three adults reads below a fifth-grade level, according to the city.

The deal for the plant that will be operated by Musk’s SolarCity was originally struck with Fremont, California-based Silevo Inc. last year. SolarCity bought Silevo in June and reworked the agreement with the state to build a factory five times bigger, said Chris Beitel, who heads operations and government affairs for Silevo, now entirely owned by SolarCity.

Low-Cost Power

Musk, a co-founder of PayPal Inc., is chairman of SolarCity and its biggest shareholder. He also is co-founder and chief executive officer of carmaker Tesla Motors Inc. (TSLA)

Silevo considered other states, yet found New York, and Buffalo in particular, the most hospitable to its needs, Beitel said by phone. California’s Silicon Valley, for example, could provide skilled employees but not low-cost energy, he said.

“Buffalo is a town that’s gone through economic ups and downs and clearly with the steel industry moving away, it’s been depressed for decades,” Beitel said. “But Buffalo has strong engineering talent and a renewable energy source from hydro power with electricity costs that are among the lowest in the nation.”

As cities take advantage of the change in corporate strategy, young jobseekers are taking notice, said Piiparinen, the Cleveland State researcher. They’re attracted by what he called “Rust Belt chic.”

Grandpa’s ’Hood 

In Pittsburgh, the median age fell to 33.5 in 2012 from 35.5 in 2000, according to the U.S. Census. Buffalo’s median age was down to 33.3 in 2012 from 33.6 in 2000 as 25-to 34-year-olds became the largest portion of its population.

After attending colleges in cities like Chicago and New York, the new generation of highly educated workers doesn’t want to go back to the cul-de-sacs where they were raised.

“They want to live in grandpa’s neighborhood in the urban core,” Piiparinen said. “They’re transforming it.”

Among those benefiting in Buffalo is the Anchor Bar, which sits adjacent to a health-care corridor developing with help from the state, said Mark Dempsey, vice president of marketing for the bar’s franchising company. The neighborhood is teeming with young workers who also love chicken wings, Dempsey said.

“You can see and you can feel that Buffalo is coming back,” Dempsey said by phone. “People are proud, they’re happy and they’re energetic. It’s great to hear and see.”

To contact the reporter on this story: Freeman Klopott in Albany at fklopott@bloomberg.net

To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Mark Schoifet, James Hertling

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