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Fiscal Policy & Economics

Article

One of the greatest challenges facing our local governments today is the need for money to provide the necessary services to our communities.  From emergency services to parks and recreation, there are countless demands that cities must meet in order to create and/or maintain an attractive community. The financial ability to provide these vital community services defines a city’s ability to attract and retain residents and businesses. 

Sales taxes and property taxes are valuable resources, coveted by local governments as the keys to financial solvency and ultimately to successful communities.  If city governments can attract and retain businesses that generate significant tax revenue, they will have more freedom to provide better services, and to ultimately be a more attractive place for businesses and residents to locate. 

Great Streets and Fiscal Policy

Our public infrastructure is an investment of taxpayer money. Like any responsible investors, it is imperative that we think about the type of return that our infrastructure investments will yield to our communities. Our region invests hundreds of millions of dollars in public infrastructure every year, and public streets are a major component of that infrastructure. What type of return are taxpayers getting on that investment? From a vehicular capacity perspective, the investment has traditionally been a good one, creating wider streets with more capacity to move people and goods faster and more efficiently in our region. In many cases, though, this is where our thinking about investment in our streets has stopped.  Our streets can be so much more than what they are today. For the amount of money we put into them, they MUST be more.  We need to start thinking of our streets as more than just automobile conduits. If done right, investment in our streets and thoroughfares can create significant returns for local governments and our region in the form of increased real estate values, increased property tax receipts, increased sales tax revenue, improved quality of life, and improved environment. 

Use infrastructure investments to encourage private sector (re)development. Successful cities are strategic about infrastructure investments, using their capital improvement programs to leverage specific kinds of private sector responses. Studies and statistics indicate that there is a redirection of economic growth away from infrastructure-poor areas to areas of positive infrastructure investment. Businesses want to locate in areas with sustainable infrastructure. For local economies, great streets are the pinnacle of positive infrastructure investment. Great streets create public spaces that are inviting to businesses, residents, and multiple modes of travel. They are essential for local economic growth that is sustainable and comprehensive.

How we manage the land uses abutting our streets has an immediate and significant impact on the sense of place along the street. Business type, building style and scale, setback width, solar access, and a variety of other factors all contribute to the type and quality of the public space along the street.  

The implication for great street development is this: type and quality of private investment along the street is shaped substantially by the type and quality of the public realm created by investment in public infrastructure. Choosing to invest in great streets is an essential step in catalyzing healthy private investment along the street. 

Tired arterials are bad for business
St. Louis, MO; Credit: CH2M HILL
good for business
St. Louis, MO; Credit: CH2M HILL

Given the two choices above, where would you rather locate your business?

People have choices when it comes to the question of where to locate their businesses and homes. To attract high quality private sector land use investment, public infrastructure investment (and great street investment in particular) is a competitive necessity. Under the right conditions, the cost of infrastructure can be offset by increases in real estate values and resulting increases in property tax receipts. The costs of great street investment can offset by increases in tax revenues resulting from increased retail sales, employment and other economic trends fueled by the public sector investment.

Generally speaking, local governments stand to gain in numerous ways from rising real estate values. When property values increase, there is an incentive to owners to generate higher returns from property. Investments in great streets may start this chain of events.

In some people's minds, the benefits of strategic transportation investments apply only to wide roads, with the expectation that such improvements will attract large retail or manufacturing enterprises. But these same benefits derive just as often from great streets. The kinds of development you find illustrated throughout this website depend for their success on great streets, just as fully as "Big Box" development depends on wide roadways filled with cars.

About that "big box"...  In recent decades, the evolution of "big box" retail development has become a very popular trend in our region and across our nation. "Super stores" that provide limitless goods and services are scattered throughout our region, providing consumers convenient shopping under one roof, often at lower prices than smaller stores offering a smaller selection.

While "big box" development is often a deterrent to great street transformation, there can be a place for this type of development in our communities. When considering investment in big-box development, it is important to be aware of recent research pointing toward some of the economic challenges associated with doing so: 

  • Cape Cod: big box development creates fewer jobs and less tax revenue than local stores. In one community, (Barnstable, MA) big box development created a net annual deficit of $468 per 1,000 square feet of space (see Resources, "Fiscal Impact Analysis of Residential and Nonresidential Land Use Prototypes")
  • Small towns in Ohio: big box development produced a net annual loss of $0.44 per single square foot of space (see Resources, "Understanding the Fiscal Impacts of Land Use in Ohio")
  • DuPage County, IL: cost of infrastructure, utilities, and emergency services required as a direct result of big box development exceeded the property and sales tax provided by the respective big-box retailers. (see Resources, "Impacts of Development on DuPage County Property Taxes ")
  • Concord, NH: added 2.8 million square feet of big box development over 12 years, resulting in a 19% decrease in sales tax revenue over that same period. (see Resources, The Myth of Big Bucks and Big Box Development).

More and more regions are finding that big-box development is not always a good development choice. Local governments are discovering that the direct and indirect costs of the "big box" can often outweigh the financial benefits that they had hoped for. What's more, there are significant impacts to their communities' small businesses, which are often unable to compete.   

It is also important to point out that some studies suggest that consumers do benefit from big-box retail, in spite of their negative public impacts.  Consumers are choosing to shop at super stores because the lower costs offered at these stores save them money. The consumer benefits are inversely proportional to income level: low-income consumers are benefiting the most from the lower costs offered at super stores. See the report entitled "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart", found in the PDF library, for a recent study conducted by MIT on this subject.

The natural reaction to this is "If big-box stores give those with less income the opportunity to save money on basic necessities, then surely they must be a good thing for communities." But what is the real cost to these lower-income consumers? Is it simply the net difference on their big-box sales receipt when compared with what they would have paid at the local store alternative? What about the additional time and costs required to travel to the big box retailers? What about lost job opportunities to the local businesses that are unable to compete? We must consider all of these issues when thinking about the true costs and benefits for any development, including big-box.

Generally speaking, big-box development is not compatible with most great street developments. If big-box development is chosen, however, local governments should work with the developers to try and think differently about how these sites are developed. In their traditional form, they are massive, impervious sites that generate high travel demand. They are often very difficult to access by any mode other than personal automobile, and their box-like structure usually leaves much to be desired aesthetically. Consider the following elements when planning such developments:

  • site design
    Credit: CH2M HILL
    Building fronts and corners closer to the street create a better sense of place than those set far back from the street, separated by massive parking lots
  • Lighting, signing, building articulation, street trees, canopies, and other design elements can be done in a way that enhances the character of a thoroughfare
  • Better linkage between big-box sites and the pedestrian realm can encourage access by other modes
  • Better linkage between adjacent big-box sites can reduce the number of short vehicular trips between stores
  • Locating big-box development away from highly congested areas can limit the excessive delays often associated with them
  • Large site developments are great opportunities for "green" stormwater applications

In summary, investments in public infrastructure can generate private development, and public revenue. But some kinds of private investment, particularly large retail projects, may not be the great bargain they appear to be.  Local governments are often better advantaged when they look for opportunities to build or improve great streets, as part of their program to build great communities.

Resources

Fiscal Impact Analysis of Residential and Nonresidential Land Use Prototypes - by Tischler & Associates, July 2002.

Hidden Cost of Wal-Mart Jobs - by UC Berkeley's Institute for Industrial Relations, August 2004

Everyday Low Wages: The Hidden Price We All Pay for Wal-Mart - by the Democratic Staff of the House Committee on Education and the Workforce, Feb.2004

Wrestling with Wal-Mart: Tradeoffs Between Profits, Prices, and Wages - By Jared Bernstein, Josh Bivens, and Arindrajit Dube, Economic Policy Institute, June 15, 2006

Fiscal Impact Analysis of Residential and Nonresidential Land Use Prototypes - by Tischler & Associates, July 2002.

Understanding the Fiscal Impacts of Land Use in Ohio - by Randall Gross, Development Economics, August 2004

Wal-Mart and County-Wide Poverty - by Stephan Goetz and Hema Swaminathan, Social Science Quarterly, June 2006

Competing with the Discount Mass Merchandisers - By Dr. Kenneth Stone, Iowa State University, 1995

The Impact of Big-Box Building Materials Stores on Host Towns and Surrounding Counties in a Midwestern State - by Economics Professor Kenneth E. Stone and Extension Program Specialist Georgeanne M. Artz, Iowa State University, 2001.

"The Myth of Big Bucks and Big Box Development"

Other References:

Impacts of Development on DuPage County Property Taxes - Prepared by DuPage County Development Department for the County Regional Planning Commission, Illinois, October 1991.

What Happened When Wal-Mart Came to Town? A Report on Three Iowa Communities with a Statistical Analysis of Seven Iowa Counties - by Thomas Muller and Elizabeth Humstone, National Trust For Historic Preservation, 1996.