Economic Development: Benefit or Black Hole?

The headquarters of Intel Corporation in Santa Clara, California. Note the small "No Photos" sign in the picture. Photographed by user Coolcaesar on July 16, 2006. (Photo credit: Wikipedia)

On August 15th, the Portland Tribune ran a article encouraging people to opt-in to a survey being conducted by the Metro planning agency. In the article they mentioned some of the comments left by people and one particular struck me and that was by a person who said that the government should work to bring more businesses to the area such as Intel which is making big investments in the Hillsboro area.

The comment makes since to those who only look at the surface and say it will create more jobs which almost every area could use. However, looking below the surface so called economic development has become a $50 Billion a year business. That's right cities, counties, states and the feds spend upwards of $50 Billion trying to get a business to move to a certain area. 

The problem is, in our new global society our cities have become disposable, as soon as the tax incentives have expired the corporation will start demanding more money or just pick up and leave the area. If there is a good balance of business in the area it is not so devastating but when they are the major employer, the effects of a pull out can be long lasting. The subsidies themselves can take multiple forms including tax breaks, infrastructure improvements, or outright cash. Either way this incentives cost the area money and often times fail in the long run to be worth what was paid. 

Let me give you some examples of economic incentives gone wrong:

-One city gives $300 million in subsidies to a major airline to create a maintenance base. Over the life of the base it employed half the number of employees promised and when the subsidy period ended the airline contracted out maintenance to another company who received other forms of incentives over the years. 

-Another city gives subsidies to a major computer manufacturer to locate a manufacturing facility and call center. In a interesting twist the company lays off the employees before a deadline which means they would have to pay back all the subsidies they received so they have to quickly hire back employees and pay them to do nothing for two months before laying them off again. 

-One city subsidizes a major corporation to leave the city center and move to the outer suburbs (these moves are usually designed to move the company closer to the current CEO and don't benefit the average employees or usually the companies for that matter). The area has only limited transit service because there is nothing else out there which causes more subsidies for highway and street expansions. The company has been in financial troubles for years but when the company starts "shopping" to move pressure is put on the governor of the state to give the company more subsidies. This also shows how desperate or corrupt some of these economic development teams are when they are willing to extended so much subsidies to a company that has been on the brink of failure for several years. 

-Some cities have spent more than one million dollars per potential job created. However, in the long run the amount of payroll dollars never makes up for the amount of subsidies give to the business. 

These are just four examples of what can go wrong when it comes to economic development. 

Sports teams are another subsidy black hole. How often do you see some sport team that is telling the city you give us something or we are moving. The are always quick to point out the "multiplier" affect but of course leave out the other side of the equation which I will talk about separately. 

Often times when discussing economic development you will hear the term "multiplier". This means that for every direct job created so many secondary jobs are created because that job was created. However, what often is not discussed whether it be a sports team or retailer is while they may create jobs there, it often comes at the expense of something. If you read the economic forecast for a sports team you will hear glowing things about the economic impact as if those attending the games just have this money sitting around to go to these high priced games or races. However, if a person decides to go to a major sporting event, it means that they have an opportunity cost for that event which says that they will not do something else. So the stadium may make the money but the movie theater looses, or they may reduce the number of times they go out to dinner. Often times since people come from the surrounding area, the city that has the stadium benefits and some other area looses so it is not quantified. 

The same thing goes when a government agency gives subsidies to retailers such as Wal-Mart, Ikea, Cabela's and many others who get subsidies to locate in a certain place. While the city itself gets new retail dollars (unless of course they city is big enough that they are just paying Peter to rob Paul), those dollars come from somewhere and it means they don't shop somewhere else. For example a new store goes in at city A but it robs sales dollars from city B and C. The same dollars get spent, it just moved from one city to another. 

The problem is, it is often small businesses that end up subsidizing major corporations that end up causing the small business to close. Of course this is no different than when the streetcar companies were heavily taxed and those tax dollars subsidized their competition back in the first half of the 20th century. 

The trouble is, has the state of economic development incentives become too big of a monster to slay? 

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• "incentives to sweeten the deal"

Mixed Use Development Vs. Wal-Marts and Malls

Image via Wikipedia

Many times I have mentioned how it has been shown that smaller businesses actually will produce more sales tax revenue per square foot than a big box store such as Wal-Mart.

Here is a posting from Citiwire.net comparing property tax revenue between a major mall and downtown mixed use development.

Mixed-Use Downtown Development Puts Standard Malls’ Tax Yield to Shame

Also you must remember that stores like Wal-Marts also are well known for fighting to get their property tax bills cut down to almost nothing. So not only does the sales tax revenue not cover their infrastructure and other associated costs, but they also don't generate enough property tax revenue to justify the tax incentives and other subsidies they receive.

Dear Santa...

Image by Richard Pilon via Flickr

The great writers over at Transit Miami did a letter to Santa asking for important items that they need down in Miami so I decided to do my own letter to Santa for transit in Utah.

Dear Santa,

You have granted us many wonderful wishes over the last few years including our wonderful TRAX system, so be patient with us as we get daring with our list this year:

-A stable source of income for transit systems here in Utah that would replace the very unstable sales tax.

-Local governments will start working toward complete streets

-Safer and complete sidewalks

-More resources for bike riders including bike sharing and bike stations.

-Recognition of the importance of regional and long distance rail service

-We will return to philosophy that home ownership is a privilege not an entitlement that was created by FDR

-That the public will come to realize how much the hand of government and government welfare helped create the success of some of today’s biggest companies including retailers such as Wal-Mart.

-Continued successful progress toward building our new light rail and commuter rail lines.

-That BRT will be seen for what it is enhanced bus service but in no way shape or form an alternative for rail service. All BRT does is eliminate the benefits of the bus but creates few if any of the benefits of rail service.

-That transit agencies will rid themselves of the bad philosophy that bus routes cannot duplicated each other.

-Transit agencies will adopt a market matrix theory when it comes to creating transit routes.


Sincerely Yours,

Transit in Utah

Suburbs in the Urban Area Part II

Image via Wikipedia Yesterday I talked about the situation in Miami when it comes to their suburban developments in the urban area. Today we look at the residential development at Gateway and what could have been done.

Most people know Gateway as the shopping center built around the former Union Pacific passenger train area. It is referred two as a “lifestyle center” that includes an open air mall and a residential component.

I have already talked about the while being an open air mall, Gateway share the characteristic of being a closed mall by being designed to keep people in the complex and not blending with the neighborhood.

Now let’s take a look at the residential component and see how it blends into the community.

While you have the shopping center on the backside of the residential component, the front side faces 500 West. While there have been trees planted and a grass median put in for the most part people only use this to get to and from their cars.

Previously I talked about the need to turn 100 South and 600 West into a Pedestrian connector between Gateway and Central Station and this would give more reason for pedestrians to access 500 South but it still has a problem.

The problem is while walking along 500 West you are faced a long journey past blank walls with nothing to draw people along the corridor.

In addition there is no connects from the residential area to either TRAX or the bus system. If the residential component would have been built on the opposite of the center, residents would have convenient walks to both TRAX and the bus lines.

In addition, the residential component does not blend into the surrounding neighborhoods much like the retail component. It is meant to isolate its residents into that area alone. Also, without neighborhood markets for the people to shop in, they have to use their cars even for the most basic of needs. There is nothing inside the Gateway retail center to deal with this type of need. Sure they can get a cup of coffee or look at books, but if they need a gallon of milk and some breakfast foods where do they go?

While Boyer did try to put in a Super Target that would have been too large of scale to blend into the neighborhood as can be seen from the Wal-Mart at 300 West/1300 South.

One of the problems with Gateway is that Boyer is basically a sprawl developer. They used their basic knowledge of building sprawl strip centers and adapted it to the urban environment instead of adapting to that urban environment.

That brings us back to City Creek. Will the residential development at City Creek be truly urban living that blends seamlessly to build a walkable urban area? Or will it end up like Gateway and be nothing but vertical suburbs were people are just as dependent on their cars as they are in the suburbs?

Salt Lake City Anti-Small Business?

Image via WikipediaA recent comment about the pedicabs got those wheels turning again. The question is, despite the existing of a couple of organizations to promote local business including Vest Pocket and Buy Local First Utah, is Salt Lake City anti-small business?

Lets take a look at the Smith's at 900 East and 2100 South in Sugarhouse. As regular readers of this blog know, I often hold this as example of giving into the blackmail of a big business and not sticking to plans and the neighborhood. The question is, if that had been a small grocery store would have Salt Lake City given in or would they have stood their ground? If they would have stood their ground that means that they would have discriminated against the smaller business.

We also have the example of Wal-Mart at 300 West and 1300 South which in is a community with a high percentage of non-car owners. The store is designed for people to drive in and out of and pedestrians (especially those coming from TRAX) have to risk their lives to reach the store as the driveways are high speed routes for drivers and pedestrians have to use them to reach the store.

Another example of this is the food carts that have populated the downtown area. It seems like some bigger businesses (for example the Taco Time at 8th south and State) don't like the competition from the smaller carts and have been pushing for regulations against them including ones that have recently passed.

Some even try to demonize they carts by giving names link with food created diseases. I find this kind of ironic considering I have never had a problem eating food from one of the these carts but have gotten sick after eating from major restaurant chains.

Now instead of trying to regulate these carts out of business, how about supporting the small entrepreneurs and encourage them so long as they pass health regulations? I noticed in Denver the food carts were nicely integrated into the 16th Street Transit Mall.

If anything Salt Lake City should be promoting small business more. It is ironic that cities such as Salt Lake, Sandy and others work so hard to attract big box retailers and other chain stores when it reality they end up cost more than they bring in. According to studies done the cost of police, fire and other city services cost more than what sales tax dollars come in. That doesn't even take into consideration all the hidden cost of big box retailers such as infrastructure cost such as the 80 million that now has to be spent in Springville since people don't notice those kind of things.

The ultimate irony is the fact that small business contribute more to the local economy, actually pay higher wages on average, create more sales tax dollars per square foot of space, do not increase cost of city services, are generally safer, and fit better into the fabric of the community.

Salt Lake City should working harder to help small businesses and build a comprehensive plan that includes transportation, planning and the promotion of small business.

Another Wal-Mart hidden subsidy??

STOP WAL-MART
Originally uploaded by Lone Primate

How much does Wal-Mart really cost?

Previously in this blog I have discussed Wal-Mart and its hidden cost. Much like highways, many people don't realize exactly how much Wal-Mart truly cost because many of the subsidies it receives are even the Billion dollars or more of direct subsidies are brushed under the carpet.

Here is another example of a hidden subsidy for Wal-Mart.

UDOT is about to proceed with a huge interchange project and railway overpass in the Springville area. For people familiar with the area will know that the entire area changed with the opening of a Wal-Mart Supercenter.

The problem with a place the size of Wal-Mart is that it concentrates so much traffic into such a small area. In addition anyone who shops at this center comes by car since there is not transit service here except for the nearby Park N Ride lot.

Now there is a project to rebuild the interchange where the Super Wal-Mart is located and a railroad overpass nearby.

While this is one of the major entrances to the city of Springville, the entire character of the area was changed with the Wal-Mart opened. Of the 82 million dollar cost of the project, how much can we contribute the the supercenter? Lets assume that 25% of the project is caused by the Wal-Mart and the rest by growth in the city (I think you would be hard pressed to figure out all of this infrastructure would be needed without Wal-Mart).

That would mean that $20 million of this project is directly contributed to the Wal-Mart being located at that off ramp. Most Wal-Mart's in the area bring an estimated $500,000 a year in sales taxes. That means it would take about 40 years of sales tax revenue for Wal-Mart to pay off its portion of the sales tax.

Now lets say the the businesses that located in the area because of Wal-Mart generate another 250,000 in sales tax revenue, you are still talking 30 years before just this project is payed off by the revenue.

That does not include the other cost that go up with a Wal-Mart such as police and fire.

So how much did your Supercenter truly cost????

Sidewalks don't make it pedestrian friendly...

I had an appointment in Sandy the other day so I stopped by to take some pictures of the Sandy Pit. This new Boyer creating in a former gravel pit was very contentious but eventually Dolan and Boyer won.

Some feel that if you put sidewalks in a development it makes it pedestrian friendly. Well in this set of pictures from the pit I will show you that it takes more than sidewalks to make a place pedestrian friendly.

First of all we have a picture looking from the parking area and pharmacy drive up windows toward the housing. So far so good, as you can see you will have a sidewalk toward the development but anyone will have to cross a road with no protection to the pedestrians and we know that the drivers will not slow down.

However let's face it, how many people are going to walk over to Wal-Mart to pick up some groceries? Wal-Mart is not a pedestrian friendly store.

This next picture starts showing the real trouble. There is two parts to this development and the parts shall not meet except if your in a car.

One thing you must have make a development pedestrian friendly is the a complex that is easy to walk. Well look at the view from Wal-Mart to the smaller retailers. Do you really think people are going to walk from the small stores to Wal-Mart or visa versa? Of course not it is too far to walk in a hostile environment.


Now we look at the front of the Lowe's store. Much like Wal-Mart Lowe's is not a pedestrian friendly store. So instead of having easy access to the store even people getting out of their cars have to the face the hostile environment of the driveways and face impatient drivers.

Now this is the sidewalk leading from the small retailers to Lowe's. Once again you have to travel a great distance from the small retailers to Lowe's plus cross a major driveway that will be extremely dangerous once this complex is fully up and running. Also notice that the sidewalk doesn't even lead to the front of the Lowe's store.


If anyone plans to take their life into their own hands and try to walk from the Lowe's store to the small retailers they face this major driveway. Then they do not hit the front of the stores but instead have to continue walking because this is the back of the complex. Instead of having the whole complex face each other, it was design so that it is basically two complexes in one and not meant for a pedestrian to get from one to the other.



Now here we are in the area with the small retailers. So far so good it looks like you have sidewalks to all the retailers and they are relatively close together.


However, upon closer inspection you realize that the sidewalks are very narrow and only designed for someone to get out of their car and walk into the store. There is not much consideration given to people walking along the front of the stores.


Finally four pictures looking from the north side along the driveway to the small retailers. As you can see from the pictures the small retailers are spread apart, with a great distance from one store to another. The main focus is for someone to drive up go to that store and leave. It is not designed for people to walk the center.




In the end, the design of this center will create it's own traffic nightmares. Because the center is not designed for someone to make multiple stops in one shot, not only will you have people traveling from outside the complex in, from the complex out, but you will also create a third traffic problem with people driving from one store to another because the stores were not designed to be easily accessed by foot.

The design of this complex is hostile to the pedestrian and will only create traffic problems. One of the current problems with our transit system is that we have a area that is so hostile to the pedestrian that people are discouraged from riding transit.

Opportunity Lost: The 1300 South Wal-Mart

Image via WikipediaWal-Mart gets criticized at every turn from closing small businesses to being the cause of sprawl to how much it pays its employees. When Wal-Mart built its new store at 1300 South and 300 West in an area with a high degree of transit dependence it had the opportunity to show a new face and truly show it cares about the community.

Instead Wal-Mart snubbed its nose at the transit dependent in the area and showed its true hatred toward transit. Instead of building a store with access from the street since the store is only a half block from a TRAX station and on two bus lines, it builds a normal store with a two story parking lot as its only access. In addition it made access from the street so dangerous that many will not take there lives into their own hands to use it. To walk into the building from 300 west you have to walk along the parking lot with cars speeding through to their parking spots.

This store just is a slap in the face to many of the residents of the area who are transit dependent. However this is no real surprise when it comes to Wal-Mart. Wal-Mart is a large donor to such anti-transit groups as the Heartland Institute that has Highway Lobbyist Wendell Cox and is also supported by an array of highway institutions.

Of course blame also has to be leveled at the city of Salt Lake that let the poorly designed store be built in the first place. Like most cities all they saw was dollar signs in their eyes and couldn't give a rip about how well it was designed. There needs to be changes across the board to improve transit and to improve buildings to allow easy access for transit riders.