Austin Pop. Share Austin Sales Share
Source: Texas Comptroller 4 In Table 6 of the draft circulated prior to release, ’ÄúSales Tax Allocations’Äù were treated as a proxy for retail sales in each municipality. However, a further calculation is required to adjust for the differing sales tax rate in each municipality. In fact, because Austin has the lowest municipal sales tax rate among those studied, the city share of total retail sales was substantially undercounted. When the figures for retail market shares are corrected for actual retail sales, it becomes clear that Austin continues to outperform suburban jurisdictions by a substantial margin. In 1990, Austin's share of metropolitan population stood at 56%, yet city stores accounted for 88% of regional retail sales. By 2003, city population was at approximately 50% while city stores still accounted for 69% of all retail sales in the metropolitan area. Even today, as Austin’Äôs suburbs continue to expand in both population and business activity, the City of Austin captures retail activity far exceeding its share of regional population. As the Austin MSA continues to grow, the retail and population shares of the City will likely see some convergence in future decades. However, Big Box Retail and Austin paints a misleadingly dire picture of suburban retail flight, exaggerating decline and pointing to very different policy concerns than a more accurate calculation. Indeed, rather than creating a sense of desperation to remain competitive, the corrected figures should lead to a discussion of why urban retail is so vibrant in Austin and how those advantages might be supported and further developed. Big Box Retail and Austin forecasts that Austin will likely drift downward until reaching ’Äúa market share that is more closely aligned with the central city’Äôs share of regional population.’Äù We do not believe that resignation to suburban-style retail is the proper response to the data. On the contrary, we believe these figures highlight the city’Äôs substantial advantages as a retail destination. The mixed use, pedestrian friendly, and ’Äúweird’Äù retail offerings in Austin cannot be duplicated in the suburbs and should instead be nurtured and protected in order to preserve the city’Äôs share of urban retail activity and sales tax generation. TASK 3: REVIEW THE ACADEMIC AND TRADE LITERATURE RELATED TO THE IMPACT OF BIG BOXES AND NATIONAL BRAND RETAILERS ON LOCAL ECONOMIES. Background It is important to recognize that retail activity is generally the result, rather than the cause, of economic growth in a city or region. Retail is basically dependent upon the condition of the local economy, especially core regional export industries. Retail activity cannot grow more rapidly than disposable income within a given regional economy. To the extent that new or expanding retail establishments grow faster than local purchasing power, there is competition and some crowding out. Some new activity displaces sales at existing establishments ’Äì retail big box expansion can crowd out sales from local merchants or other national chains already in place. The job, sales and tax gains from a given big box project cannot be viewed as net gains to a community. This is also why it makes little economic sense to offer public incentives to retail. Retail incentives often simply shift economic activity from one place to another rather than generating new products and jobs. Unfortunately, many communities try to capture retail activity from neighboring jurisdictions in an attempt to secure new tax revenue. In most cases, these strategies, sometimes called "beggar thy neighbor," lead to a net loss in social welfare for citizens of a region. Sensible regional compacts to limit retail tax giveaways could do much to ameliorate these negative impacts. Economic Impact of Big Box Retail on Local Merchants In Finding #2 of their report, the authors state: "There appears to be relatively little direct competition between big boxes and local retailers; where competition exists, prices tend to be comparable." This bold conclusion is essentially based on three pieces of evidence:
In each case, evidence offered in the study is not sufficient to support the "relatively little direct competition" conclusion. Evidence of Significant Direct Competition The first problem with this bold claim is that it fails a basic reality test. A ten-minute discussion with a local merchant in the book, grocery, hardware, toy, office supply, electronics or sporting goods business would likely reveal that they are under intense competitive pressure from national big box retailers. Citing Iowa State economist Kenneth Stone, the authors note that local merchants can only survive by offering different products or unique higher-level service to customers. But the central point of Stone’Äôs work is that discount mass merchandisers have a devastating effect on local merchants in towns that do not host a big box. To quote from the abstract of one of Stone’Äôs papers, "There is strong evidence that rural communities in the United States have been more adversely impacted by the discount mass merchandisers (sometimes referred to as the Wal-Mart phenomenon) that by any other factors in recent times.5’Äù Stone replicated his study of rural Iowa communities with eight small- to medium- sized cities (communities of over 50,000). His findings were similar: communities with national mass merchandisers experienced growth in retail sales, but this growth resulted from cannibalizing retail in nearby towns that then experienced a decline in their retail sales. 5 Stone, Kenneth E., ’ÄúThe Impact of the Wal-Mart Phenomenon on Rural Communities’Äù Proceedings of Increasing Understanding of Public Problems and Policies-1997, p. 2. Jones and Doucette, in a study of the urban market of Toronto found that big box employment in supermarkets, electronics, hardware, toy, sporting goods, books and office products increased significantly between 1993 and 1997, while employment in non-big box formats in the same categories decreased. The Toronto study also surveyed over 18,000 local retail shops and found that their share of local retail sales declined over the same period.6 The fact that local retail survivors have moved or been pushed into a new niche or significantly changed their business tactics does not equate with "relatively little direct competition." Indeed, as several commentators have noted, innovative niche and service strategies of smaller retailers are always subject, if successful, to replication by larger national retailers. The authors of Big Box Retail and Austin imply this form of competitive vulnerability when they discuss differentiation among big box merchants with some moving into higher quality and service intensive segments. The product and price comparison survey in the study, while interesting, is far too limited in scope to draw conclusions about competitive conditions across Austin’Äôs retail markets. Indeed, the preponderance of existing evidence is consistent with the reality test mentioned above: national big box retailers do put significant competitive pressure on local merchants. The key point is not that local merchants can or should be protected from the competitive pressures of big box retail. However, it is naive to believe that rapid big box development will not have a significant impact on locally owned retailers in many segments. Big box development does not represent a pure windfall in new sales, employment or tax revenue for the city; there will certainly be at least some crowding out of other retail activity. Careful analysis and management of big box development is critical if one believes - as TXP itself previously found in its 2002 white paper, Austin’Äôs Economic Future - that the unique and durable strength of the Austin retail base is our diverse mix of local establishments. The Market Share of Big Box Retailers The report makes a solid effort to estimate the share of the Austin retail market that has been captured by the six retailers selected for study. The methodology is reasonable, developing sales estimates for selected retailers based on corporate average sales per square foot. However, we are troubled by the finding that "implied big box market share is 21.2%.’Äù This market share estimate is totally contingent on how the authors define big box retail, and it should be made very clear that this market share includes only the six merchants studied. A broader unqualified interpretation of this market share figure has led to confusion not just in the press but in Council chambers, as well. 6 Jones, Ken and Michael Doucet, ’ÄúThe Impact of Big Box Development on Toronto’Äôs Retail Structure,’Äù Center for the Study of Commercial Activity, Toronto, 1999. We believe the same methodology should be applied to additional merchants, particularly the so-called category killers that operate large stores and seek to capture large market share in particular retail sectors. In general terms, the big boxes are large-format stores that typically range in size from 20,000 to over 150,000 square feet. However, the definition of "big" is relative and must be related to the product category in question. For the supermarket/grocery sector, a big box superstore normally must be in the 50,000 to 100,000 square-foot range. For warehouse operations, such as Costco and Sam’Äôs Club, big boxes normally contain 120,000 square feet. In contrast, for book retailers, 25,000 to 50,000 square feet could qualify as a big box operation. For other specialty retail categories, for example, eyeglasses, a 5,000 square-foot store might constitute a "big box." The key point is that category killer stores are several times the size of a traditional outlet in their category. Therefore, if the study significantly expanded its definition to incorporate even category killers of over 50,000, including such stores as Frye’Äôs, Circuit City, and Best Buy, the 21.2% market share calculation would increase substantially. Another approach would be to look at market shares in specific retail categories. Using only the figures provided in the current study, for example, it is possible to calculate that Home Depot and Lowe’Äôs combine for approximately 50% of the total market in building materials. Clearly, where a 20% Sales 2003 
$492,778,524 market share sets off few alarm Home Depot Lowes bells, 50% might generate a very BigBox Total $194,846,201 $687,624,725 different reaction. These Building Materials Total $1,370,000,000 calculations should be done in Big Box Share 50% other retail sectors to identify areas where competition is potentially - or Source: Big Box Retail and Austin, TXP already - impaired. Differential Indirect Effects of Big Box Versus Local RetailBig Box Retail and Austin makes a limited effort to evaluate the economic impact of big boxes on local economies. Indeed, it disregards entirely one of the seminal studies in this area. The study7 conducted by Civic Economics focused on the market for books and music at Sixth and Lamar and has been reviewed and cited around the nation for well over a year8. That study documents the Economic Impact Analysis: A Case Study of Local Merchants vs. Chain Retailers, was sponsored by Liveable City, Austin Independent Business Alliance, BookPeople, and Waterloo Records and is available for download at www.liveablecity.org/lcfullreport.pdf. 8 For a partial list of media and organizational citations of the Liveable City Study, see www.civiceconomics.com/html/retail_network.html. substantial economic advantage to those communities with strong locally-owned merchants. Big Box Retail and Austin does cite a subsequent study conducted in Maine that replicated these findings using a national big-box retailer for comparison.9 The dramatic move on the part of a number of big box retailers to purchase offshore has further diminished the potential local benefit of purchasing by national chains. For example, in 1995, Wal-Mart claimed that only 6% of its merchandise was imported, while by 2003, fully 50-60% of its products came from foreign producers.10 Another indirect economic effect deals with the procurement of services in the host community. Professional services such as law, accounting, advertising, and banking are generally provided locally for local merchants. By contrast, national big box retailers generally procure these services in the headquarters community or in the national market. Studies that show the significant benefits of local retailers to local economies, as opposed to the drain often presented by big box chains, are dismissed in the report as "of limited scope," but we believe they should be part of the discussion in Austin, as they are elsewhere in the nation. If big boxes crowds out local retail activity, then the economic impacts include not only lost sales, but also a loss in indirect activity from re-spending by local merchants on locally produced services and goods. TASK 4: SURVEY THE AUSTIN MARKET TO DETERMINE PRICES FOR CERTAIN GOODS FROM NATIONAL BRAND RETAILERS, REGIONAL PROVIDERS, AND SMALL, LOCALLY OWNED BUSINESSES. As noted above, the study did a limited survey of national big boxes, regional big boxes, and a few local merchants, concluding that where competition between big boxes and local retail does exist "prices tend to be comparable." However, the survey is not of adequate scope to draw any meaningful conclusions about competition or product price differentials. The Market Basket Survey It appears that TXP attempted a thorough and thoughtful market basket study to assess consumer savings provided by the six selected big box retailers. The study found comparable prices on comparable items between big boxes and local merchants, but often found different grades of goods available. Again, the ’ÄúThe Economic Impact of Locally Owned Businesses vs. Chains: A Case Study in Midcoast Maine,’Äù Institute for Local Self-Reliance and Friends of Midcoast Maine, September 2003. Retrieved from http://newrules.org/retail/midcoaststudy.pdf. 10 Cleeland, Nancy and Evelyn Iritani, ’ÄúThe Wal-Mart Effect: Scouring the Globe to Give Shoppers an $8.63 Polo Shirt,’Äù Los Angeles Times, November 24,2003, p. A-1. finding offered is "little direct competition," but further research suggests a different explanation for the distinction. Big Box Retail and Austin highlighted two items from the market basket for further discussion, a charcoal grill and a pair of blue jeans. These items, coincidentally, illustrate keenly the nature of the competition between big boxes and local merchants. The Weber Smokey Joe grill is an American icon, providing the entry-level model for a manufacturer that has built its name on quality. In the market basket study, TXP found that the big boxes carried only the "basic" model, while local merchants offered instead "Silver" and "Gold" versions. A call to the Weber customer service line, however, confirmed that the Silver model (#10020) sold at many retailers is, in fact, the basic model. As part of its purchasing agreement with Weber, Wal-Mart does not market it as "Silver,’Äù obscuring the direct competition with other retailers on this item. Blue jeans are also highlighted as an example of the difficulty in comparison-shopping between local and big box retailers. The recent entry of Levi Strauss into big box discount retail channels has been extensively discussed in the business press. The challenge for Levis was that their longstanding dedication to quality and to American workers was inconsistent with the low-cost strategy of big boxes. To meet the low-cost demands of Wal-Mart, the company created a new line of products, identified as Levis Signature, and outsourced all manufacturing of this line to overseas firms. Both of these examples, held out in Big Box Retail and Austin as confounding direct comparison, actually highlight the economically harmful strategies of big box retailers. In the case of Weber, identical products sold in big boxes and local stores are labeled differently. In the case of Levi’Äôs, a far more insidious outcome is clear; American workers were displaced as the company sought ever cheaper labor overseas in direct response to pressures from Wal-Mart. TASK 5: SURVEY NATIONAL BRAND RETAILERS, REGIONAL PROVIDERS, AND SMALL, LOCALLY OWNED BUSINESSES TO DETERMINE THE RANGE AND SCOPE OF BOTH LABOR COMPENSATION AND LOCAL PROCUREMENT. Social Costs Big Box Retail in Austin does an excellent job of highlighting the low wages and attendant social costs associated with many discount big box retailers. Several studies have documented the social costs associated with Wal-Mart, perhaps the most brutal of the low-wage big boxes. The Democratic Staff of the Committee on Education and the Workforce estimates that one 200-person Wal-Mart store may result in a cost to federal taxpayers of $420,750 per year11. Wage compensation below what is adequate to allow employees to be self-sufficient generates cost for state and local governments as well. However, after documenting the potential costs of these "low road" competitive strategies, the authors exile concerns over these social costs to the national level or "worthy of national dialog, [that] should play out on the national stage." There are two problems with dismissing the social costs of low-wage big boxes as a national or federal concern. First, while many government expenditures that compensate for below self-sufficiency wages are borne by federal or state governments, certain costs do fall on local jurisdictions. Public programs to provide indigent health care, aid to low-income children, and affordable housing are examples of local programs in which low wages drive up local costs. 11 Everyday Low Wages: The Hidden Price We All Pay For Wal-Mart, A Report by the Democratic Staffof the Committee on Education and the Workforce, Washington D.C: U.S. House of Representatives, February 16, 2004, page 9. 
Taxes and Tax Credits
Necessary Monthly Income
Necessary Annual Income
Source: Family Security Index, Center for Public Policy Priorities, 2003 The table above provides an estimate, for various family types, of how much a full-time worker in Austin must make to pay for essential costs of living. With Wal-Mart and other low-road big box retailers paying between $8-$10 dollars per hour, often without benefits, the vast majority of their workers are not self-sufficient. This trend generates costs for housing, food assistance, childcare, and health care, a fraction of which is borne by local government. Once this "small fraction" is multiplied by the total number of non-managerial retail workers, the local costs may be significant. Second, it is important for local governments and citizens to recognize, and perhaps give different treatment to, big box retailers who do provide family-supporting wages and benefits. While many national big boxes follow the low-road competitive strategy, a few compete on the "high road" of higher wages offset by higher productivity, higher quality and better service. The following table compares Costco to Sam’Äôs, a warehouse-style chain operated by Wal-Mart. Costco manages to pay livable wages, while outperforming Wal-Mart, by treating workers better and reaping higher productivity and lower worker turnover as a result. Note that the wages listed in the chart below are for Sam’Äôs, Wal-Mart’Äôs warehouse-style chain; workers at Wal-Mart’Äôs conventional stores can earn substantially less per hour. 
Costco Sam's
Source: Holmes Stanley and Wendy Zellner, "Higher wages mean higher profits, but try telling that to Wall Street," Business Week, April 12, 2004, p.76 We argue that it incumbent upon the city to consider the social costs of low-wage national big box retailers, and to differentiate between high-road and low-road firms when considering sites, zoning variances, and general support for big box development. External costs of low worker compensation should not be borne by host communities who end up subsidizing labor for large, highly profitable corporations. These issues cannot be addressed through design standards. TASK 6: ASSESS CRIME AND TRAFFIC COUNTS TO DETERMINE RELATIVE IMPACTS ON PUBLIC SAFETY AND THE ENVIRONMENT. Among the most disappointing outcomes of Big Box Retail and Austin is the absence of any concrete measures of the infrastructure and public safety costs for big boxes. A number of studies and impact analyses have shown that large big box developments generate increased costs for host localities and neighborhoods. Traffic and congestion costs, street and road maintenance costs, environmental costs (runoff, storm water), public safety costs (greater than average use of police and EMS) and depressed property values in nearby neighborhoods are among the documented costs associated with big box development. It is beyond the scope of this analysis to estimate the range of costs for increased big box development in Austin. However, the Town of Barnstable, Massachusetts, contracted for a systematic study of the net fiscal impacts of various residential and non-residential land uses in 2002. The table below provides an estimate of local operating and capital expenditures per 1,000 square feet of big box (defined as over 40,000 SF). In this analysis, the fiscal impacts of big boxes actually showed a net loss for the city, due to high public service and capital expenditure costs that were not offset tax contributions of big boxes. Operating and Capital Expenditures for Nonresidential Land Uses Town of Barnstable, Massachusetts, 2002 Specialty Annual Expenditures per 1000 Square Feet Retail Big Box Retail
Source: Tischler and Associates, Inc, Fiscal Impact Analysis of Residential and Non-Residential Land Use Prototypes, Prepared for the Town of Barnstable, Massachusetts, July 1,2002 Clearly, the parameters and cost estimates would likely be different for Austin. It seems crucial, however, to obtain solid estimates of the capital expenditures and public service costs for big box development so the city can consider appropriate impact fees or negotiate compensation based on the full costs of these developments. At the very least, new retail development should not put the city in the red. TASK 7: INTEGRATE THE ABOVE FINDINGS WITH AVAILABLE INFORMATION ON "BEST PRACTICES" REGARDING PUBLIC POLICY ON LAND USE RELATED TO RETAIL TO MAKE POLICY RECOMMENDATIONS. Communities across the U.S. have recognized that unregulated big box development generates external costs and have taken actions to limit these costs. Our very limited review of the case record revealed at least 19 cities, towns or counties that had imposed regulations and/or specific mitigation fees on big box developments that went beyond design standards to address economic impacts. In sum, the literature and record of community studies strongly suggest that big box retail development incurs significant costs that must be weighed against anticipated benefits (cheaper prices and presumed increased sales and property tax revenues) to local communities and governments. These include:
Mitigating Costs Under current law and policy, the City of Austin has three main mechanisms to mitigate the specific costs and effects of big box development:
In their current or proposed form, these mechanisms are not, in our view, up to the task of fully mitigating the external costs of big box development. We will first discuss the limitations of impact fees and possible design standards and then briefly outline some policy recommendations that might allow the city to better manage and mitigate the costs of big box development in the future. Impact FeesTo the extent that a local government can document the marginal costs created by a development, a local unit may be able to impose impact and linkage fees. However, we would have to consider the specific statutory requirements on ’Äúimpact fees,’Äù defined in Chapter 395 Texas Local Government Code (including roadway, water, storm water, drainage, and flood control facilities). We must also consider constitutional law constraints that may make it difficult to charge mitigation fees for diffuse social costs. In determining exactions based on individual circumstances, the City is required to measure that impact in a meaningful, though not precisely mathematical way, and must show how the impact, thus measured, is roughly proportional in nature and extent to the required improvements. (For a recent discussion of the constitutional constraints see Town of Flower Mound, Texas v. Stafford Estates Limited Partnership, 47 Tex.Sup. J. 497 (2004)). Design StandardsDesign standards currently under development by city staff may help mitigate certain site and non-site specific costs of big box development. Depending on what form they take, design standards might be effective at controlling negative neighborhood effects, as well as problems with traffic and accessibility outside the purview of impact fees. However, several key cost elements of big box development cannot be addressed through design standards. Negative effects on local retail markets, social costs borne locally and higher public safety costs would seem to be outside the purview of new design standards for big boxes. ZoningBecause impact fees and proposed design standards cannot alone address the serious economic impacts of increased big box development, perhaps the strongest tool available to Texas cities is zoning. State law grants cities broad authority to zone for purposes of ’Äú ’Ķ promoting the public health, safety, morals or general welfare’Ķ’Äù of communities. Cities have specific authority to regulate many issues relevant to sound city planning including building height, size, location, and use, as well as density and open spaces (Chapter 211, Texas Local Government Code). Austin’Äôs Land Development Code, like that of most cities, was drafted well before anyone envisioned stores exceeding 50,000 square feet, let alone the 200,000 square-foot supercenters of today. Given dramatic increases in store size over the past 15 years and the well-documented costs of these enormous structures, it seems reasonable to require a Conditional Use Permit for all new, large-scale chain retail developments. If adopted, such a measure would give the city a strong planning tool to shape and guide placement of mega-stores, preventing sales leakage at the city borders while limiting the overall negative effects to our economy and residents. Recommendations for Further Policy Consideration Below we outline recommendations intended to help the city manage and offset costs and to provide for sensible placement and planning of big boxes in our community. We advance these policy initiatives for broad consideration only, understanding that detailed elements would need to be fleshed out by city staff and legal counsel.
In conclusion, we would posit that the above analysis and recommendations do not constitute unreasonable demands or burdensome regulations on big box retailers. Indeed, a basic principle of market economics is that business firms should carry the full costs of producing or selling their products. Violation of this principle damages the operation of competitive markets; if some external costs are borne by third parties, as outlined in both the original study and this analysis, this creates an implicit subsidy that unfairly lowers the prices of the subject firm below true marginal costs. Requiring companies to carry the true costs of their own business is perfectly consistent with the fair and efficient operation of the free market. POINT-BY-POINT REVIEW OF CITY STUDY MAJOR FINDINGS Big Box Retail and Austin, prepared by TXP, Inc., presented eleven findings and a general conclusion to the Austin City Council on June 24, 2004. This document compares each finding with the response by Dan Houston, Michael Oden, and Bill Spelman. Note that this comparison does not correspond to the seven key tasks originally assigned by Council, but to the Summary of Findings and Conclusions presented on pages 3-7 of Big Box Retail and Austin. Specifically, it does not address an assigned key task omitted from the final report, the assessment of crime data and traffic counts related to big box development. For information on this issue, please see pages 18-19 of the Independent Review above. City Finding #1: ’ÄúBig boxes create consumer value through lower prices.’Äù In supporting this finding, the authors state: ’ÄúThe benefit to consumers is straightforward - as reported by Bianco and Zellner in Business Week, ’ÄúNew England Consulting Group estimates that Wal-Mart saved its U.S. customers $20 billion last year alone. Factor in the price cuts other retailers must make to compete, and the total annual savings approach $100 billion.’Äù PARTIALLY DISAGREE: Big boxes often offer low prices, but the total net benefits to consumers are hardly straightforward; further, the figures cited in the study are not verifiable. Big box prices are indeed low and have driven down prices across many retail segments. Lower prices undoubtedly benefit consumers by stretching their retail dollars. However to some extent, low prices and associated consumer benefits are made possible by low wages, poor working conditions, and large, cheaply built facilities that generate costs to individuals and communities. While prices may appear low, many chains pass on substantial invisible costs to taxpayers and communities. These include: subsidized housing, health care and other services for low-wage workers; increased public safety and infrastructure costs; and jobs lost to offshore suppliers. In essence, host communities end up subsidizing large, highly profitable corporations. Regarding the $20 billion estimate of national consumer savings, the authors acknowledged in the June 24, 2004, City Council presentation that they ’Äúcannot verify that number’Äù and that New England Consulting Group was ’Äúunwilling’Äù to share information about how it arrived at this figure. City Finding #2: ’ÄúThere appears to be relatively little direct competition between big boxes and local retailers; where competition exists, prices tend to be comparable. In general, locally owned retailers employ a different business model to succeed.’Äù STRONGLY DISAGREE: Evidence presented by study authors is insufficient to support the claim of ’Äúlittle direct competition.’Äù The preponderance of evidence in academic literature and specific impact studies suggests that a rapid increase in big box retail does negatively affect many types of smaller scale local retail. The fact that local retail survivors have been pushed into a new niche or significantly changed their business tactics does not equate with ’Äúlittle direct competition.’Äù This claim also fails the basic reality test, as a ten-minute conversation with any local retailer will likely reveal. City Finding #3: ’ÄúAll big boxes are not identical, and shifts in consumer preferences may widen these differences going forward.’Äù AGREE: Certain big box chains do demonstrate significantly greater corporate responsibility in terms of wages and costs to taxpayers; consumers and communities should demonstrate an active preference for these companies, where possible. Costco is an excellent example of a big box chain that offers employees a livable wage and benefits package, greatly reducing the costs to taxpayers and host communities. Clearly, it makes sense for communities - as well as consumers - to give preference, where possible, to big boxes that pull their own weight financially, while discouraging those that generate greater costs to the community. City Finding #4: ’ÄúThe healthiest consumer market is the market that maximizes consumer choice on a sustainable basis, i.e., a market that is competitive.’Äù Here the authors cite the Herfindahl-Hirschman Index to determine market concentration and then state that big boxes represent only 21.2 percent of the current Austin market, noting this figure ’Äúis still well below a level that suggests competition is being undermined.’Äù DISAGREE WITH DATA AND FINDING: The 21.2 percent market share cited by the authors is a misleadingly low figure, shaped by the authors’Äô unorthodox definition of big box, which limits their inquiry to six specific retailers. A more accepted definition, such as the one formulated by Columbia University and initially cited by the authors, would include many other widely recognized big boxes such as Circuit City, Office Max and Best Buy. Using this more common definition would reveal that big boxes already control a much larger market percentage in Austin. For example, based on figures provided in the study, Home Depot and Lowe’Äôs combine for roughly 50 percent of the local market in building materials - clearly a more alarming figure if diverse retailing and sustainable competition are the goals. Regarding competition, we also note a basic principle of market economics that business firms should carry the full costs of producing or selling their products. If external costs for some firms are borne by third parties, as detailed in Response #1 above, this creates an implicit subsidy, skewing the playing field for others and ultimately weakening fair competition. City Findings 5 & 6: ’ÄúNew Urbanist land use policy...offers the possibility of mitigating some of the concerns associated with the big boxes, as well as potentially creating an opportunity to leverage destination consumers for local businesses ’Ķ The City should promote design standards that reflect community values.’Äù DISAGREE REGARDING ECONOMIC IMPACTS. While we support stronger design standards for large retailers, more stringent design standards will not cure many of the negative economic impacts of unfettered big box development. To address economic issues, we must be willing to explore market-based strategies that will encourage businesses that offer overall economic benefits to Austin, while limiting or discouraging those that bring a high cost to our community. City Finding #7: ’ÄúBig boxes put downward pressure on wages.’Äù AGREE. As the cost of living in Austin continues to rise, our city can ill afford the additional downward pressure on residents’Äô wages associated with the majority of big box chains. We must explore policies that give our citizens the best advantage in today’Äôs job market. City Finding #8: ’ÄúLower wages tend to create social costs that are not fully accounted for in the price of the goods that consumers purchase.’Äù AGREE. These well-documented social costs - including health care, housing, food, and child care - are ultimately borne by taxpayers and host communities. A recent Congressional report found that each 200-person Wal-Mart store costs taxpayers over $420,000 per year in subsidies for underpaid workers.12 As a community, we should be rightly reluctant to subsidize fair labor costs for large, highly profitable corporations. City Finding #9: ’ÄúLocal retailers may have stronger linkages, per dollar of revenue, to the local economy than big boxes.’Äù AGREE: It is well-documented that local retailers offer much stronger support for local economies than do national chains; city policies should be crafted to strengthen and enhance local retailers. This fact has been documented in several studies, including one conducted locally, which found that $45 of every $100 spent at a locally-owned store stays in the community vs. only $14 for every $100 spent at a national retailer. Policies that support local retailers will in turn strengthen our local economy. City Finding #10: ’ÄúSmall local retailers enhance the local economy over and above the value created for consumers through contribution to the area’Äôs cultural vitality.’Äù AGREE. The continued success of Austin as a retail hub for the region will be based on sustaining and burnishing our unique retail base. While big boxes will undoubtedly remain part of our retail mix, a sophisticated strategy would involve more support for unique local retail establishments and districts, while guiding, and in select cases limiting, unfettered development of big boxes in Austin. City Finding #11: ’ÄúThe local fiscal impact of retail is a function of maintaining a retail base that can meet local demand.’Äù This finding notes that consumers tend to shop close to home, but states that near the city limits ’Äúleakage’Äù may occur, in which consumers cross municipal boundaries to shop. DISAGREE WITH DATA AND FINDING. Inaccurate numbers released in the original report paint a false picture of suburban retail drain; in fact, Austin significantly outperforms suburban jurisdictions for retail sales. 12 Everyday Low Wages: The Hidden Price We All Pay For Wal-Mart, A Report by the Democratic Staff of the Committee on Education and the Workforce, Washington D.C: U.S. House of Representatives, February 16, 2004, page 9. In their original calculations, the authors estimated that Austin’Äôs share of regional retail activity had fallen from 83.5% to 53.9% in the last 13 years, seeming to indicate a precipitous trend. However, when these figures are corrected for actual retail sales (rather than ’Äúsales tax allocations,’Äù which disregards differing sales tax rates in each jurisdiction), it is clear that Austin is significantly outperforming suburban jurisdictions. In 1990, Austin’Äôs share of the metropolitan population stood at 56%, yet city stores accounted for 88% of regional retail sales. By 2003, city population was at approximately 50% while city stores still accounted for 69% of all retail sales in the metropolitan area - a healthy ratio by anyone’Äôs standards. Rather than creating a sense of desperation to remain competitive, these corrected figures should lead to a discussion of why urban retail is so vibrant in Austin and how those advantages might be further supported and developed. More strategic policies for the development of big box retail in Austin would keep negative economic impacts to a minimum while holding sales tax revenues within the city limits. CITY STUDY CONCLUSION: The authors dismiss the city’Äôs role in addressing economic and social concerns, relegating these issues to ’Äúplay out on a national stage.’Äù They then outline three broad goals for the city:
INDEPENDENT RESPONSE: The authors’Äô dismissal of economic and social concerns to the national level troubles us for two reasons. First, the majority of big box retailers do generate specific costs for local jurisdictions, including greater service costs for police and EMS, indigent health care, affordable housing and increased public safety and infrastructure costs. Second, it is important for local governments and citizens to recognize, and where possible give preference to, big box retailers who do provide family-supporting wages and benefits. Regarding the study’Äôs recommended goals:
ABOUT THE AUTHORS AND SPONSORS Big Box Retail and Austin: An Independent Review has been a team effort among the three authors and the three sponsoring organizations. About the Authors Dan Houston is a partner in the firm of Civic Economics, an economic analysis and strategic planning consultancy with offices in Austin and Chicago. In the two years since its founding, the firm has established a nationwide reputation for creative approaches to economic development challenges, bringing its unique approach to sustainable prosperity to eleven states in the United States and Mexico. The firm has also developed specialized expertise in studying the dynamics of localized retail and service provision. Before establishing Civic Economics, Mr. Houston served as Senior Project Manager for economic development at Angelou Economics in Austin. www.CivicEconomics.com Dr. Michael Oden is an Associate Professor of Community and Regional Planning in the School of Architecture at the University of Texas at Austin. Dr. Oden's teaching and research areas include local and regional economic development, regional growth dynamics, program evaluation methodologies, and affordable housing policy. Prior to joining Community and Regional Planning (CRP) program he worked at the Project on Regional and Industrial Economics at Rutgers University, the Organization of Economic Cooperation and Development in Paris, and as the senior economist on the Appropriations Committee of the Michigan State Senate. wnt.utexas.edu/architecture/people/faculty/odenf.html Dr. William Spelman is a Professor of Public Affairs in the Lyndon Baines Johnson School of Public Affairs at the University or Texas at Austin. An urban policy specialist, Dr. Spelman holds a Ph.D. in public policy from Harvard University's John F. Kennedy School of Government. He has a background in operations research and evaluation and in local government law, administration, and finance. Dr. Spelman served on the Austin City Council from 1997-2000, and has served the community in a variety of volunteer positions, including the Board of Directors for Liveable City. www.utexas.edu/lbj/faculty/spelman.html About the Sponsoring Organizations
www.Austin-IBA.org Austin Full Circle is an all-volunteer coalition of business, labor, environmental, and neighborhood leaders focused on corporate responsibility and the economic impacts of increased big box development. www.AustinFullCircle.org
www.LiveableCity.org
www.AFSCME1624.org |
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