Urban planning and the difference between "economic development" and "building a local economy"

Applebee's is a national restaurant chain, although stores are typically owned by regional-scale sub-chains.  The company's advertising and signage stresses the local nature--"your neighborhood grill and bar"--of the locations.  Photo:  Joe Moore/The Trenton Times.

 One of the points I have made about the general process of creating a "Comprehensive" or "Master" Plan for a city, town, or county--most states require that localities have and regularly update such a plan--is that the "Economic Development" element of the plan is often incomplete in terms of how it considers what economic development is and the recommendations made in the plan.

I say that such elements are "incomplete" because they often have a somewhat simplistic approach in that they treat any and every economic action as a good thing, without more deeply considering the long term impacts and effects and the multiplier effects of particular economic activities.

The reality is that some economic activities contribute a lot more to local activity than others.  And those are the activities that should be supported and courted, and less effective "economic development" activities should be accorded less support, attention, and priority.

This more nuanced approach I think of as "building a local economy" versus "economic development." And I think such elements within Comp/Master Plans should be renamed and reconceptualized accordingly.

For example:

- compared to new construction, restoring a building spends more money on labor (usually locally sourced) and less on materials (which rarely are manufactured locally).  So demolition of properties, depending on their nature, should be discouraged, and restoration encouraged.

- events like an All Star sports game are seen as a local boon, but most of the money spent on hotels leaves the local economy, except for a small portion on labor.  So accommodations planning should be developed to encourage local ownership.

- while incentive payments made to entice firms to locate in a particular jurisdiction are tied to employment goals, they are numerical goals that usually are not tied to residential location, and few of the employees may live in the jurisdiction reducing the overall return from increased property, sales, and income taxes.  So business attraction programs should be devised to focus on the entire package of potential benefits to the city.

- in DC, tax abatements are often provided for properties without provisions for recapture if the business leaves the city (such as the Bureau of National Affairs) or sells the property in a very short time frame (CoStar).

The local economic impact of retail: chains versus locally-owned stores

Another big economic development category is the retail element of commercial real estate. 

It's complicated because in states localities compete for sales tax generators, because typically localities split sales tax revenues with the state, so adding retail does increase tax revenues.

On the other hand, as the nature of the retail mix changes, more towards chain establishments and away from locally-owned independent businesses, this has other negative economic impacts that aren't always properly calculated.

The economic consulting firm Civic Economics has done a number of studies on the difference in economic benefits resulting from locally owned businesses versus chain businesses.

One of their most recent studies was done in Salt Lake City, Utah, and the results shows stark differences in the overall gain in economic activity between locally-owned businesses and chains, illustrating the difference between building a local economy and "economic development."  The economic multiplier effect is significantly greater for locally-owned retail vs. chain retail and for locally-owned restaurants versus chains. 

(Note that it would be interesting to see if there is an economic multiplier impact difference between locally owned franchised operations, such as Dunkin Donuts or a McDonalds store or a hardware store under the Ace or True Value banner, versus fully chain owned stores like Kohls, Target, Walmart, or Bed, Bath & Beyond versus single or chainlet local operators.)

The differences are so significant that local government campaigns focused on attracting chain retail businesses like Walmart need to be called into question.  Or at the very least, much more detailed economic analysis needs to be performed beforehand to ensure that economic gains are obtained and negative impacts mitigated. 





Tax revenue capacity of different types of land use patterns

Another important and more nuanced economic impact analysis technique is to look at the tax revenue generating capacity, along with cost to serve, of various types of land use patterns.  Typically, mixed use development is the most economically successful, from the standpoint of local government revenues and costs.

The economic consulting firm Public Interest Projects did such a study for Sarasota County, Florida, demonstrating this factually (see "Mixed Use Reduces Infrastructure Costs and Increases Tax Receipts," SvR company blog).

This type of analysis should be incorporated into the zoning approval process, to limit the negative impact of single use projects, which are mostly enabled, not made more difficult, by zoning policies and regulations.

Conclusion

Only by developing more accurate and complete methods for valuating the economic impact of different types of development can local jurisdictions truly protect their interests.

Changing the calculus and philosophy behind how communities produce the "Economic Development" element in Comprehensive-Master Planning processes is the first step.

Also see:

- "Urban decay and sprawl: one community's gain at the expense of another"
- "Lessons from Walmart's foray into Washington, DC"