One point that has been mentioned several times, but not examined, is the need for local businesses to have access to local sources of wealth, for both debt and equity1. In many cases, multi-national banks won’t lend to small businesses, so local financial institutions are the only way for local businesses to access the capital they need to grow. A community that shows broad-based support for its local financial institutions is one that will bootstrap the growth of the community’s wealth by ensuring existing wealth is reinvested locally, instead of globally.
For most communities, the financial system works something like this: people save and invest some part of their income. The savings are deposited in their account with Bank of America, Chase, or Wells Fargo; the investments are made through a mutual fund. The bank takes their deposits and lends that money to large borrowers around the world. The mutual fund manager purchases stocks from companies generally based in Delaware, with their headquarters in a major metropolitan area and operations globally. None of this money that the community saves is loaned or invested to the businesses in their neighborhoods. Continue reading Local Wealth
Despite the benefits of locally owned businesses over chain retail and big-box stores, many cities still strive build regional shopping centers which require major chain anchor tenants. By in large, cities rely upon sales tax to fund municipal services, especially in states like California which suppress property tax revenue. Of course cities have other sources of revenue, such as Transient Occupancy Tax (TOT) and developer fees, but sales tax is a major source of municipal revenue for most cities.
Adding small, neighborhood retail centers generally don’t increase sales tax revenue for a city. For the most part, the shops in a neighborhood retail center are interchangeable. Each one has a grocery store, a pharmacy, a dry cleaners, a couple of restaurants, and a liquor or convenience store. As their name implies, neighborhood retail centers serve the neighborhood they are located in. Rarely will people go out of their way to shop at a neighborhood retail center since all of the same stores can be found closer to their own neighborhood.
Regional shopping centers are different because they do attract residents from other neighborhoods and cities, bringing with them sales tax revenue that otherwise would have gone somewhere else. This is why regional shopping centers are so often located at the city border or adjacent to major thoroughfares, so that they are convenient for residents of other cities to access and shop. This is the major reason why cities try to attract regional shopping centers, and to consolidate local community and neighborhood retail into these larger centers that will create a regional draw.
Continue reading How Municipal Finance Creates Regional Shopping Centers
Local businesses are vital to creating and sustaining a strong sense of community, and to the economic well-being of that community. While big-box stores provide the appearance of value to the consumer, they degrade the character and economic potential of the community as a whole.
The value proposition of chain retail and big-box stores to both the consumer and to cities is apparent. The consumer can buy more at lower prices, increasing their standard of living at the moment. Cities can get an infusion of jobs and the promise of increased property and sales tax revenue. It is this immediate and, more importantly, easy to articulate gratification that makes big-box stores, chain retail, and the regional shopping centers they often inhabit so popular.
The argument for small, local business is much more difficult to articulate, and even when it is well articulated people often don’t want to wait for the rewards a vibrant local business community has to offer. But those rewards can be prodigious for a community. Continue reading The Importance of Local Business
During the late 1970s and early 1980s, Anaheim’s historic downtown was a seedy red-light district. Despite the fact that downtown dated back to the founding of the city in 1853, with a traditional street grid, mid-rise masonry buildings, and a Carnegie library, it had become overrun with adult bookstores and a movie theater that played adult films. It was, quite simply, the embodiment of the negative stereotypes of urban living that were so popular at the time. The Anaheim Redevelopment Agency’s solution to this situation was to bulldoze the vast majority of the historic buildings, re-route and expand the major thoroughfares, and replace everything with car-focused development. Over the past thirty years, Anaheim’s redeveloped downtown has stagnated and fallen once again into disrepair, while neighboring cities such as Orange and Fullerton preserved their historic downtowns to create vibrant urban districts.
This clean-slate approach to redevelopment is not a successful strategy for rebuilding our suburbs, and especially not our downtowns. The rapid destruction and redevelopment of entire neighborhoods displaces existing users, destroys any existing economics and community activity, and creates far too much supply of new development to be absorbed by the market. The result is a neighborhood with continued anemic economic and community activity, similar to the condition before redevelopment. In short, the redevelopment effort ends up being a failed investment into the community. Continue reading The Problem with a clean-slate approach to redevelopment
One of the outcomes of bankrupt suburbs and climate change is that many residents will be left with stranded assets. Quite simply, they will own property that they can’t sell, and will either be stuck or forced to simply walk away from their homes. It might be hard to see that decline while driving through today’s apparently affluent suburbs, but the same could have been said about Detroit and other Rust Belt cities in 1965. This is a powerful argument in favor of rebuilding our suburbs when confronted by residents who don’t want to see their neighborhood change. It is in their own self-interest to allow for some change which would make their neighborhood economically sustainable, instead of allowing their neighborhood to enter the Spiral of Decline.
The Spiral of Decline
Suburbs that are unable to sustain funding for basic city services, such as police and fire services, and street repair, end up in a Spiral of Decline. First, the least valued city services are cut, such as libraries and community programs, which reduce civic engagement and sense of community. This, in turn, drives down property values because people don’t feel as connected to their community. Continue reading The Suburban Spiral of Decline
One of the two big reasons suburbs need to be rebuilt are that they are not economically sustainable. The suburban built environment invariably leads to long-term economic decline and bankruptcy unless it’s redeveloped. Suburbs do not support vibrant economic activity, and they are expensive to maintain.
Suburbs, as they are being built, create substantial economic activity. The jobs and purchase of raw goods required to build roads and homes and shopping centers creates a huge infusion of money into a community. For some suburban communities, this development can last for decades. However, once construction stops, the economic activity that those communities can sustain is limited.
The majority of economic activity found in suburban communities is chain retail and restaurants, which provides some sales tax revenue for cities but limited opportunities for jobs for residents. A statistic that is used to justify suburban development is that every 100 homes built creates 93 new jobs. While additional jobs are a good benefit for a community, suburban development does not create enough new jobs for there to be even one new job per new household. Suburbs, without the benefit of a neighboring urban core, create structural unemployment.
Continue reading Our Bankrupt Suburbs