Two people walk up the aisle and exchange vows. The first makes a promise for life: "Through sickness and health, till death do us part." The second makes some firm statements about the present: "I promise to get a job and provide for our family," and some vague statements about the future, but reserves the right to reevaluate the relationship in twelve to fifteen years. In fact, they have every intention of seriously reevaluating at that time, along with a family history of moving on when prospects seem brighter elsewhere.
What do we make of this relationship? It certainly seems lopsided. If we were closely related to the first person – the one making the long term commitment – we would perhaps have a seriously talk and make sure they knew what they were doing. Is this really the relationship you want to have?
I’ve seen way too many cities fall for the big box store. In fact, I worked on a couple of them back in my engineering days. The big box retailer would come to town and promise to pay all the up-front costs for running the sewer and water and putting in the frontage roads. Sometimes they ask for tax subsidies to pay them back – “but for” the subsidy, the development wouldn’t happen, or so they say – but often they make this investment as part of doing business.
From the local government’s standpoint, this transaction is ideal. For little to no money down, the city gets all this additional investment, new jobs for the community, an increase in tax base and ongoing sales tax revenue. Pure genius (or so we tell ourselves). All we have to do in exchange for this windfall is take on the long term liability of providing service to the site. That bill won’t come due for decades – and accounting rules book these liabilities as assets anyway – and so it’s all good.
As we’ve looked at here in the past many times, these investments have very low productivity. They are losing investments once the public infrastructure runs more than one life cycle. The scenario I’ve described up to this point is the first step in the Growth Ponzi Scheme. If it ended there, the financial hit would be serious, but the tragedy would be modest.
This is rarely where it ends, however. In the great chase for more growth, cities use the big box investments to push further outward. It might not be obvious to the person driving by, but that new residential development up the road is upstream, so to speak, from the big box. That means their water and sewer service passes through that big box site. See the problem yet?
The dirty little secret of big box development – and it’s really not a secret – is that the buildings are designed to be abandoned. They are throw-away buildings with a shelf life of twelve to fifteen years. Now, do they occasionally last longer? Absolutely, when the retailer decides that location is worth maintaining and upgrading the building. Very often, however, the site is simply abandoned when the big box opens a new location a little further away, the old building boarded up or sold to some non-competing, much lower revenue entity.
The utilities aren’t abandoned, however. Nope; they now become the eternal obligation, because now they not only serve the abandoned site, but they are essential to providing service to those further upstream. Default on the maintenance promise at the big box site and the city defaults on everyone further out. It’s a dead site, but it continues to cost taxpayers large sums of money.
We’re pretty blind to this problem, as a culture and also as professionals working in related fields. We’ve been so amazingly affluent – or have been allowed to pretend we are – that all of this waste hasn’t mattered to us. We don’t do the math and instead just assume that new growth will save us as it has since we began the Suburban Experiment. As more and more cities find themselves with deep financial problems, we’re waking up to the reality that we can’t have miles of pipe in the ground that serve nothing productive. We can’t throw away money like that anymore.
This all serves to illuminate the fact that big box development is extremely risky. We, the taxpayers, put a pipe in the ground in our name and we’ve made an eternal promise that generation after generation is expected to make good on. The big box retailer builds a store and they’ve recouped their capital costs in a decade. They are then free and clear to move on leaving us with a dead site.
Their zealous obligation is to their shareholders. I can respect that, but our obligation to our taxpayers – today’s and tomorrow’s – needs to be equally zealous.
This week we’re going to focus on big box stores. We’re going to look at their relatively low financial productivity combined with their high risk. We will examine sites that have failed and sites that have been reclaimed. We’ll delve a little into what is known as “sprawl retrofit” (their term, not mine) and take some time to look at the good and bad of urban big box stores. I also want to examine state subsidies for big box stores and how state governments have created – for their own financial benefit – a race to the bottom for municipalities.
Finally, we hope you will join us in collecting data from your city for a national database on financial productivity that we are assembling in coordination with our friends at Urban 3. You can find out more about that here.
Our Slackchat this week will be hosted by Rachel Quednau on Wednesday at 1:30pm Central. Just log on and join the #bigbox channel to participate in a conversation about topics related to big box stores and their impact on our towns. For information about signing up, please visit this page.
I have long said that Strong Towns is not an anti-big box movement. America’s big box retailers are perfectly adapted to the rules of the game as we’ve collectively established them. If you don’t like the outcome of the game, don’t hate the participants. Change the rules.