The lost opportunity of auto orientation

On Monday we gave a vivid example of how the auto oriented development pattern yields less in tax base than a traditional neighborhood development. In looking at two, half-block areas both fronting a state highway, the one that held to the traditional development pattern was worth 41% more than the one that had completely redeveloped into an auto-oriented establishment.

This observation runs counter to conventional wisdom, particularly in the city planning and economic development arenas. Most cities today see new growth -- especially along the highway with a design catering to automobiles -- as having the greatest set of advantages. Besides increased tax base, the second myth that is most frequently put forward is that of job creation.

Here is a photo of the traditional-style block we evaluated on Monday. All these businesses together have a combined tax base of $1,136,500 (compared to just $803,200 for the new Taco John's drive through up the street), despite being dilapidated and obviously stunted in its development by a lack of compatible public investment. City plans identify this block as a good area for redevelopment. 

I went and visited each of these businesses, and tried to call the ones that weren't in, so as to gather some basic information on their economic impact to the community. In doing so, I spoke with an interesting collection of small business owners and local entrepreneurs, the type of people that our politics pretends to venerate but who the establishment has generally done little to support. More on this some other day. For now I need to share the data I collected.

Among the nine businesses I was able to reach, there were thirteen (13) full time employees, including owners who worked full time in their establishments. There was an additional four (4) part time staff. When I asked if they used the services of a local accountant, attorney, printer or advertiser, most answered in the affirmative.

I stopped in at Taco John's but it was during the lunch rush and it was just too busy to talk (the place was packed). I called over there later but they would not reveal to me how many employees they had or any information about the services they contract for. As part of a city application, they did indicate that they had between 20 and 25 staff, were looking to add more, and pay an average of $9.20 per hour. Of course, as a franchise they pay for outside (not local) marketing and advertising. I don't know if the franchise provides them printed materials (I would assume they do) along with legal and accounting assistance.

With scant information, I did some back of the envelope calculations. Filling in the table above with one full time and two part time employees for the retail establishment and campaign headquarters I could not reach, we have a total of 12 owner, 2 full time and 6 part time staff. Assuming annual earnings of $30,000, $22,000 and $18,000 respectively (hardly a princely sum but not inconsistent with the area's statistics), the traditional neighborhood would generate a total of $512,000 in income annually.

Moving to the new drive through, I assumed an increase to thirty staff of which 8 would be full time and 22 would be part time. I assumed a ratio of hours worked to be 0.57, which means the average part time employee works 23 hours per week. At the $9.20 average rate they have reported, Taco John's is estimated to pay total annual salaries of $393,000.

These numbers are rough and I'm not going to use them to suggest that the jobs created and wages earned on one of these blocks versus the other is clearly superior. What I will suggest, however, is that there is not much difference between the two. If we are setting up a system that encourages the traditional neighborhood to be torn down and replaced with the auto-oriented fast food establishment, we should not be anticipating an increase of jobs or income as part of that transaction.

And since we also can't expect an increase in tax base, one has to ask: What exactly are we expecting?

What is clear are the secondary impacts. Each of the businesses in the traditional block routinely use local professionals. They hire local accountants. They get their printing done locally. Those that needed legal assistance hired a local attorney. They pretty much all engaged with local advertisers. This is what they told me. They are all passing their earnings around the community, providing residual impact that we do not get from a franchise chain.

Now I know the ownership of Taco John's and they are kind, caring people that are vested in the community. I'm not trying to suggest otherwise. But the franchise business model, by definition, provides many of these services in a corporate (read: "out own town") system. Along with name recognition, that's the benefit of being in a franchise. Taco John's has 400 franchises in 25 states and is headquartered in Cheyenne, WY. I'm happy for Cheyenne -- this model works for them -- but a city like Brainerd loses a lot financially (and socially) when it actively works to convert its traditional neighborhood restaurants to chains and franchises.

Finally, there is another resiliency issue that needs to be pointed out. If Taco John's fails, what next? The city's development model for this corridor is basically all in on a fast food restaurant being successful in that location. What if it isn't? Subway, which is really flexible in its locations, has a failure rate of 7%. By comparison, Quiznos has a failure rate of 25%. Even if we give Taco John's a 10% chance of failing over the next thirty years, that's a one in ten chance that this site goes bust. And if a Taco John's won't work here, what will? More precisely, what will that will fit into the Taco John's building layout?

Up the block in our marginal and blighted traditional design, we have businesses failing right and left. I know those liquor stores have been there a long time, but the barber shop and law office have only been there a few years. The cafe moved and is being replaced by another. Each of those spots is interchangeable with many different business types and models. And if one fails, the entire block doesn't fail. That's resiliency.

When comparing the shiny and new auto-oriented development with the old and blighted traditional development on the same street, once again the traditional design is superior. It is more resilient, generates a competitive numbers of jobs, pays comparable salaries and is doing it all despite the city and the DOT doing everything possible to put the location at a disadvantage.

Imagine how successful and prosperous this traditional block could be if the city opted for a Strong Towns strategy.