Those who have argued that the city’s budget assumptions continue to be too rosy were again shown to be correct as the city issued forth its Mid-Year Budget update. Leaders the last couple of years have been hopeful that the opening of the Davis Target would be enough to hold sales tax revenue stable or even increase the revenue, but these hopes have not been borne out to date.
According to the staff report, “Based on revenue results through the first six months of this fiscal year, the City’s General Fund revenue estimates are being held relatively in line with the adjusted budget showing a slight increase of $39,498.”
However, then the bad news, “While these current year trends appear favorable, this development is partially offset by unfavorable General Fund results for the year ended June 30, 2010, wherein the unreserved fund balance ended the year $774,254 below the estimate used in the development of the current-year budget.”
The staff report continues, “Despite efforts to manage the FY 2010/2011 budget through expenditure reductions and other costsaving measures, the General Fund is projected to end the current year with an unreserved fund balance of $5,185,632, or 14.3% of operating revenues, which implies a reserve level $240,616 below the level required by the City’s 15% General Fund reserve policy.”
The big news here, “Sales Tax receipts through the first half of FY 2010/2011 indicate a decrease from FY 2009/2010 results.”
They predict that will meet their budget figure of $7.8 million, based on year-to-date results combined with 0% growth assumptions for the remainder of the year.
This despite the fact that sales tax collections have actually declined. The staff writes, “In the current year-to-date, our core categories of Automotive and Restaurant, which together account for approximately 58% of direct Sales Tax collections, reflect decline of 8.3% compared to the same period last year. Overall, direct collections are down 4.79% over the same period in FY 2009/2010.”
The bottom line at this point is that the city seems to be hoping that the sales tax and other revenues will remain steady.
For the most part, the city is adjusting by holding the line on spending.
For instance, “Citywide personnel expenditures, through the first half of the fiscal year, when accounting for seasonality of citywide program expenditures; is projected to result in a slight increase in General Fund savings of $81,000.”
Moreover, “Non-personnel expenditures also continue to track within budget and are projected to yield additional savings of $128,000 above the $770,000 anticipated savings assumed in the development of the FY 2010/11 budget.”
Thus, they project the savings of over $200,000, “Based on General Fund expenditure results through January, expenditures are projected to end the year at $36.31 million, or roughly $209,896 under the adjusted budget of $36.52 million.”
The problem at this point is that the city is still $240,617 below their targeted 15% general fund reserve goal.
In short, while there is a lot of spin about revenues and savings, the city basically is ending the year in the hole. Not by a ton, but by enough to be of concern.
There are two huge concerns looming here. The first concern is that these numbers show that the Davis economy is still stagnant, both in the real estate market and also in the sales tax/retail market. The city was hoping for a bump from Target and maybe that bump simply meant that they would be able to hold steady for the year, or perhaps that bump just did not materialize.
We need to scrutinize the Target numbers because it is hugely important to policy going forward. Supporters of Target argued that it would infuse $600,000 into the Davis economy. Opposition argued that there were other ways to produce the revenue in that spot. That the $600,000 comparison was to a vacant field.
Moreover, there were concerns that Target may yield money by taking retail from other locations already existing in town.
The city has talked about economic development, but there needs to be an assessment of how best to generate revenue.
The second problem is well-known and far bigger. The Sacramento Bee reported that the City of Davis and its workers face an additional $1.4 million more in contributions to the state’s pension plan. The city is expected to pay about $462,000 of that amount.
The phase of the CalPERS smoothed-rate increase, combined with a decrease in the expected Annual Rate of Return, are expected to eventually cost the city as much as $7 million by 2014-15 in additional costs. Undoubtedly, some of that will have to be borne by the employees, but the big picture here is that even with a rebounding economy, these cost increases will eat up much of the new revenues and then some. That assumes that there will eventually be growth in sales tax revenues along with a rebound in the real estate market.
—David M. Greenwald reporting
[quote]We need to scrutinize the Target numbers because it is hugely important to policy going forward. Supporters of Target argued that it would infuse $600,000 into the Davis economy.[/quote]
Anyone who understands retail knows the $600k figure is a crock. I posted an analysis last year–I am posting it again–some figures may have changed slightly–more importantly Target has closed the garden center–as it has in most of its stores. This is because they don’t make much money there–and they want to expand groceries (though Davis capped Target’s grocery sq. ft–wisely in my opinion).
Here is the analysis:
A typical Target store sells $316 per sq ft. — 1.5% of this goes to Davis (1% plus measure Q 0.5%, I’m ignoring the 0.25% for Yolo County –some of that trickles down to Davis but not City general fund revenue).
That means a Target with average sales would generate $4.74 in sales tax dollars per sq. ft. which actually gets you to revenues a bit over $600,000 since this store is 137,000 sq ft (including garden center).
However one has to make a few adjustments:
1.Food is not taxed, or more specifically some food is not taxed. For most grocery stores about 30% of sales is taxable (candy, soda, cupcakes but not muffins, etc.). I don’t know the precise % of food sales at the Target and it’s a somewhat subjective calculation anyway (which Target’s consultants would have low balled). About half of Wal-Mart’s sales are now classified (by Wal-Mart) as groceries. This Target has a smaller % of their store devoted to groceries but still one should figure a third of their sales are groceries and 70% of that is not taxed. This may sound high since the floor space devoted to food sales is quite a bit less than 1/3 but keep in mind that Wal-Mart has only 20-30% of space devoted to food sales but it generates half of all sales—food sales per sq ft are much much higher (but typically with lower margins).
Bottom line: Between 20 and 25% of Target sales are not subject to sales tax (because its food). That implies about $500,000 in sales tax revenues.
2.However the Target will also displace other local store revenues/taxes. If some one spends $100 at Target instead of CVS that is not a net gain in tax revenue to the City. The consultant for Target would almost certainly have argued that since Davis has “leakage” in retail the Target sales would all be new.
But this is obviously not the case. I’d say about 1/3 of Target’s sales simply displace existing sales in Davis and hence add no net sales tax revenue. The figure could be higher (even 50%) but lets use 1/3.
That implies that the Target, netting out the fact that most food sales are not taxed and netting out sales displacement would generate about $330,000 in sales tax revenues for the City. OR lets say given the obvious uncertainties here that the likely range is from $250,000 to $400,000 per year. This is still not chump change but is much less than $600k.
One other thing to understand about Davis’ sales tax revenues is that they are much more cyclical that most cities since cars, gas and restaurants make up the bulk of sales. So we should expect some downturn–worse than other cities have seen.
Still folks who predicted $600k a year for Target (or $1 million in the case of our former Mayor) have some explaining to do.
As I have blogged before I think we need to look at Davis’ retail mix, especially downtown. The city’s leakage analysis (released in the report David cites above) says that 83% of apparel sales leak outside of Davis. While I think this number is too high, its clear that outside of autos/gas and restaurants (where the City’s analysis says we also have leakage!) and possibly food, we have serious leakage.
No one wants us to become Vacaville or Roseville but the decline in sales tax dollars is also indicative of a sick retail sector in Davis–we should pay attention. As I have said ad nauseum Borders is going bankrupt and the Davis store is noticeably less busy these days.
We need a vital downtown–not just for sales tax dollars but for our community.
I remember the city capping Target’s food footage also. Who monitors that? It appears it is growing.
To Dr. Wu: Nice analysis. I would add one item to your evaluation of how much sales tax revenue Target generates. One should also have to take into account how much sales tax revenue that had been leaking out of Davis to the Woodland Target is now staying in Davis.
Nevertheless, you have convincingly conceded that Target has been a net sales tax revenue generator, albeit not as large as predicted. So it would seem in the final analysis that Target has been a good fit for Davis. That does not necessarily imply that Davis should now woo tons of other big box retail – it just means Davis needed its own discount retailer to stop sales tax leakage to Woodland.
To Dr. Wu and dmg: However, all the hand-wringing that is going on must be placed in context. The economy, despite media spin, is in the doldrums – the nation is still mired in the after effects of the recession and will be for YEARS. Many people have lost jobs, had decreases in salary, have seen their investments lose value. (The end to this is still not in sight.) In consequence, the first thing folks will do in a situation like this is cut back on discretionary spending, e.g. decrease/eliminate the number of times they eat out, stop buying clothes, put off purchasing cars. This when the economy does not do well, the hardest hit industries often are restaurants, big box retail, auto dealerships It does not take a rocket scientist to understand that it was expected that the business sector in Davis would take a tremendous hit during this extended economic downturn.
Councilmember Lamar Heystek warned citizens and fellow Councilmembers about this some time ago, while City Manager Bill Emlen tried to paper over reality in rosy but unrealistic projections. I applaud Paul Navazio for at least being more honest about the city’s current fiscal situation. We could have 100 other stores in Davis, yet the same phenomenon would occur in a lousy economy. Sales tax revenue would be DOWN. To put it bluntly: “It’s the economy stupid!”
Nevertheless, going forward, I agree w Dr. Wu that Davis needs to encourage the right kind of business to locate in Davis. Heretofore, this city has earned a reputation for not being business friendly, e.g. the grocery store wars, the Borders war, etc. I personally like the idea of partnering w UCD to bring high tech industry to Davis – which will then generate a need for more peripheral businesses of restaurants, shops and the like surrounding the high tech industry. Much as Carlton Plaza Davis assisted living facility will probably do wonders for Konditerei and the small shopping center nearby.
Yet when the Business and Economic Development Commission held a forum about developing more business in Davis, they met with a good deal of skepticism and negativity surrounding what was a fairly benign attempt to begin the process of long range business planning by members of the community. Quite frankly, the polarization and destructive commentary that followed was very disheartening – and gave credence to the notion that Davis is not business friendly.
I think there are a lot of guilty parties that have given the perception that Davis tends to be anti-business. It is going to take a concerted effort by the entire community, including citizens, the CC, city staff, UCD, DDBA, the Chamber of Commerce, the businesses currently here in Davis to turn this perception around and achieve a good balance of the appropriate types of businesses that will make Davis even more vibrant than it already is.
It is easy to be critical of and take potshots at Davis retail, e.g. dmg’s favorite whipping boy: Target. But the fact of the matter is, downtown Davis is a pretty “happenin’ place” compared to many other cities right now. We can build on that if the community as a whole has the will for significant improvement. Mori Seiki and Carlton Plaza Davis locating here is a good start at doing just that…
[i]The problem at this point is that the city is still $240,617 below their targeted 15% general fund reserve goal. … these numbers show that the Davis economy is still stagnant.[/i]
Why do you think we have a general fund reserve? It seems to me the answer is: you have one when the economy goes south and you want to smooth things over as best you can during that period.
As such, I don’t see a problem with the city dipping into that reserve fund while revenues are down. We clearly have not yet come out of the recession.
I am, of course, not suggesting that the City needs to make very serious changes in its long-term spending. I am not saying the City should spend the reserve down to zero to put off spending cuts.
But it seems to me that if you keep a $7 million or so reserve and you are going through say a 4-year cycle where sales tax revenues are falling short say $500,000 per year, then you should use those reserve funds to make up that difference for those years. You can rebuild the reserve fund when the economy picks up.
In my opinion, this notion of, “We have tons of money flowing in, so let’s give everyone a big fat raise,” followed by, “We are in a recession, let’s cut everything we can, now,” is not smart. I would much rather we smoothed out our long-term spending, so that we cap the growth of expenditures at 3% to 3.4% per year (adjusted for population), regardless of good times. Then when we have a downturn we would not have to panic.
Essentially, the problems with the state of California budget is that they massively increased their budget during the bubble; and ever since have had to massively retrench. The state and Davis need to learn the lesson: don’t let you expenditures go up any faster than your long-term revenue growth; and when a recession comes you will have plenty of reserves to spend down.
Target opened in October 2009. Target competes with existing retailers in all categories except restaurant and auto, and garden as of Sept 2010 (they have closed all garden centers nationwide).
Using rough numbers:
Davis sales tax revenues 2008-9: $9.35 million;
auto/restaurant (58%) = $5.42 million
all other retail = $3.93 million
2009 – 10: $7.84 million;
auto/restaurant = $4.55 million
all other retail = $3.29 million
Various analysts show that same-store sales figures at national chains have been rising slightly throughout 2010, although California may be lagging the nation. It is difficult to conclude that Target has been beneficial for Davis sales tax income, but it would require analyzing the sales tax receipts in different categories more closely. Would Davis sales tax revenues have fallen even more without Target? Hard to say.
Nearly any other type of retail would generate more sales tax per square foot than a big box store.
Rich:
“Why do you think we have a general fund reserve? It seems to me the answer is: you have one when the economy goes south and you want to smooth things over as best you can during that period.”
I think this is the exact reason we have a general fund reserve, so that when we have a yearly shortfall like this one or an unexpected expenditure comes up midterm, we have the money to cover it without borrowing or cutting services/ employees.
That said, the council and city are right to try to keep it at 15 percent and balance the budget around that figure otherwise we have the tendency to very quickly eat away at the reserve in bad times if they are prolonged.
CORRECTION: “I am, of course, not suggesting that the City [b]does not[/b] need to make very serious changes in its long-term spending.”
Let me add to this: the most important change the City needs to make is to include in ALL OF ITS LABOR CONTRACTS a provision which caps the increase in total compensation for each of its employees. That is how our current firefighter contract works, and I think it is the most sensible way to deal with rapidly rising pension and medical care costs.
If overnight, for example, the pension costs for an individual police officer rise by $7,500 per year (at her given salary), then her salary and medical benefits must decline by an equal amount to offset that. (Note that as salary decreases, so does the cost of the employer’s pension contribution, so the salary off-set would not be 1:1.) That way, the City can keep its long-term expenditures in-line with its long-term revenues. (And no longer will we have that lame excuse that no new market-rate houses can be built because the added revenues won’t cover the added costs in employee pay.)
[i]”That said, the council and city are right to try to keep it at 15 percent and balance the budget around that figure otherwise we have the tendency to very quickly eat away at the reserve in bad times [u]if they are prolonged[/u].”[/i]
Our economy turned south sometime in 2008. This is from the 1st Qtr staff report for the 2008-09 budget:
[i]”… the unaudited General Fund Unreserved Fund Balance as of June 30, 2008 is projected to be $6,487,873. … as of June 30, 2008 represents 7.7% of General Fund revenues.”[/i]
Say this recession lasts 4 years. (By post-WW2 historic standards, that is VERY LONG.) We thus could have had–in my opinion should have had–a policy in place to cut into that reserve fund by $500,000 per year every year for up to four years. By the (presumed) end of the recession in 2012, that reserve fund would have been down to $4.4 million.
At that point, by capping total comp and otherwise keeping our spending in line with our revenue growth, we could rebuild the fund reserve. That is why you have such a reserve in my opinion.
The problem in Davis is that our business policies have mostly ignored the long-term. They focus on the short run. That is, they spend too much when times are good and maybe not enough when times are bad.
A concerted effort is under way to boost local, specialty retail (as opposed to big box). I predict you will see signs of incremental progress within the next couple of months. That being said, we are in a VERY challenging retail environment with online retail continuing to strengthen in relation to brick-and-morter retailers. I trust that when some of the initiatives to revitalize our local retail industry are unveiled shortly, there will be a thoughtful analysis and discussion of these initiatives/programs.
Rich: Understood, but what would dipping $500,000 into the reserve have bought us. I think we both agree on the need to deal with the bigger issues.
[i]”what would dipping $500,000 into the reserve have bought us?”[/i]
I don’t really know. I would hope it could allow for things like longer hours for the public swimming pools for kids; or lower entry fees for kids. I haven’t been swimming in a public pool since I was a child, but I think back on that, when it cost something like 5 cents to enter the Community Pool over at Community Park, and I would hope all kids in Davis, especially those who come from families which don’t have much money, would have that opportunity. I walk by Arroyo Pool in W. Davis with my dog all the time; and I’m saddened that even on a nice afternoon it is very often closed. Even in the summer Arroyo is open to the public only about 2 hours on weekdays.
If not recreation programs, then maybe that extra half million could go toward keeping our police department fully staffed; or maybe we could dedicate that money to park and street maintenance which are now underfunded.
I’m also wondering if the demographic trend in Davis is having a measurable effect on sales tax revenue. Intuitively, one might conclude that the growing senior population spends less on a per capita basis than the declining population of families with kids.
I’m also wondering if the demographic trend in Davis is having a measurable effect on sales tax revenue. Intuitively, one might conclude that the growing senior population spends less on a per capita basis than the declining population of families with kids.
I would think that you may also be looking at a growing college age population in Davis. It doesn’t appear that UCD is cutting back on its enrollment.
DT Businessman
Glad to hear some effort being made to attract business downtown.
It may not be politically correct to say it but you need some more national chain stores downtown. We are a college town but in apparel only have a GAP store. No Victoria’s Secret, no J Crew, not much else. Some nice boutiqey stores like Riki but you need more to draw people to the downtown for shopping and to keep us from shopping elsewhere.
IMO there is zero chance of any national chain locating downtown, unless Borders vacates the site they are in.
[quote]To Dr. Wu: Nice analysis. I would add one item to your evaluation of how much sales tax revenue Target generates. One should also have to take into account how much sales tax revenue that had been leaking out of Davis to the Woodland Target is now staying in Davis.
[/quote]
ERM: Leakage to Woodland Target or anywhere outside Davis is counted as net sales tax for Davis. Once one estimates total taxable sales for the Target, one has to net out sales of the Target that displace local (Davis) sales at Rite Aid, downtown toys stores, etc.
wdf1: Good point. The growth of the college age demographic would definitely offset loss of sales tax revenue due to the ongoing shift from families with kids to seniors. For what its worth, I found a UC report online stating that UCD would grow from 29,609 in 2007/08 to a projected 36,780 in 2020/21 (don’t know if/how this projection will be affected by the economic downturn or its aftermath).
[i]”I found a UC report online stating that UCD would grow from 29,609 in 2007/08 to a projected 36,780 in 2020/21″[/i]
This report ([url]http://budget.ucdavis.edu/data-reports/documents/enrollment-reports/historical-enrollment/ehc2fte_y92cr.pdf[/url]) says in 2007-08 UC Davis had a total enrollment of 25,908.
UCD stats show that over the period from 1990-91 to 2010-11, enrollment has grown at 1.5% compounded per year.
Currently UC Davis has 30,980 students ([url]http://budget.ucdavis.edu/data-reports/documents/enrollment-reports/current-enrollment/eactprj_ycurr.pdf[/url]), but that includes the med students who are all in Sacramento. Subtracting out those 1,465 students, the Davis campus is now home to 29,515 students. If growth continues at 1.5% compounded per year, this is how many students we should expect over the next 20 years:
2011–29,515
2012–29,958
2013–30,407
2014–30,863
2015–31,326
2016–31,796
2017–32,273
2018–32,757
2019–33,248
2020–33,747
2021–34,253
2022–34,767
2023–35,289
2024–35,818
2025–36,355
2026–36,901
2027–37,454
2028–38,016
2029–38,586
2030–39,165
I should note that over the last 20 years enrollment growth has been very uneven. Some years it was negative. A few years it was as much as 3%. Back in 2004-06, student enrollment growth was actually negative. But the last few years, despite the economy enrollment is up.
Someone brought up tax leakage, a point often missed on tax leakage is that people often shop near where they work as much as they shop near where they live. And so bringing in more jobs might be a way to keep people not only living near where they work, but shopping in town.
Interesting… how many correspondents have 15 % (~1/7th) of their total family obligations in liquid “reserves”? If they did, how many tapped a part of those in the last three years? Perhaps in bad years, we should get employees to give wage/benefit concessions, and in good years, we should ‘hold the line’ on those and either build reserves or fund new programs (capital). In any event, it is obvious that many contributors would decrease/hold steady employee salaries/benefits for the next 5-10 years, irrespective of irrespective of any cost of living increases that seem to be on the horizon in terms of inflation (which has been VERY tame for years). The same strategy would be appropriate for Social Security, SSI, and other benefits as well… as David has said, “now to the pain”.
Rifkin: Here’s the report from UCOP that I was referencing:
http://repository.ucop.edu/cgi/viewcontent.cgi?
article=1000&context=enrllmt_lrp_reports
On page 5 they project the enrollment growth rate will drop to below 1% by 2020/21. The 2007/08 report projects an enrollment of 32,310 by 2010/11 – so from your current enrollment number posted above they are already falling short of the plan (as a consequence of the economic crisis no doubt).
D’boomer, obviously the study you are referencing is far more sophisticated that what I projected. [quote]Undergraduate projections were
based on current enrollment levels, reasonable growth rates, and campus capacity, and were informed by Department of Finance projections of local and statewide high school graduates. Graduate projections were based on anticipated need for additional research and education opportunities in emerging fields, expected labor market demand for students with graduate training in specific fields, and existing and projected student demand for UC graduate programs.[/quote] But even then, I suspect the farther out a projection goes, when it is dependent on so many unknown variables including economic changes and immigration rates and so on, the less reliable it becomes. That said, I am planning on it being 47 degrees F with intermittent rain on January 18, 2031. I’ll update this post if I am not right. (Note: just which city has that weather on that date I am yet sure.)
[i]Interesting… how many correspondents have 15 % (~1/7th) of their total family obligations in liquid “reserves”? [/i]
I don’t know any actual numbers for this. However, 15% liquidity is not extreme for any family which is not living paycheck to paycheck. In other words, if your total cash expenses for a year are $50,000, you would need just $7,500 in a cash account or the equivalent value in bonds or stocks. A higher income, higher expense family which spends $100,000 a year (probably holding a steep mortgage) would need just $15,000 liquid to meet that threshold.
[i]”If they did, how many tapped a part of those in the last three years?”[/i]
Again, I don’t know. However, I suspect when you have a family with two working adults and one is laid off or maybe both are furloughed or have had cuts in wages, most would dip into their liquid reserves. I think that is part of the reason people keep some money on hand–for just these sorts of normal, periodic problems.
[i]”Perhaps in bad years, we should get employees to give wage/benefit concessions …”[/i]
As I noted above, I would much rather we set our total compensation for employees at a rate which is sustainable for the long term. Then when we have a revenue shortage, we would not have to lay people off, hold jobs vacant, furlough many and cut total comp.
[i]”… and in good years, we should ‘hold the line’ on those and either build reserves or fund new programs (capital).”[/i]
I agree that in good years–that is, any year where revenue growth is above say 3.5% adjusted for population–we should be building or rebuilding our reserves. It’s unwise to inflate salaries on the basis of a short term boom.
[i]”In any event, it is obvious that many contributors would decrease/ hold steady employee salaries/benefits for the next 5-10 years, irrespective of irrespective of any cost of living increases that seem to be on the horizon in terms of inflation (which has been VERY tame for years).”[/i]
Instead of setting total compensation based on cost-of-living adjustments, we have to set total comp based on our long-run rates of revenue growth. If that is 2.5%, then that’s the most total comp can rise and be sustained. If our revenues grow at 3.5% or 4.5% per year on average, then we can sustain annual compensation increases of that amount.
If we allow compensation to inflate faster than long-run revenue growth, we will either go bankrupt–which is where we are now headed, short of a major change in labor policies–or we will have to annually reduce the services the City provides. Since most of the City budget goes to labor costs, that means firing a lot of employees in the police department, public works, parks & rec, and so on.
RICH: “I don’t know any actual numbers for this.”
FWIW, I found this graph online which suggests 7% is above average:
[img]http://www.bea.gov/briefrm/saving.gif[/img]
Thank you Dr. Wu for the analysis. I think it is a helpful construct, but in the void of actual numbers, the analysis tells us almost nothing about what the Davis Target contributes, since we apparently don’t know what the actual sales of the Davis Target are.
DS: Various analysts show that same-store sales figures at national chains have been rising slightly throughout 2010, although California may be lagging the nation.
DS: IMO there is zero chance of any national chain locating downtown, unless Borders vacates the site they are in.
Don’s conclusion about chain stores downtown may be right, but that appears unfortunate, since Davis retail sales appear to be down approximately 20%, while the national chains are enjoying stable to increasing sales. Perhaps Davisites should reconsider the ban? Looks like we might be enjoying higher prices from our local merchants, and getting few sales tax dollars, which ultimately means higher taxes or few services.
Perhaps Davisites should reconsider the ban?
What ban? There is no policy stopping national chain stores from locating downtown. It’s simply the reality based on store sizes available and lease rates.
Looks like we might be enjoying higher prices from our local merchants
Given the name you post under and any rudimentary understanding of the costs of doing business, I’m sure you can think of why prices might be higher for downtown merchants.
It is also worth pointing out that the development of a large big-box retailer on the edge of town tends to reduce the likelihood of any store opening downtown which might be in direct competition. It is unlikely that any electronics store will open in Davis, or any mid-size department store, or any specialty retailer in any of the other 10+ retail categories that Target covers. That is one of the side effects of peripheral big-box development. And again: almost any mix of retailers (say, Kohl’s, Ross, and Best Buy) would have provided more sales tax per square foot than Target.
Don Shor
I agree it would be hard to get a national retailer anywhere except the center anchored by Borders, but that site will have space at some point and some cities have attracted chains to downtown (e.g, Walnut Creek) though these cities are much bigger than Davis.
Unfortunately national chains like newer developments, usually on the periphery which Davis has avoided.
Adam:
I think my sales tax analysis is useful, particularly given that David cites a $600 k figure. My point was that it is unlikely that the store is even bringing in $600k in sales tax–even before one accounts for displaced sales –those that Target takes from existing retailers in Davis.
The data indicate that Target sales have not seemed to make a dramatic difference in our sales taxes, but we don’t know the counterfactual (what if Target wasn’t built?) and never will. We can say that even with the Target our sales tax revenues are declining, however the bulk of sales are in new cars, gas and restaurants, all highly cyclical.
[quote][u] Borders Files for Chapter 11 Bankruptcy Protection[/u]
WSJ Wed Feb 16, 2012
By JOSEPH CHECKLER And ERIC MORATH
Borders Group Inc. filed for Chapter 11 protection Wednesday and said it will close about 30% of its stores nationwide in the coming weeks.
The struggling operator of the Borders and Waldenbooks chains sought protection from its creditors in the U.S. Bankruptcy Court in Manhattan a month after it warned it may have to restructure the company in Chapter 11.
“It has become increasingly clear that in light of the environment of curtailed customer spending… and the company’s lack of liquidity, Borders Group does not have the capital resources it needs to be a viable competitor,” said Borders Group President Mike Edwards in a statement.
[/quote]
Davis store unlikely to close….for now…
As DS points out, there is no ban on national retailers opening in Downtown. We are actively recruiting more specialty retailers, not banning them. The challenge is finding any kind of retailer, national or local, a suitable space. If Victoria’s Secret made a corporate decision to locate a store in Davis right now, one would be extremely hard pressed to find them a location. Downtown rents can be a challenge, but not an insurmountable hurdle. The problem is finding a space that suits a quality retailer’s image or convincing a downtown landlord to upgrade their property so that it suits their image. That is why the DDBA has been advocating for more development downtown. The City-owned parking lot between 3/4/E/F provides the opportunity to develop a quality retail project that would be attractive to local, regional, and national retailers. The DDBA E Street Promenade proposal is another project intended to spur development of retail-quality spaces. We shall see if these and other projects get any traction.
DM’s point above about people shopping near where they work or live is one of the reasons why the DDBA has been advocating for the development of more residential and office space in and around Downtown. And it’s also one of the reasons why we have successfully advocated for the development of an innovation hub comprising Downtown, Gateway/Olive Drive, and Nishi property.
[i]”It is less likely that any electronics store will open in Davis, or any mid-size department store, or any specialty retailer in any of the other 10+ retail categories that Target covers.”[/i]
I’m sure the terrible economy delayed the plans for four more stores at the Target site, but eventually there will be an additional 46,000 sq. feet built at that location. Probably all four of those new stores will be either franchises or national chains:
[img]http://2.bp.blogspot.com/-K8uxIW-Izlo/TVwPkPF3WfI/AAAAAAAAAdM/ekQSlO83gj8/s1600/target+map.jpg[/img]
Given the restrictions written into the development agreement and the odd location, it may be difficult to find retailers for those four pads next to Target. It took several years to fill similar locations next to the WalMart in Dixon.
Thanks DT Businessman. I am glad to know that there is an active and significant outreach from the DDBA to recruit national chains. What a change we’ve undergone since the Borders shopping center opened – that center, and the national chains there were certainly not welcomed by the local merchants. Target was hardly welcomed either.
My perception is that most of the downtown merchants, and some Davis residents do not want national chains or merchants in downtown Davis. I hope that has changed, and that the specialty local merchants now understand that the national chains will bring traffic and visitors to downtown that will benefit the unique local merchants that we have.
There is no question that national specialty retailers have marketing budgets and expertise that will drive foot traffic from which local, downtown merchants will benefit.
Since DDBA is a tax agency, it needs to be very cautious about “recruiting” any specific businesses, particularly if those might compete directly with others who are in the DDBA tax district. Business and property owners cannot opt out of DDBA; it is a tax assessed on those who are in the downtown. Membership and dues are mandatory. So DDBA can advocate for general development proposals, parking structures, and the other things DT has listed above. But should DDBA leaders directly try to locate any specific tenants to the downtown, it would probably be a breach of their charter.