Economist Looks Backward to Project Future
Prof Explains Dismal Science: How Market Operates With Scarce Resources.
September 10, 2005 9:07 PM
While some SF State faculty are grooming the policy leaders of tomorrow one is enlightening civic leaders of today in order to guide sound urban development.
Professor Philip King, chair of the economics department, has been a consultant for the last two years to a number of central valley towns (Stockton, Lodi, Chico, Bakersfield, and Tracy.) King educates the towns on the potential environmental impacts of “supercenters.” Supercenters are big-box retailers that include a full-size grocery store and have a total floor space that is three to four times the size of a conventional supermarket.
Premised on economies of scale (eliminating wholesalers), low prices and customers demanding increasing value, super centers are ratcheting up the competition among independent retailers.
Wal-Mart is one of the dominant entrepreneurs in discount merchandising. While providing employment to many individuals and tax revenue to cities where they open new branches, some are questioning whether the perceived benefits are actually trumped by the costs to local governments.
“Jobs are a wash,” said King. “You gain some jobs but lose them when groceries start to close. (Wal-Mart is) much lower paying and have fewer benefits. There’s plenty of objective data. It’s not my opinion.”
The Bay Area Economic Forum is one of the databases King cited as a tool he relied upon for his research. The forum is a coalition of business, government, labor and community leaders, which assesses and applies programs to improve the Bay Area’s economic competitive edge.
The forum’s 2004 online report, “Supercenters and the Transformation of Bay Area Grocery Industry,” was written by Dr. Randall Crane of UCLA and Dr. Marlon Boarnet of UC Irvine. According to the report Wal-Mart is the largest grocery store in the country by sales volume ($48.7 billion) and fifth largest by number of stores. Wal-Mart has 133 discount stores in California but no supercenters, but expects to open 40 over the next several years.
The forum reported that many California cities gather sales tax windfalls from “cash cows” such as auto dealerships and big-box stores like Wal-Marts. Cities entice big boxes with promises to overlook zoning regulations, make road improvements and offer tax rebates.
King has focused his attention recently on a proposed Wal-Mart Supercenter in Stockton. He noted Wal-Mart typically builds on the periphery of main business districts because the land is cheaper, but also because central or neighborhood business districts can’t accommodate the size of a supercenter.
The average supermarket according to the forum is 44,000 square feet. The planned supercenter next to Interstate 5 in Stockton will be 200,000 square feet. And the forum noted supercenters are often surrounded by parking lots three to four times larger and may require a total of 17.5 acres of land.
Expanding markets such as Wal-Mart create situations where persons may be harmed and any loss to society needs to be remedied said King. He added that there are many grocery stores and pharmacies in Stockton already struggling to survive. Competition from a Wal-Mart Supercenter may force some retailers to close he explained.
Wal-Mart has maintained that there have been few closures of smaller competitors in the past and even in cases when it has occurred others will re-tenant the vacancy said King. But he noted that evidence has shown that is not always the case. The new supercenter is projected to generate $500,000 to $600,000 annual taxes for Stockton.
“A lot of that tax revenue is a wash,” said King. “Wal-Mart doesn’t increase retail sales; it is just shifting away tax revenue from other retailers. There is no real net gain.”
The Wal-Mart currently operating in Stockton declined to comment on allegations of uncompetitive practices.
According to the forum report, the average grocery store job in the Bay Area pays a wage and benefit (wages, healthcare, vacation, holiday, and sick-leave) package of $42, 552 annually. Supercenters, said the forum, paid $21,000 less. In hourly wages unionized chains paid $23.64 an hour in wage and benefits, but Wal-Mart paid $11.95 an hour.
Bay Area grocery workers earned a total of $1.5 billion in 2001, said the forum report. If big-box stores get 6 to 18 percent of market share (which is now less than 5 percent) over the next few years the wage and benefit payroll will fall between $353 to $667 million. Lower regional income will likely lead to less spending on other goods and services, said the forum.
Stockton recently allocated over $1 million to renovate its downtown area said King. Smaller supermarkets there are often the anchor store he explained. According to the forum report, the loss of a supermarket to a supercenter jeopardizes the economic vitality of surrounding stores that benefit from foot traffic generated by supermarkets.
Any closures can lead to unfilled vacancies of individual stores and entire malls said King. This in turn can spur vandalism, graffiti, urban decay, and it’s an issue that needs to be mitigated he explained.
“There needs to be a mechanism to address store closings,” said King. “(Law suits) are not the best method. CEQA (California Environmental Quality Act) is the vehicle to do that.”
CEQA enacted in 1970 is a permitting process that requires a draft environmental impact report (DEIR) before any building permit is authorized. It must list all the major physical changes a project could inflict and efforts that could lessen the effects and must be completed within a year. There are some exemptions for a report but most proposals must file a report with a regulatory agency assigned to oversee each project. Once the DEIR is complete the public has 45 days to respond. The agency then has six months to approve or deny the permit.
Because of perceived increased traffic and liquor licensing controversies, litigation has stalled five Wal-Marts in the central valley said King. He said his job is to provide information and he does not advocate for or against a project. King also said his consulting work has affected his teaching by making him more sensitive to objective data, which he gets mostly from government sources and to consider other variables other than just “letting the market decide.”
“We have other institutions,” said King. “Economists care about environmental regulation, workers rights, and the plight of the third world. We need to make a balance.”
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