Supercenters: Prize or curse?

Wal-Mart Supercenter, Cicero, Illinois,
mere blocks from the Chicago city limits

Chuck Marohn's recent Q-and-A with Joe Minicozzi on the Strong Towns Podcast reminds me of a conversation I had recently had with some old friends from Illinois. One friend noted the recent effort by Wal-Mart to build a supercenter on the south side of Chicago. Put off by Chicago's higher minimum wage for big-box stores, Wal-Mart instead built three supercenters across the city limits, in Evergreen Park (2006), Cicero (2014) and Hammond, where they now no doubt attract a lot of customers from the city. My friend considered this a blunder by the City of Chicago, because of the loss of jobs and sales taxes. So does the Chicago Tribune, which reports the city has subsequently reached accommodations with the giant retailer.

I'm agnostic about requiring certain employers to pay a super-minimum wage, but have been wondering how great were Chicago's losses, if any.

Joe Minicozzi (Source: urban-three.com)

On the podcast, Minicozzi, a planner and principal of Urban 3 LLC, explained the origins and rationale behind his formula comparing buildings according to their property tax paid per acre. Most city services are funded through property taxes on business and residences. The city's core asset, after all, is land, for which it needs to be making the most productive and efficient use. Wal-Mart is notoriously awful on this dimension, despite the volume of sales at its stores, because its footprint is so huge. In Minicozzi's example, the big-box store in his town generates $6500 in property tax per acre on a 34 acre lot, while a downtown mixed use development generates $330,000 per acre. Watch his video... it's short (3:43). See also Marohn's own 2012 analysis of two blocks in Brainerd, Minnesota.

In 2016, I participated in Strong Towns' crowd-sourced database on taxable value per acre. Here are the results from Cedar Rapids:
SW Wal-Mart $501,557
NE Wal-Mart $456,917
Great America bldg $13,999,048
Geonetric bldg $1,926,308

In a 2017 post I calculated the value of the Bever Block in downtown Cedar Rapids, soon to be demolished, to be $2,153,423 per acre. My Corridor Urbanism colleague, Ben Kaplan, reports that 1420 1st Av NE, also about to be demolished in order to make room for a development with chain restaurants, comes in at $1,740,695.

The Cook County, Illinois property search page is not currently functioning, so we can't do a similar analysis of Chicago area Wal-Mart Supercenters, but looking at results from around the country we can hardly expect they'll prove productive uses of city land, either. And that goes without taking into account subsidies provided to the retailer (Loury 2009).

But what about sales tax? Does the gain in retail sales from a big-box store counterbalance its relatively low property tax generation? No, says Minocozzi. In most states, sales tax collections don't go directly to the city treasury. They go to the state, which to the extent it redistributes the money to municipalities, does so according to a complex formula. (My state of Iowa does this. A few years ago, the nearby town of Bertram voted down a local option sales tax increase. Bertram has no businesses, so it basically was turning down its share of whatever revenues the increase generated. Needless to say, they re-voted in a hurry.)

Minicozzi challenged us to check our city's budgets, and compare the proportion of revenue produced by property and sales taxes. For Cedar Rapids's FY19 budget, 22 percent of revenues come from property taxes, 4 percent from sales and hotel/motel taxes. For Chicago's FY18 budget, 19 percent come from property taxes, 6 percent from sales taxes. Evergreen Park's FY17 financial report credits 21.5 percent of revenues to property taxes, 6.3 percent to local sales taxes. Hammond's revenue information, four years out of date, lists only "taxes" without disaggregating them into types of tax. For Cicero, your best bet is to know someone in city government; a search on their website for "budget" turns up a tribute to the 2016 Chicago Cubs, and their "contact us" function only works for Illinois residents. But you get the idea: property taxes are several times more important to these towns than sales taxes.

City of Chicago revenue sources
More property than sales tax, more grants and fees than taxes overall
(Source: City of Chicago)

So did Chicago make the right call? Or did Cicero, Evergreen Park and Hammond? As far as I can tell, Chicago wasn't foregoing a lot of revenue by losing Wal-Mart, as long as it was able to find people to make more productive use of that land. The adjacent suburbs might get a short-term bump in sales tax revenue, but they're using an inordinate amount of land area to do it. Moreover, in 15-20 years--which Minicozzi, citing Charles Terrell, director of property tax for Wal-Mart, reminds us is the anticipated useful life of a big-box store building--they'll have to deal with the clean-up.

See Also: Rachel Quednau, "6 Surprising Perspectives on Big Box Stores," Strong Towns, 8 May 2018