What economic impact will the proposed Oakwood Commons shopping center have on the City of South Euclid? This key question has not been adequately addressed by the City or FISE (the developer).
Our goal here is to estimate annual City revenue based on simple common sense reasoning and publicly available data. As we proceed with the calculations, keep in mind that FISE has consistently characterized Oakwood Commons as a value-oriented big-box strip mall with out-parcel restaurants (including drive-thrus).
The revenue to the City has three components: property taxes, personal income taxes, and costs. The overall revenue is just the sum of the property tax and income tax components, minus the costs.
FISE predicts that Oakwood
Commons will have a market value of $45M.[1] Let’s
assume this is accurate. The Oakwood Commons land sits in South Euclid, but it
is in the CH/UH School District. The overall property tax rate is 3.97% of
market value, but only 11.55% of this 3.97% goes to the City; the rest goes to
the county, and the CH/UH schools and libraries.[2] So the property tax revenue
to the City from Oakwood Commons will be $45M x 0.0397 x 0.1155 =
FISE predicts that Oakwood Commons will have a total floor space of 325,000 square feet.[1] Let’s assume this is accurate. Strip malls typically employ one full-time-equivalent worker per 818 square feet of floor space, so Oakwood Commons can be expected to support about 325,000 / 818 = 397 workers.[3]
The average wage of a worker
at a value-oriented strip mall with out-parcel restaurants is typically $13 per
hour ($27k per year).[4] The income tax rate of South
Euclid is 2%.[5] Putting all of this together we can estimate that the income
tax revenue to the City from Oakwood Commons will be 397 x $27k x 0.02 =
If built, the Oakwood Commons strip mall will impose certain costs on the City. The most significant costs will be for police, road and traffic systems maintenance, and administration. Neither the City nor FISE have made any attempt to estimate these costs.
Fortunately, a number of other
Ohio cities have conducted so-called Fiscal Impact Analyses (FIAs) of various types of development, such as housing,
retail and office parks. The details of one of these studies are publicly
available: Dublin, Ohio found (in 2007) that its municipal costs for retail
development were $1.514 per square foot of floor space per year.[6] Like South Euclid, Dublin is a suburb of a large Ohio
city, and the cost of living index in each city is nearly the same.[7] So we
expect the costs for police, road and traffic systems maintenance, and
administration in South Euclid to be comparable to those measured in Dublin. We
can estimate that the costs to the City of South Euclid from Oakwood Commons
will be 325,000 x $1.514 =
We are now in a position to
estimate the total revenue to the City from Oakwood Commons: $206k + $199k -
$492k = - $87k per year. Please note the negative sign: it means that
How can it be that building a
shopping center actually
Actually, it
It is the norm for retail developments to cost cities money. South Euclid will be lucky if the cost is only $87,000 per year.
But FISE claims Oakwood Commons will generate $500k per year for the City.[9] How can the developer be that wrong?
It’s simple:
In their Application for Rezoning submitted to the City of South Euclid, FISE estimates that Oakwood Commons would employ about 400 full-time-equivalent workers.[1] This is consistent with our estimate of 397. However, in their public literature they use a figure of 700 jobs. Why? They explain:
These figures include direct employment; "indirect" employment created in the local supply chain; and "induced" employment created in industries that supply goods and services to the workers (dry cleaners, accountants, etc.).[10]
So, for every 4 jobs at
Oakwood Commons FISE predicts there will be 3 new jobs
created
By assuming 700 jobs instead of 400 and completely neglecting costs to the City, FISE predicts an enticing (but woefully inaccurate) annual revenue of $500k.
The proponents of Oakwood Commons claim it will enrich the City. However, careful analysis of both taxes and costs leads to the opposite conclusion: it will make the City poorer. This is not a unique result for South Euclid: retail development in today’s economy is a losing proposition for most cities.
But this does not mean South Euclid cannot prosper from the Oakwood land. Indeed, FIAs consistently show that other types of development – such as office parks and senior housing – tend to be winning propositions. The Oakwood land is the last large undeveloped parcel in South Euclid: it must not be squandered. South Euclid can be a winner if it holds out for a smarter development plan. (Download and print out a shorter version of
[1] Application for rezoning submitted by FISE to the City of South Euclid (2010). (hyperlink) [2] Property tax calculations provided by FISE (2010). (hyperlink) [3] Estimate of number of workers based on floor space from the Energy Information Administration (1995). (hyperlink) [4] Annual retail wage estimate from the National Retail Federation. The value used is a blend of the values given for “retail” and “food service” for 2010. As a value-oriented big-box strip mall, wages for Oakwood Commons would be expected to fall below the given national averages. (hyperlink) [5] Income tax rates from RITA (2011). (hyperlink) [6] Fiscal impact analysis for Dublin, Ohio by Tischler-Bise (2007). See figure 23 on page 26. (hyperlink) [7] Cost of living index for Dublin, Ohio (hyperlink) and South Euclid, Ohio (hyperlink). [8] Understanding the fiscal impacts of land use in Ohio. Prepared for the Mid-Ohio Regional Planning Commission by Randall Gross (2004). See Appendix on page 26. (hyperlink) [9] This claim has been made in literature FISE has recently distributed to residents of South Euclid. [10] This quote is from a brochure distributed by FISE to South Euclid residents in early 2011. |