Memorandum

City of Lawrence

Planning Department

 

TO:

City Commission

David L. Corliss, City Manager

FROM:

Amy Miller, Long-Range Planner

CC:

Debbie Van Saun, Assistant City Manager

Sheila Stogsdill, Interim Planning Director

Date:

April 30, 2007

RE:

Response to City Commission Questions Regarding Retail Market Items

 

Development Strategies 2005 Report

 

Since the adoption of Horizon 2020, the Planning Office has been building a retail market database that is used as an analytical tool to implement the goals and policies in the Comprehensive Land Use Plan.  In early 2005, the Planning Director requested permission to hire a consultant to assist with an update to the database and to evaluate market studies for large-scale commercial development requests [Bauer Farm & Northgate/Diamondhead] that had recently been proposed.

 

On May 10, 2005, the City Commission authorized staff to enter into a contract with Development Strategies [DSI], consultants in Real Estate, Community & Economic Development from St. Louis, Missouri.  During the course of this project, the City received a third market study [Mercato] and the consultants were requested to also review this study and the impact of all three proposed developments on the community.

 

A primary goal of the project was to determine the amount of retail space as a ratio to other variables such as population, households, and buying power and how these ratios relate to sustainable ratios from both historic patterns in Lawrence and known patterns in similar cities in the U.S.

The retail market database was updated and the market studies for the three development proposals on W. 6th Street were evaluated. The scope of the Development Strategies contract also included preparation of a technical report and presentation of the findings and conclusions to the Commission.  Bob Lewis, from DSI, presented his findings at a City Commission study session on January 18, 2006.  A final report was provided to staff and has been posted to the website since mid-February.

 

Both Horizon 2020 (Chapter 6, Policy 1.7), and the current Land Development Code (20-1107 (d) 2) mandate that the retail market database undergo annual updating. Staff held off on an annual update in the Summer of 2006 because of pending text amendments to the Development Code and Horizon 2020 regarding retail market impact studies.  

 

During the Fall of 2006, Staff reviewed the database in anticipation of an end of the year update.  Staff has identified errors with the data collected in the Summer of 2005 that was used as the basis for the DSI study. The errors range from incorrect NAICS codes to the inclusion of businesses that did not exist at the time of data collection.

 

Example 1: Incorrect NAICS Code

          In the Downtown district, Saffee’s, 911 Massachusetts, is listed as a Full-Service Restaurant (NAICS 722110) when in fact it should be listed as a Women’s Clothing Store (NAICS 448120).

 

Example 2: Inclusion of non-existent business

          In the Downtown district, Willie C’s, 616 Vermont, is listed as a Full-Service Restaurant. This restaurant was no longer in business at this location in the Summer of 2005. The square footage for this restaurant should have classified as office or non-retail, but was instead counted as Restaurant.

 

Example 3: Square Footage inconsistencies

          In the South Iowa Street District, Supercut’s is listed as occupying 2000 square feet and Radio Shack is listed as occupying 5000 square feet. Both businesses occupy the structure at 3221 Iowa Street which is only around 3600 square feet, not the 7000 square feet that they were counted as occupying in the database.

 

The integrity of the information was determined to be suspect and in order to correctly determine the extent of the inaccuracies, it was necessary to essentially re-survey the retail stock. Staff began a complete re-survey of the Lawrence retail stock in order to produce a final product that would be similar to the DSI report in structure and the re-survey was completed on March 1, 2007. This report will include analysis based on sales tax data, income and population for 2006.  The intent is to create a quality database that is integrated with GIS in order to provide a model that can be used and updated every year to provide current information.

 

Staff is currently in the process of finishing the database and report. The supply information has been collected, and staff received the 2006 sales tax data from the State of Kansas on April 23, 2007. This report is expected to be completed in the next couple of weeks.

 

Office Vs. Retail

 

In Section 20-1107 (b) (1) of the Development Code it states:

 

(1)         A retail business shall be defined as one whose primary coding under the North American Industrial Classification System (NAICS) falls into at least one of the following sectors:

(i)          Sector 44-4S:  Retail Trade;

(ii)        Subsector 722:  Food Services and Drinking Places;

(iii)      Subsector 811:  Repair and Maintenance; and

(i)          Subsector 812:  Personal and Laundry Services.

 

The database is designed to track all businesses in commercial zoning districts, regardless of the actual use since those spaces could be used for retail businesses. The retail market analysis report will break down retail businesses located in a retail space, as well as non-retail businesses located in retail spaces.

 

In comparing supply figures to sales tax figures the key is consistency. As long as the same method is employed over the years, then the analysis can be reliably compared over the course of time. In addition, in the State of Kansas, some services, not just the sale of goods, are taxable under the State sales tax laws. The report that staff is currently working on will analyze the rate at which sales tax increases as compared to the rate of population, income and stock (square footage). By using the rate for comparison factors, it removes and possibility for inconsistency between data.

 

Prof. McClure’s Report:

 

Staff has concluded an initial review of Prof. Kirk McClure’s report dated April 26, 2007 and identified a few items that need clarification.

 

The supply numbers that are outlined in Chart 1 and Table 1 are cited as coming from the City of Lawrence, Inventory of Retail Space. Planning staff provided Prof. McClure with the 2005 retail space database that was used as a basis for the DSI report. The information in Prof. McClure’s report from 2006 and 2007 did not come from any Planning Department staff member. In addition, the square footage number listed for 2005 does not match the number used in the DSI report for 2005.

 

Also, the report uses a figure of 81,816 people for the 2005 U.S. Census Bureau population estimate, when in fact the correct figure is 88,664 people. That number was the subject of a successful challenge in the Fall of 2006.

 

Pull Factor:

 

Prof. McClure uses a “City Trade Pull Factor” to compute leakage, or the amount of retail spending moving from one community to another. The pull factor described in this report is from the Kansas Department of Revenue and is a factor of the per capita sales tax of Lawrence divided by the per capita sales tax for the State of Kansas. That figure is listed as 1.22 for 2005 in Prof. McClure’s report for the City of Lawrence, meaning more sales dollars are brought in to the community than are “leaking” outside of the community. In April 2007, the Kansas Department of Revenue issued a revision to those figures, to say that Lawrence’s pull factor for 1.11 in 2005, 1.10 in 2004, and 1.06 in 2003.

 

In the DSI report, there were two figures analyzed to try to determine “buying power”. One figure was based on the pull factor concept and had Lawrence at .98 for 2004.  DSI also analyzed the “Ratio of Retail Sales to Effective Buying Income” for 2004, which essentially is the ratio of sales taking place in a community to the disposable income of the residents. A high ratio means that the community is retaining its retail dollars, and a low ratio means that retail dollars are leaving the community and being spent elsewhere. Lawrence’s ratio for 2004 was .59, putting it below other peer cities. The citation given for both of these figures was the annual “Survey of Buying Power” which is conducted by Sales and Marketing Management Magazine.

 

It is hard to reconcile the difference in figures, especially with respect to the pull factor, but staff would recommend the figures put forth by the Kansas Department of Revenue as the most reliable source since that department is also the generator of the un-biased base data used to compute the pull factor.