Saving Independent Retail: Retail Diversity and Neighborhood Health
Testimony to NYS Senate and NYS Assembly Standing Committees on Cities
During the past decade, locally owned retail businesses in neighborhoods all over New York City were on the losing end of the city’s strengthening economy. Prosperity turned into a threat as rising rents made it difficult for many of them to continue operating.
According to the Real Estate Board of New York, retail rents rose 54 percent between 2001 and 2008. In surveys, New York City merchants cite high rent as the biggest challenge they face. Increasingly, shop owners operate under leases that run for five years or less, down from a once-standard ten, leaving them vulnerable to rent hikes and eviction.
National chain retailers are continuing to expand their presence in major shopping districts throughout the boroughs. Property owners on major commercial strips tend to seek chains, not only because they are willing and able to pay higher rents than independents can, but because of fears that independent retailers are a risky bet in today’s challenging economy. Chain store operators seek to cluster together, and their presence dramatically inflates rents. On Steinway Street in Queens, annual asking rents on a chain-dominated block exceed $70 per square foot, compared with $40 for a nearby stretch where many independents have closed. Even that rent is too high for independents to sustain, and the block has at least a dozen vacant storefronts.
As independent retail stores close with increasing frequency, New York is losing more than places to buy the necessities and luxuries of life. It is being drained of essential ingredients for a healthy economy and strong, livable communities. A 2004 study in a Chicago neighborhood showed that local businesses poured 68 percent of their revenue back into the local community, compared to just 43 percent for national chains. The gradual disappearance of the “mom and pops” from many shopping districts undermines the diversity and uniqueness of what defines New York City. Small retailers are part of the glue that holds neighborhoods together, but that bond is dissolving, and weakening community quality of life along with the city’s economy.
What the State Can Do
New York should look to models from more than 20 states and 50- plus cities that have new or proposed laws aimed at fostering a stable, thriving and successful local business sector full of businesses that neighborhood residents want and need. Examples of these are detailed in the policy brief submitted along with this testimony.
The current network of support systems available at the city and state level are important to the health of small businesses, but they are largely underfunded, poorly coordinated and not supported by corresponding policies. They do not reflect a comprehensive agenda that has been developed through a process involving elected officials, government agencies, policy experts, small business owners, and community organizations, aimed at systematically analyzing the problem of independent retail attrition and potential solutions. Issues of special concern for retailers operating in low and moderate income communities remain unexamined and unaddressed. We believe that the development of a comprehensive agenda is essential and would be most effectively undertaken on a city level, but there is much that the state could do to support small businesses in the meantime.
1) Increase Resources and Reduce Barriers for Lower-Income Communities
Planning funds
Commercial districts, local development corporations, community development corporations and business improvement districts located in low-income areas need increased funding to support planning efforts that identify priorities and provide a framework for implementation.
Specifically, there should be increased funding to the Department of Transportation to support communities to plan around pedestrian, transit, goods delivery and auto circulation in commercial corridors, and to implement the plan.
Capital funds
American Recovery and Reinvestment Act (ARRA) dollars should be applied to support local retail. Funding to the Main Street program, coordinated by the National Trust for Historic Preservation, to assist communities in commercial revitalization, should be increased. Current wait times to for the program are long because of high demand relative to the amount of funding available. Especially important, ARRA funds that the State allocates should be directed to require Main Street to create a streamlined and simplified process for applicants from lower-income areas, in order to increase the ability of these communities to participate in and benefit from the program.
Tax Credits and Abatements
Limiting the escalation of rent for commercial tenants would be a key way to support their retention. One model is a voluntary incentive program in targeted locations where a tax abatement is given for landlords who agree to a schedule of modest rent increases to local (non-chain) businesses. This strategy has been employed on the city level for Lower Manhattan, but would benefit from state support and expansion.
New York should continue to expand and promote the use of historic preservation tax credits such as Chapter 239but work with State Historic Preservation Office (SHPO) to relax standards where projects that provide community goods – like affordable housing and community centers that are vital in low and moderate income communities – are stymied because of lack of flexibility in the current restrictions.
2) Include local retail in large-scale economic development projects
Set-aside space for small businesses, vendors, and entrepreneurs in larger developments
For any commercial development over 50,000 square feet in New York City, owners should be required to include businesses at a range of sizes, going down to 250 square feet, with targets for locally owned small businesses. For government-owned or -sponsored developments, rents should be below-market and leases at least five years.
Establish a displacement and relocation assistance fund
State and local governments sometimes take action or provide subsidies in the name of major economic development projects that displace existing small businesses, as in the cases of Willets Point in Queens, the City Point development in Brooklyn and the Gateway Mall development in the Bronx. Generally, the measures that have been taken to address the harm to small businesses have been insufficient to ensure their survival. Driving local retailers out of business to make way for corporate entities is not a consistent economic development strategy, and should be addressed through the creation of a displacement and relocation assistance fund that truly provides small businesses the opportunity to survive and thrive.
3) Explore issues facing Business Improvement Districts (BIDs) in lower-income areas
The issues surrounding BIDs are complex and vary significantly between more affluent and less-resourced communities. Pratt Center works with a number of BIDs operating in low and moderate income communities – the Church Avenue BID, the Flatbush BID, and the Pitkin Avenue BID for example— and their realities are starkly different from those operating in more affluent neighborhoods. For legislators and their staffs that are interested in exploring this issue in greater depth, we offer to host a conversation with representatives from the organizations with which we work, so that you may learn directly from organizations on the frontlines about the challenges that they face. Some of these expressed interest in attending today but were unable to do so.
Thank you again for the opportunity to testify. We look forward to working with you in the future on the implementation of these ideas.
NOTE: This testimony was prepared by the Pratt Center for Community Development. It does not necessarily reflect the official position of Pratt Institute.
