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Friday, July 14, 2006

Oooh That Pesky Law

A pesky law is expected to bite some pretty underdeveloped Chicago neighborhoods in the backside shortly.

Which law, you ask? Why the law of unintended consequences, of course.

Chicago is looking at a big box ordinance that would require $9.25 hour in wages and $1.50 in benefits, escalatin over the next few years to 10.00 and 3.00 respectively for any retail operation with a 90,000 square foot facility and $1 billion in overall revenue.

Target has started initial development on 3 stores in underserved minority neighborhoods in the city, but yesterday told a group of alderman that the plans on on hold until they see what happens with the ordinance, and that in all likelihood, they could be cancelled.

Ald. Carrie Austin of the 34th ward put it bluntly in a Chicago-Tribune story, If the ordinance passes, "my development is through". She understands that her wards border with Calument Park means that Target, and a proposed Home Depot could move just a few blocks and face a less hostile development environment, lower taxes, and lower costs to operate.

While the Home Depot would probably pay what the ordinance requires, the fact is they like to co-locate their urban stores with big box type retailers to increase traffic. The loss of Target as a primary destination would be a blow to their sales, and be ample reason to cancel the store.

While some alderman challenge the notion Target would pull out, look at the history of cities with "Living wage" laws. They do end up with retail development, but from higher end stores with larger margins. The neighborhoods that need the larger development and low cost shopping the most end up with small mom and pop stores employing dozens less people, and exempt from the living wage laws.

The other loss to city besides jobs that don't exist in those neighborhoods is property taxes. Empty lots don't generate revenue. The Wal-Mart going up in my town later this year is expected to generate about $200,000 a year in intial property taxes, going up to about double that in 4 years. Outlots are expected to bring in 50% more tax revenue when they develop.

Chicago, with a higher tax rate, would probably see $2 million (a guestimate on my part) of lost property taxes if the 3 Target stores and Home Depot pulled out, to say nothing of the ancillary development they would spur.

But evidently that's okay, it's better to have a symbolic ordinance that kills the jobs and taxes than to actually get the jobs and taxes areas like the 34th ward actually need.

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2Comments:

Blogger shoprat said...

Michigan just raised its minimum wage. Lot of good it does if there are no jobs.

9:42 AM  
Blogger ablur said...

Seems the city planers have failed economics. Not much of a surprise though looking at the many other cities with failure directed money policies.
I wrote a piece a while back about how taxes effect business. More people need to understand these basic interactions.
Once again the government has lost site of what the minimum wage is for. We need to understand what the minimum wage does and how it can be used to improve employment. For some reason government seems to promote a losing mentality that business can't afford to maintain.

11:10 AM  

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