Economic Impact Review

States and municipalities have long evaluated the impact that large retail development projects may have on such things as traffic and the environment.  Some are now adopting policies that require that the economic and fiscal impact of these developments be considered as well. (Economic impacts include the effect on local businesses, jobs, and wages.  Fiscal impact refers to the impact on tax revenue and government costs.)

These policies usually have two key components:

• They require that an independent study of the economic and fiscal impact of the retail development be conducted by a qualified analyst selected by the municipality (or other reviewing authority) and paid by a fee assessed to the developer.

• They establish a standard (or multiple standards) that the project must meet in order to be approved. The policy may say, for example, that the planning board (or city council or regional planning commission) may approve the development only if it concludes, based on the data provided by the study and other evidence submitted, that the project will not have an undue adverse impact or that the benefits of the development will outweigh the costs.

Typically, these reviews are triggered when the proposed development exceeds a certain size. For example, the law may apply to all projects involving retail stores larger than 50,000 square feet or those that will generate more than 500 vehicle trips per day.  (See How Big are Big Box Stores? for a visual illustration of the size of different retail stores.)

Most of these laws spell out the types of impacts that the study must analyze and that officials must consider in determining whether to grant approval.  The list may include such things as the impact that the development will have on existing businesses, the vitality of the downtown, employment (jobs gained versus jobs lost), wages, tax revenue, and municipal costs.  Some laws also include community impacts, such historic and scenic resources, and environmental impacts.

The advantage of an independent study is that it ensures that the city (or regional planning board) has objective information about the economic impacts of the project.  In the absence of such a study, the only information that local officials are likely to have are the rosy, and often misleading, job and tax revenue projections provided by the developer. 

To learn more about how these studies are conducted see A Guide to Retail Impact Analysis.  We've also posted below some examples of actual impact studies of large-scale retail proposals conducted by various communities.

Most of these policies also stipulate that a public hearing must be held in order to give citizens an opportunity to testify on the findings of the study and to submit additional evidence regarding the impacts of the proposed development.

Below are examples of local, regional, and statewide economic impact review laws.  Local policies are those enacted by cities and towns.  We include several examples below.  Reviews conducted under these laws generally only consider the impact of the project on the local community.

Large retail developments often have impacts that are felt far beyond the borders of the city in which they are located, however.  In most of the country, there is no process for evaluating the regionwide costs and benefits of large-scale retail construction. Authority to approve or deny a development rests entirely with the host town, and any costs that fall on adjacent communities, such as loss of businesses and higher road maintenance costs, are generally not considered.

To remedy this, neighboring communities in a handful of regions have worked together to enact regional policies.  A good example is the Cape Cod Commission, established in 1990 by the fourteen towns that make up Cape Cod, Massachusetts.  Composed of representatives of each of the towns, the commission is charged with reviewing all development projects that are large enough to impact multiple towns.  The commission's review of these projects is in addition to any review and permitting required by the host municipality.

A significant advantage of implementing a regional approach is that it ensures that towns will not feel pressure to approve a harmful project out of fear that, if they reject it, the  development will simply locate in a adjacent town, generating many of the same impacts but without any local tax revenue or oversight. Regional cooperation offers a solution to this problem.

A growing number of states are considering and enacting statewide policies that make economic and fiscal impact studies mandatory for large-scale development proposed anywhere in the state.  Maine's Informed Growth Act, for example, stipulates that large retail projects must undergo an economic impact analysis and grants cities the authority to reject those developments that they determine will have an adverse impact.

Some of these proposed and enacted laws, including Maine's, require the municipality to evaluate and consider the impacts on the entire region and invite officials of neighboring towns to submit testimony, but still leave the final decision solely in the hands of the host community. 

Another approach, taken by Vermont, is to establish regional planning boards throughout the state that review and decide whether to approve large developments. These boards are composed of representatives from all of the towns in each region.

More Information:

• A Guide to Retail Impact Studies
  This guidebook is designed to give municipal officials and citizens an understanding of how economic and fiscal impact studies of large-scale retail projects are conducted and what types of data they provide.

• Examples of economic and fiscal impact studies of large-scale retail proposals from Bennington, VT; Eureka, CA; Gunnison, CO; Northneck, VA; and St. Albans, VT.

• Answers to Common Questions about Maine's Informed Growth Act
  A Q&A that describes how the law works and addresses common questions about it.

• Informed Growth Act a needed tool for Maine communities
  by Stacy Mitchell, published in the Maine Sunday Telegraph, May 20, 2007

• Protecting Locally Owned Retail: Planning Tools for Curbing Chains and Nurturing Homegrown Businesses
  by Stacy Mitchell, Main Street News, February 2004.

• Big-Box Sprawl and How to Control It
  by Constance E. Beaumont with Leslie Tucker, Municipal Lawyer, March/April 2002

• Impact of Big-Box Stores
  Key studies and fact sheets