Proposition 2 defeated

Good, for all the reasons articulated here and by the Chronicle.

City Council, however, should not intepret this as an endorsement of retail subsidies by the public.  Retail subsidies are generally a bad idea and the City ought to stay out of that business.

I have never bought the argument that we need subsidies to keep retail developments from fleeing to the suburbs for three reasons. First, it makes little sense to lure retail for the sake of sales tax revenue if we turn around and rebate that tax revenue to the developer.

Second, the tax-revenue argument ignores the opportunity cost:  a particular piece of property might not be developed as retail without the subsidies, but that does not mean it won't eventually be developed as something else.  The foregone taxes from other potential developments are an opportunity cost of the tax rebates, but are hard to estimate, and thus hard to account for in a cost-benefit analysis.

Finally, the "We-need-subsidies-to-keep-retail-in-Austin" argument encourages rent seeking.  The mere possibility of hand-outs encourages developers to seek them, and City Council rarely has enough information to determine whether the subsidies are really necessary to lure the developer. 

A better strategy is to provide an attractive environment for new retail, aggressively expand the city's boundaries, and repeal stupid ordinances like the one requiring a conditional-use permit for new big-box retail.  (The last one is particularly obnoxious -- just a bit of protectionism for local businesses -- and demonstrates that they have a malleable definition of "level playing field.")

That said, I do not agree that retail subsidies -- at least in the form offered to Endeavor -- create an uneven playing field for local businesses.  Because retail is such a competitive business, it is very hard for individual establishments to capture subsidies passed out to property owners.  Unless the development agreement caps the rents charged to the retailers, the property owner has an incentive to adjust the rent to whatever the market will bear, leaving the retailers to earn ordinary profits.  There are exceptions, of course, such as direct payments to individual stores (e.g., the forgivable loan proposed for Las Manitas).

Retail subsidies do expand the amount of retail in Austin, though.  In that sense, they have exactly the same effect as the VMU ordinance, which also mandates an increase in retail space by requiring ground-floor uses.  (I nevertheless understand why local businesses would get mad at the city for using city money to add competitors.)

One last, important point:  Not all payments to mixed-use developers constitute a subsidy to retail.  Sometimes the City is trying to purchase affordable housing.  Often it is trying to buy "good" design.  Mixed-use developments like the Domain are more expensive than the standard strip mall because they need parking garages and have other expensive design features.  While those features may be cost-effective in central Austin where land is very expensive, they generally will not be cost-effective on the city's perimeter.  Paying for good design is not a subsidy to retail.  We can debate whether the City ought to subsidize good design, and we should have that debate, but we rightly refused to silence that debate through a charter amendment.

Update:  M1EK argues that strip retail actually costs the city more money than they make, which is an argument for subsidizing mixed-use developments like the Domain.  I think this is a variant of the "good design" argument.  Let the debate begin.   

Comments

[M1EK]

The problem is that every single person who voted SDS's way, and a lot of those who didn't, view subsidizing the Domain as "subsidizing retail".

I also wrote about this this morning: http://mdahmus.monkeysystems.com/blog/archives/000540.html

My argument is that the sprawl crap is already subsidized (and preferred from a regulatory sense). Unless we can fix that, and I don't believe we can, we may need to keep subsidizing better alternatives if we actually want any to exist.

[AC]

I included a link to your post in an update. See my comment on your blog.

[trza]

Great post AC. One of your best!

[M1EK]

Whoops, your comment crossed mine. I shall update as well.

[heyzeus]

Quick, Robin! To the Echo Chamber!

[Don Johnson]

Subsidizing the developer does correlate to a subsidy to the retailer. With the developer subsidy, the retailer gets a place they can afford. Otherwise, the developer would need higher rent which would mean retailers would have to charge more losing their competitive edge.

Even if we accept your premise that it is a developer subsidy (not retail), then you are leaving out the distinction between retailers who rent, and retailers who own or developed their storefront. The latter being at a disadvantage.

A subsidy is a subsidy, and it is an advantage over anyone not getting a subsidy.

M1EK's link suggests that sprawled retail is already subsidized because it is less dense and requires roads and utilities to pull it together on the public dime. Good point for allowing more density. Bad point for saying let's go ahead and subsidize private development on top of it. You take a road to the Domain anyway. I'm not grasping the improvement vs. land tax, but remember a smaller chunk of land is much more expensive per acre than a large chunk of land. So technically if you build 50 retail stores together there is a savings to building 1 retail store. And then they got subsidized on top of it. Small business is screwed.

I think you guys are trying to out-wonk each other and drifting away from sound principles.

[M1EK]

Don, the city has to build/maintain less square feet of road for the average customer to the Domain than they do for the average customer to a strip mall. That's the point.

And we can't get the neighborhoods to allow more density. I'm the first one to try, but you have to face reality: they just got Laura Morrison elected.

[Tim]

I can't help but see parallels between NA NIMBYism and development subsidies for small businesses. Seems like everyone's for new development (with standards, without government help, etc. etc.) so long as nothing actually gets built to compete with what's already there.

I'm getting too cynical.