Should Lawrence adopt the Smartcode?

Is the Smartcode worthy of its name?

“Smart growth, or sustainable development, has been tested as a policy in at least two-dozen states since the 1970s, when the term first appeared. It's evolved over the decades, to be sure, but the chief goals remain: to plan better, rein in sprawl, redevelop in established urban areas, promote mixed-use growth near transit and in environments that are easy to walk around, and offer a range of housing types that are affordable to different incomes. “ - Lincoln Land Institute Smart Growth: Form and Consequences (2002).

The Smartcode does nothing to rein in sprawl, it works against the redevelopment of established areas, and it does not ensure that development proceeds at a sustainable pace. While it makes a nod to mixed-use and the ability to walk around, it does nothing to ensure that affordable housing is provided in new developments. As such, the Smartcode fails to deliver what it promises.

The Smartcode is a poorly designed development code that removes most public input from the development process and circumvents needed review of many development projects by both the Planning Commission and the City Commission.

The basics are as follows:

Certain districts would be designated as appropriate for development. Once designated and zoned, no further public input is permitted on any development proposal. Yet, we know from experience that citizens rarely become involved in the zoning process; they only become involved when a development proposal comes forward.

If a developer plans a development within these districts, and if a committee of planning staff members (called the Consolidated Review Committee or CRC) finds that the architectural design of the development meets the design guidelines of the Smartcode, then a building permit is issued.

There is no review by the Planning Commission, and there is no review by the City Commission. Because public input is only received through hearings before these two bodies, there is no public input on the process.

The Smartcode assumes that if land is zoned, that the developer can build at any time with only cursory staff review. If the market cannot absorb the new development without negative impact upon existing space, the Smartcode does not prevent this negative impact. In fact, it facilitates growth at an unsustainable pace.
If the CRC does not approve the development plan, the developer may appeal to the Planning Commission. There is no obligation for the CRC to inform the public of the development plan or seek out public input. If the public does learn of the development plan, it has no capacity to provide input. The public cannot appeal the decision of the CRC to either the Planning Commission or the City Commission.

The Smartcode calls for subsidies to certain types of developments that meet the architectural guidelines within the code. It is apparent that the Smartcode calls for subsidies to development that will take place without subsidy and fails to assist development in older neighborhoods that will not take place without subsidy. This is wasteful and counterproductive.


Good design does not resolve all planning problems

Smartcode is a needless giveaway to the developers. The Smartcode derives from a false belief that if development meets certain design guidelines, that all of the other planning and developments problems resulting from the proposal are resolved. It would be nice if beautiful architecture could overcome all the other problems, but it cannot. There is nothing in the Smartcode that prevents the development community from its continued overbuilding. If the district is zoned and if the development plan meets certain architectural guidelines, then the development can obtain its building permit even if the neighbors object and even if the development will have a negative impact upon other parts of the community (such as traffic congestion or adding to an already overbuilt supply of space).

The planning staff made a few modifications to the initial draft of the Smartcode by agreeing that the CRC will examine a developer provided market analysis and traffic impact study. The staff has not demonstrated either the skill or the willingness to respond appropriately to market studies in the past. There is nothing in the Smartcode mandating attention to these issues now. Further, there is little reason to believe that developer provided studies will tell the truth. In Lawrence, we have seen many false reports, making phony claims and exaggerated promises. For every piece of failed real estate, there is a market study saying the property would succeed. The planning staff have accepted and approved these studies in the past. They have made few, if any, efforts to correct these studies or to create their own studies. This record does not suggest that the public can trust the planning staff to do better in the future.


Building space faster than growth in demand for that space

The greatest threat to Lawrence is the excessive pace of growth in the supply of real estate. The community should expect, even demand, good design without offering subsidies or accelerated access to building permits. The community should be a part of the development process from the zoning decision all the way through to the final development plan approval.

The development industry confuses growth in supply with growth in demand. Economic growth is assessed by the growth in demand, which is the growth in people and their income. When we have more people and these people have more income, then their spending will demand more goods and services.

These goods and services may include more homes and support more retail stores. Note that building more homes and stores does not generate more people or income. Demand must precede supply and support supply. If supply is built beyond the available demand, then bad things happen. Older shopping centers empty out and become blighted. Older neighborhoods decline. Developers never pick up the cost of this blight; they simply look to the taxpayers to pay the very expensive costs of redevelopment. Even this expensive redevelopment fails unless there is sufficient demand for the revitalized space.


Sustainable growth means supply growing no faster than the growth in demand

It is crucial to the health of any community that the growth in supply be kept at a pace that matches the growth in demand. Unfortunately, the development and construction industries are prone to overbuilding. Cities, under pressure from developers, are prone to over-zoning. This is true throughout the nation, not just here in Lawrence. Preventing excessive growth in supply is easy and costless; it only takes well-managed growth controls by the community.

This is the purpose of the market analysis requirement integrated into the planning process. Lawrence has ignored this analysis because it has, for years, indicated that Lawrence is building more homes than it needs and more retail space than it needs and more office space than it needs. Developers and builders have brought political pressure on the planners to ignore the market signals indicating that the market is building at an unsustainable pace. Except at the extreme, developers make money even in overbuilt markets. Thus, the builders and developers have captured control of the political process to prevent the community from taking steps to slow the pace of growth.

What Lawrence needs is smart growth management tools not misnamed smart development codes that are giveaways to a development industry that has proven itself prone to overbuilding.

Lawrence should not adopt the Smartcode and should actively work toward bringing the pace of real estate development in line with the growth in demand for that development.

Oread Inn, Eldridge Expansion, and TIF Loans

How should the City approach reqests for TIF and TDD financing?

The developers of the Oread Inn (the Fritzel family) bring a very interesting project to the community. It may be a project worth the community’s investment, but the devil is in the details. The community needs to be very careful with its scarce resources, including its future tax revenues. The community should subsidize commercial projects like these hotel proposals only:

• Where it is sure that the net result is beneficial to the community, and
• The financial commitment is not one dollar more than is minimally necessary for the project to move forward.

Here are the basics of the Oread Inn proposal:

The development will cost about $31 million. Of this total, about $6 million is for a parking garage and $5 million is for off-site improvements (road, pipes, walks, etc.) The developer will finance about $20 million, and the city will finance about $11 million (the parking garage and the off-site improvements) though Tax Increment Financing (TIF) bonds and Transportation Development District (TDD) bonds.

TIF bonds are bonds sold to investors through the normal bond market. However, these bonds are sold with the understanding that the revenue to repay the principal and interest on the bonds will come from pledging some or all of the incremental taxes generated by the project. Thus, the project will pay to the city, county, and school district the taxes that would have been collected from these properties had no new development taken place. The taxes collected above these original levels, called the tax increment, can be pledged to repay the TIF bond debt. Kansas law permits some or all of the city and county tax increments to be pledged to repay TIF bond debt. Kansas law prevents all of the school tax increment from being pledged to repay TIF bond debt; a portion of the new tax revenues must be given to the school district. To the extent that portions of these city, county, or school district taxes are pledged to repay TIF bonds, these future tax revenues are lost to local government. Until the debt is retired, government services will have to be paid by other taxpayers.

TDD bonds are very similar to TIF bonds. The difference is that the tax revenues pledged to repay the bonds come from a special sales tax that is added to the properties within the district. This TDD tax giveaway is of less concern to a community than the TIF giveaway because, if used appropriately, all of the tax revenue comes from non-residents (i.e.: tourists staying at the hotel). There is no capacity for the city to impose the tax without pledging it to repay TDD bonds; thus, there is no loss of future tax revenue to the city as there is with the TIF.

What the developer wants

The developer wants all legally available local taxes generated by this project pledged to repay the bonds. The developer has offered a letter of credit to fully cover the debt on the bonds in the event of default by the property. Thus, the city cannot suffer out-of-pocket losses on this project, but the city will not see any tax revenues from this project until the bonds are fully repaid. This could be as long as twenty years.

Some of the taxes that would come to the city from this project will go to paying for the hotel’s parking garage. As such, these funds will not be available to meet the city’s other needs. Also, some of the taxes that would come to the city from this project will go to paying for the hotel's road, sidewalk, and utility line improvements that would not otherwise be needed by the city.

The city's decision process

What this means is that the taxpayers are giving property taxes from this development back to the development itself. If the community believes that this project will be so beneficial that it merits this return of taxes, then it may be a subsidy deal worth undertaking. Unfortunately, the process is not designed to help us make this assessment.

What the developer is offering is:

Option 1: A 7-story hotel (7 stories above Oread Avenue with 3 stories of garage below) which would require 20 years to retire the TIF bonds.

Option 2: An 8 or more story hotel (with condominium units on the top stories) which could permit repayment of the TIF bonds in ten years bringing the property onto the tax roles much earlier.

The developer claims that the project is not feasible without the TIF bonds. This may or may not be true. The city can and should determine the accuracy of this claim by careful examination of the developer’s projected expenses and revenues. It is possible that that a smaller project would be feasible with no tax increment financing. It is possible that the project, as proposed, is feasible with TIF bonds paying only for portion of the public improvements and the parking garage.

It is unclear if anyone within city hall is examining these issues and guiding the negotiations toward an optimal design for this project from the perspective of the taxpayers.

The developer is doing a masterful job of boxing the city into a corner. The city should hold off on the deciding about the historic issues, the zoning issues, or the design issues for now. First it should decide what is the best option for the city and negotiate for that option. However, the developer is pushing ahead on these issues so that the city effectively will be given a “take it or leave it” choice. This is unfortunate and should be avoided.

The developer is also planning a similar expansion of the Eldridge Hotel downtown. It wants to expand the hotel to the west to Vermont Street with underground parking, conference facilities and additional rooms. It is very likely that a similar or even larger TIF and TDD request will be made for the Eldridge.

The process that the city is following is reminiscent of the process followed years ago to approve the financing of the parking garage on the 900 block of New Hampshire. The process ensured that the financing was legal, but the process did not ensure that it was beneficial to the city. As a result, the city is now paying for a parking garage for which it is struggling to find cars. Much of the concern over the Oread Inn financing is resolved with the letter of credit guarantee offered by the developer. However, much remains unresolved.

Being legal is not enough; the project should be beneficial to the city and avoid any unnecessary giveaway of much needed tax revenues.

The city has hired a consultant to address the feasibility issues. This feasibility study is to be completed by January 30th. The city has published a “calendar of events for TIF and TDD” for review and approval of the Oread Inn project. The calendar provides no time for negotiations between the city and the developer. Rather, the calendar is couched entirely in terms that assume approval of the developer defined proposal. The calendar’s language assumes the developer alone defines the proposal; there is no provision for negotiations and modifications by the city. Further, the calendar assumes approval of the developer’s proposal at each and every step along the way. There is no conditional language stating that approval at a later stage is conditioned upon approval at an earlier stage. There is no decision tree showing alternative paths that may be taken to a negotiated agreement if the city agrees to partner with the developer in the building and financing of this hotel.

What should happen next?

The city should take command of the approval process and enter into negotiations with the developer. The city should seek to maximize the tax revenues that can flow to the city from this hotel. Giving away all of the tax revenue means that the city’s economy gains a few jobs, but the city must provide police and fire protection to the hotel plus other services for which it will not be compensated. It also means that the city will lose this hotel as a source of much needed revenues to pay for the ever growing costs of running the city. To maximize these revenues, the city must negotiate with the developer on alternative development schemes that may reduce the need to tax increment financing.

These questions need to be answered:

1. Will more hotel rooms permit the bonds to be repaid earlier, bringing the property onto the tax roles earlier?

2. Can alternative design schemes be feasible without pledging all of the tax dollars to the project?

It is the role of the city Manager and the Director of Development to assure the taxpayers that these issues are being addressed. Both are relatively new to their positions. Being new, neither has developed a track record of prior success in such negotiations that can build public trust.

We cannot afford to sit back and depend upon the developer to propose a scheme that is optimal for the city. Provision of TIF and TDD bonds is a significant participation by the city. If the city is to become a partner in this development, city staff members need to take a lead role in the examination of alternative design schemes which may be better for the taxpayers.

What happens when the Planning Commission does not plan?

The Lawrence-Douglas County Planning Commission consciously defined itself as the "land use" commission when it reviewed the development plan for the city's second Wal-Mart, this one to be located at 6th Street and Wakarusa Drive. Anytime a planning commission shirks its duty to plan and attempts to redefine itself as something less, such as a "land use" commission, a city is hurt.



On July 23rd, the Planning Commission reviewed the development plan for the second Wal-Mart. The Chair of the Planning Commission stated, "We are the land use commission". With this statement, the Chair asserted that the role of the Planning Commission is very narrow, that of administering zoning ordinances that specify the height, size, and use of buildings. Zoning administration is part of the job of the Planning Commission, but this is far short of all of its full job.

Horizon 2020 is the comprehensive plan for the community. The zoning ordinance and zoning map derive from this plan, but they are not the whole of the plan. The plan calls for the city to monitor the pace of growth of retail space and to protect and preserve the city's existing retail districts.

Maintaining the proper pace of growth is crucial to the success of a city. If the retail space grows too fast, the new space will be occupied, but the surplus will cause older space to become vacant, to deteriorate, and to cause blight. If a city can pace the growth of retail space so that the pace of growth in supply is balanced with the pace of growth in demand, then the retail market can remain healthy.



In the absence of such planning, a city is letting the developers determine the pace of growth of retail supply. History shows that developers are prone to overbuilding. Lawrence is particularly troubled with overbuilding as the supply of space has been growing at three times the pace of growth in retail spending over a period of 12 years. This is a long-term problem. A twelve-year period is not a short-term fluctuation; it is a chronic problem. The harm of this overbuilding is that is causes widespread vacancy in older commercial districts, causing loss in investment, loss in value to surrounding neighborhoods, and lost public investment in revitalization. In Lawrence, the problem is so widespread that the retail oversupply has spread to the office market as dead malls seek out office tenants to avoid total vacancy. This depletes demand from the office market, hurting its capacity to survive.



The Planning Commission chose to ignore these issues. When it narrowly defined itself as the "land use" commission, it took the position that if the land is zoned for commercial space, that the developer, not the community, decides when that land is developed. It is this type of thinking that has generated many of Lawrence's real estate problems. It perpetuates the overbuilding that has resulted in:



1. A blighting level of vacancy in North Lawrence,

2. New retail space downtown unable to attract tenants,

3. Wasted large-scale investment in downtown revitalization with the new parking garage unable to leverage new commercial development,

4. Office usage of retail space in several malls along 23rd Street, and

5. Widespread vacant and deteriorating retail stores.



There is little doubt that adding a second Wal-Mart (or any other store of this scale) will add no new spending to the community. It will only displace retail spending from other stores. Thus, adding this new space will only vacate space elsewhere. The City currently suffers from:



1. Over 300,000 square feet of surplus vacant space (vacant space beyond a normal 5% vacancy rate),

2. Over 800,000 square feet of retail space in the planning process (including the Wal-Mart proposal), and

3. An ability to absorb only about 50,000 square feet per year given the pace of growth of retail spending.



The arithmetic is sobering. If no more space were to be built, it would take 6 years to absorb just the surplus vacant space that exists now. If all of the proposed space is built (Wal-Mart, Bauer Farms, Northgate, and Mercato), it will take an additional 16 years to fill all of this space.



The space may be built, and most of it may be occupied early in its lifespan, but the result will be continued widespread vacancy, deterioration, and blight elsewhere in the community. This can be avoided if the Planning Commission ceases to be narrowly defined zoning administrator and becomes what it is called upon to be, a commission that plans.

Should the City treat demand for real estate as a scarce resource?

The Lawrence Journal World (“Downtown’s future looking up: Leaders may consider guidelines for vertical redevelopment”, June 12, 2007) reports that the City Commission is thinking about ways to help redevelop the downtown. This is a good and useful exercise. The article also reports that the City is considering ways to permit buildings taller than experienced in the past. Again, this is a useful exercise. What is missing in the article is recognition by the City that buildings, at any height, need tenants who want to fill them.

The demand for real estate is a function of the population, its income, and its spending habits, not the number or height of the buildings available. There is only a fixed amount of demand available to the various real estate markets of Lawrence. Creating more buildings will not create any more demand. It is a zero-sum game. There is some opportunity to import dollars from elsewhere through tourists, but the capacity to do this is very limited and often overstated. The various households and firms who operate here allocate the total demand for real estate across the City. If a market is overbuilt, attracting demand to any one area of town means that the demand is taken away from another area of town.

If the City wants all the built space to be occupied and viable, then it should not permit more space to be built than this finite amount of demand can support.

What has been our experience in the various sectors of the real estate market?

Retail Sector

The supply of retail space is growing at an annual rate of over 3 percent per year with demand for that space growing by less than 1 percent. This excessive pace of growth doomed the retail market to what we have today, a market with widespread vacancy and blight. The overall retail vacancy rate is over 8 percent and over 10 percent for general merchandise space, the type of space sought after for downtown. At its extreme, this empty and under-utilized space is blighting some districts such as North Lawrence where nearly one-half of the retail space is empty. But the problem is not peculiar to North Lawrence. Many other retail centers, in all parts of the City, in buildings of all ages and sizes, are experiencing high vacancy.

Yet, the developers want to build more.

A second Wal-Mart will have little direct impact on downtown. Its competitors will be such vendors as Dillon’s grocery and Ace Hardware. However, the proposed Bauer Farms, Northgate, and Mercato developments are direct competitors with downtown. If built, these three developments will add over 600,000 square feet, equivalent to over one-half of all the retail space downtown. The growth in retail demand is sufficient for the City to absorb only about 50,000 square feet of new retail space per year. Clearly, these three developments constitute many years of growth in retail demand. It is doubtful that any downtown redevelopment proposals can be successful if the City has already approved over a decade’s worth of additional retail space elsewhere.

There are too few vendors to fill all of this space as well as redevelop large parts of downtown. Letting the vendors and the developers decide where this space will be filled is not the best way to achieve the city we want. The citizens, working through their planning process, should decide.

Office Sector

The office sector is in even worse shape. The retail sector is so overbuilt that owners of empty malls have leased space to office tenants rather than let their space go empty. This can be seen in the old Tanger Mall, 10 Marketplace, and the Southern Hills Mall. This has not been a temporary problem. Had it been, the mall owners would have taken the more lucrative retail tenants at the first opportunity, but office uses have occupied this surplus retail space for many years.

Spreading the problems of an overbuilt retail market into the office market has repercussions for the City’s downtown redevelopment plans. Evidence is found in the office space in the Hobbs-Taylor development. The space built for lease has been empty for too long.

Can the City hope to succeed in its redevelopment plans if a high quality project like the Hobbs-Taylor building is unable to lease either its office or its retail space? Usually, the first project in a redevelopment plan captures the latent demand that has been unsatisfied for some time, while buildings built in subsequent phases of redevelopment are slow to be leased. Given the overbuilt markets in Lawrence, even this initial building is struggling to find commercial tenants.

Residential Sector

The stock of homes grew much faster than the growth in population throughout the 1990s. The net growth in the stock of housing (new units minus demolitions) was 27 percent from 1990 to 2000. The growth in population was only 22 percent during the same time period. In round numbers, this means that about 120 more housing units were built per year than were needed. This resulted n unneeded new subdivisions that pulled residents out of older neighborhoods. This fostered deterioration and blight in these older neighborhoods, when the City should be ensuring that these neighborhoods maintain their population and the level of investment in the homes. Of the 40 neighborhoods of Lawrence, 14 experienced a decline in population and/or housing during the 1990s. There is no need for this to happen a growing city. The growth is being squandered. The high level of vacancies and the slow pace of home sales suggest that the problems continue today.

Lessons to Learn

The City should treat demand for real estate as a scarce commodity.

The market does not do a good job of pacing the growth of supply with the growth of demand. Developers and builders generate more supply than is needed. This creates vacancies and blight in otherwise good markets. The City needs to bring discipline to the market, helping to keep the pace of growth in supply in check with the pace of growth in demand.

The City also needs to take the initiative to direct that growth where it can do the most good.

For the retail market, the City should not only help to redevelop the downtown, but it should prevent other developments, such as West 6th Street, from damaging the downtown redevelopment plans. There is not enough demand for two downtowns. Lawrence can support one on Massachusetts Street or one on West 6th Street; there is insufficient demand to support both. The City needs to recognize that Massachusetts Street is the core of its unique destination shopping district, a destination that can be imitated but not duplicated on West 6th Street. That core cannot survive if too much additional space is created elsewhere, diluting the demand. We need only look at the Hobbs-Taylor building downtown for evidence. Its retail space remains empty; the market is saturated, leaving very desirable projects such as the Hobbs-Taylor building hurting.

For the office market, the process is very similar. The growth of office space needs to reflect the growth in employment among firms in the finance, insurance, health care, and other sectors that occupy this type of space. It is in the City’s interest to keep this component of the commercial real estate market healthy. To the extent that any downtown redevelopment plans contain office space, the success of these plans depends upon new demand materializing. It is hard to foresee success in future office space when a new office building such the one in the 1800 block of Wakarusa Drive has stood empty for years.

For the residential market, the City needs to pace the growth of residential space so that it matches the pace of growth of the population. If the net growth in homes is any faster, older neighborhoods are harmed and redevelopment plans for these areas will be foiled. It will add to the City’s debt burden, as it must pay for the new roads, sewers, and other services needed to support this surplus space. A growing city does not need to experience decline in any neighborhood; a smart city manages its growth seeing to it that some amount of growth and investment is attracted to all neighborhoods.

Demand for real estate is a finite scarce resource. The amount available dictates the success of any development or redevelopment plan. Good design and location are important, but they are of little consequence if the supply is far in excess of the demand for that space. If the City wants to succeed in its redevelopment plans for downtown, it must do much more than debate the number of stories in the buildings. It must carefully gauge the available demand for new space, permitting no more space to be built throughout the City than can be supported. The City must also allocate that space to downtown and elsewhere with equal care so that the finished space is able to be occupied and remain financially viable.

Is the retail market of Lawrence overbuilt?

The retail market of Lawrence, Kansas is out of balance, with space growing much faster than demand for that space.

Growth in supply

· From 1995 into 2007, the stock of retail space grew by 3.0 percent per year.

Growth in demand

· The inflation adjusted pace of growth in demand for retail space is growing at a rate of little less than 1 percent per year.
· The number of retail firms has been effectively flat and retail employment has fallen from 2001 to 2007.

Mismatch

· The mismatch between the pace of growth in supply and the pace of growth in demand is large (supply is growing at a pace 3 times the pace of growth in demand), and it is long-term (lasting more than a decade).

Proposed developments

· Proposed developments will add over 800,000 square feet of retail space. This represents an increase in the already overbuilt stock of over 12 percent.

Consequences of the mismatch

· There is over 540,000 square feet of vacant retail space in Lawrence, 395,000 south of it river.
· About 364,000 square feet of this vacant space south of the river is in general merchandise, automotive, and food use, a category that developers are seeking to expand further.
· General merchandise space, which makes up about one-half of the total stock of space, has a very high vacancy rate of 13.5 percent. Even if North Lawrence is removed from the stock general merchandise space has a vacancy of 10.1 percent, which is twice the level of a healthy market.
· The surplus stock is creating blight that was contained in North Lawrence, but now it is spreading.
· The City cannot absorb more space; additional stock will only increase vacancies throughout the City.
· The City needs to protect itself from the harm of this overbuilding by slowing the pace of retail development.

Who should set the pace of development?

George Gurley (LJW April 8, 2008) is correct that “the champions of growth and the proponents of preservation could learn to negotiate with one another.” However, his view of the planning and development process in Lawrence is incorrect on many counts.

Horizon 2020 is the community’s expression of what it wants. At 6th and Wakarusa, the plan called for 200,000 square feet of space. The developers built that amount, but they want to build more. They are manipulating the planning process, seeking to build over 400,000 square feet, more than twice the planned amount. When blocked from overbuilding, developers criticize the planning process for its “lengthy delays” and “inconsistent interpretations.” What is really happening is that developers will not take “No” as an answer. If an intersection’s retail space is built to capacity, then no more retail space is needed. Proposals to build more should be met with a firm “No” and calling this response a “lengthy delay” or an “inconsistent interpretation” is incorrect and unfair to the community.

Gurley disparages efforts to control the growth of retail spaces saying that “overbuilding is usually self-correcting.” The facts show this to be untrue. If the process was self-correcting, there would be no long-terms trend of excessive development or high vacancies. Unfortunately, Lawrence has witnessed both. From 1995 through 2005, the retail space in Lawrence grew by 3.0 percent per year. During the same years, real growth in spending increased only 0.8 percent per year. Thus, retail space grew at a pace over three times greater (in fact almost four times greater) than the growth in demand for that space. The result is a high vacancy rate and conversion of retail space to other uses, spreading the harm of overbuilt markets beyond the retail sector.

The vacancy rate for general merchandise space in Lawrence is over 10 percent, double the normally accepted standard, and this figure excludes North Lawrence and space converted out of retail use, such as the Riverfront Mall. Some of the converted retail space is now in office use, making it hard if not impossible for the office market to succeed. Think of the empty office structure in the 1800 block of Wakarusa; it has stood empty for years. Some of the converted retail space is in hotel use, making it hard if not impossible for the lodging market to succeed. Converting the Riverfront Mall into a hotel has reduced the capacity of other downtown redevelopment plans to materialize including the plan for which the taxpayers built the $8 million parking garage in the 900 block of New Hampshire.

Developers build in saturated markets because they are willing to gamble that they can still make money. They believe that new, larger, better located space can capture tenants away from older space. They believe that their project will succeed and others will fail. They believe that they can make their money quickly and get out before suffering the long-term consequences of a glutted market. The evidence is mounting against this thinking. For all but North Lawrence, the vacancy rates show that newer space is no different than older space when it comes to maintaining occupancy. The vacancy rates show that larger space is no different than smaller space. Finally, the vacancy rates show that the far west side of town is no different than the east side.

The community is paying the price for this overbuilding. The taxpayers endorsed a redevelopment plan for downtown, contributing the parking garage, but that plan never materialized. It was delayed by the 2000-2001 recession, but now it is doubtful that it can ever succeed because the City has approved large amounts of retail space in west Lawrence at 6th and Wakarusa and at 6th and the SLT. The shopping centers and downtown are all competing for the same tenants. The retailers are aware of the slow pace of growth in retail spending in Lawrence and will enter into the market only to the extent that they will be supported by this sluggish growth or can capture spending away from existing stores. This means that only part, and definitely not all, of the development can succeed. The blight is spreading. It was confined to North Lawrence, but now “dead malls” and underperforming shopping centers can be found throughout the city. These poorly performing retail centers tend to receive little maintenance. They become liabilities rather than assets to their surrounding neighborhoods. We need only look at Topeka to see what happens if this overdevelopment process is allowed to continue for too long.

Planning for the growth of retail space is hardly “farfetched” as Gurley states. Rather, pacing the growth in supply is a good way for the citizens of Lawrence to protect themselves from the overbuilding and blight that has plagued so many other cities when the developers are left to their own devices. Only the City, not the developers or the builders or brokers, can bring discipline to the development process and ensure that the pace of growth of space does not exceed the pace of growth of demand for that space.

Who runs Lawrence, the developers or the citizens?

The urban growth machine

Over 30 years ago Harvey Molotch wrote a now famous article that described political urban growth machines (H. Molotch, The American Journal of Sociology, 1976). In this article, Molotch explains how developers and others interested in the development process organize to capture local government in order to achieve their ends.

Lawrence has, for a long time, been struggling to control the influence of such an urban growth machine.

When the developers can get their friends elected to the City Commission, these friends can facilitate the development process. Developer-friendly mayors can appoint developer friendly people to the Planning Commission. Thus, when the developer needs a favorable vote in order to gain approval of a development proposal that runs counter to the community's comprehensive plan, the developer-friendly Planning Commission will ignore the plan and approve the development.

When the developers can get their friends elected to the City Commission, developer control of the planning process is complete. The City Commission sits as the final level of quality control in planning decisions. Even if a development proposal fails to gain approval from the Planning Commission, a developer-friendly City Commission can be counted on to approve a proposal at odds with the plan.


The growth machine in action in Lawrence

We have seen this process manifest itself in numerous retail proposals calling for more space to be built than is permitted in the plan. The best example is at 6th Street and Wakarusa Drive. The plan calls for no more than 200,000 square feet of space, but the Planning Commission approved over 400,000 square feet of space. This hurts older shopping districts and especially hurts downtown which is specifically identified for protection by the City’s plan.

We have also seen this process play out in the excessive growth of housing subdivisions and apartment complexes on the perimeter of the city. During the 1990s, developers built 20% more housing than the population growth demanded. This drew population and investment out of older neighborhoods causing millions of dollars of property value to be lost.

Planning mistakes of this scale do not happen by accident. It takes the concerted efforts of a well-organized, developer-driven growth machine to do this much harm.


Who will control the future composition of the City Commission?

Builders and others closely tied to the development process have a keen interest in the current election. They are not in control of the current City Commission, but they want to be. They can only count of two votes, Hack and Amyx. The developers are not in control of the current Planning Commission. It is split evenly between pro-developer commissioners and pro-planning commissioners. This will probably change. Several pro-planning members of the Planning Commission will see their terms expire. Soon-to-be Mayor Hack will have the opportunity to appoint replacement members to the Planning Commission. It is very likely that she will appoint people who are pro-developer.

The upcoming election will dictate whether the next City Commission will also shift to a pro-developer majority. The developers know that they only need to win a single seat to have a pro-developer majority on the City Commission. Coupled with a pro-developer Planning Commission, the growth machine will encounter few obstacles, at least for the next couple of years. This is why the developers are investing so heavily in this election with large contributions to their selected candidates, Chestnut, Dever and Bush.

It is important that the community protect itself. Citizens all too often participate in the planning process only when the development issue is in their own back yard. By then it is too late. This level of participation is survivable if the citizens can count on their elected officials to serve the interests of the community as a whole, not the narrow special interests of the developers, builders and other players in the real estate development process. For this reason, voters need to elect David Schauner, Carey Maynard-Moody, and Dennis “Boog” Highberger.

Why do real estate developers make such large contributions to local elections?

Real estate developers and their attorneys have contributed heavily to the next City Commission election.

The Kansas Governmental Ethics Commission report for January 10, 2007 finds that only two candidates had raised campaign funds during November and December of 2006. The other candidates had yet to get organized. Combined, these two Candidates, Rob Chestnut and Michael Dever, have received over $9,500. These contributions come from 71 contributors with 34 of them from the real estate development industry. These developers, brokers and attorneys contributed over 60% of the dollars.

Why is it that the developers and builders make such a disproportionate share of contributions to local political campaigns? It cannot be their contribution to the workforce. Educators make up a larger share of employment in Douglas County than do developers and builders. Yet, educators do not make such large contributions. Health care providers make up a larger share of employment than developers and builders. Yet, health care providers do not make such large contributions.

It is doubtful that developers and builders are any more altruistic than either educators or health care providers. Educators and health care providers both have a deep-seated interest in the quality of their community.

The simple answer is that developers expect something for their contributions. They want a City Commission that is biased in favor of approving any development proposal that comes along, whether it is good for the community or not, whether it is in accordance with the community's comprehensive plan or not.

If the developers and builders can capture three votes on the fiver-member City Commission, it matters little what the plan says; the City Commission can amend the plan any time it wants. With pro-developer City Commissioners, the developers and builders can get people from their industry appointed to the Planning Commission so as to smooth the planning process when a development proposal runs counter to the plan. Having people from the development industry is constrained and even prohibited in many cities; in Lawrence, it is the norm.

Developers claim that all they want from the planning process is predictability. This is not true except in the narrow sense that the developers and a predictable answer of "Yes" to their every proposal. This means that they want the answer to be "Yes" even when the proposal is contrary to the plan and not good for the community. They are willing to pay heavily to get the answer "Yes".

The citizens of Lawrence need to protect themselves from the harm that can be done by a City Commission and a Planning Commission that is biased in favor of developers. Overbuilt retail space will blight older shopping districts and damage downtown redevelopment plans. Overbuilt subdivisions will cause the deterioration of older neighborhoods, hurting the capacity of the City to bring reinvestment to these existing neighborhoods.

Independent of the amount of money contributed, the predictable answer from the planning process should not be "Yes" to every development proposal, but "Yes" only to those proposals that serve the wants and needs of the larger community.

Will the Smartcode be modified to reflect Lawrence's needs?

Questions for Placemakers


1. Pace of growth of retail space and of housing stock

Like many cities nationwide, Lawrence has a lengthy history of building retail space faster than the growth in demand for that space. This produces "dead malls," usually older shopping centers, blighting their surrounding neighborhoods. In an effort to reduce losses on these properties, owners are leasing space for office uses, spreading the problems of an over-built market from the retail sector to the office sector.

Like many cities nationwide, Lawrence also has a lengthy history of building housing faster than population growth. The new units tend to be located at the perimeter of the city. The result is an out-migration from the older neighborhoods. In these older neighborhoods, owner-occupied units are being converted to rentals, neighborhood schools are being closed, homes are deteriorating, and value is being lost.

The Smartcode being proposed appears to rely on zoning and the development of infrastructure to set the pace of development. This fails to recognize the problems that Lawrence is confronting. Will the Smartcode be modified to include specific provisions permitting the City to regulate the pace of growth of retail space and housing space, seeking balance between the growth in supply and the growth in demand?


2. Revitalization of downtown and older neighborhoods

Lawrence has invested millions of dollars to foster the revitalization of its downtown. A few years ago, the City built an $8 million parking garage to be financed, in part, by tax revenues from new mixed-used development. The new development did not materialize because of insufficient demand for the space. The taxpayers are now carrying the debt on that garage. Other downtown developments are confronting difficulties landing retail tenants. Yet, the City has permitted competing shopping centers to be developed at the perimeter of the City.

Lawrence has also invested millions of dollars to foster the revitalization of its older neighborhoods, especially in the east and north sides of the City. However, these efforts have not brought sufficient new investment into these neighborhoods to stop their decline and bring about their revitalization.

How will the Smartcode ensure that sufficient investment is directed toward the downtown and the older neighborhoods and not siphoned away to new shopping centers and new subdivisions?


3. Public input on development proposals

Citizens in Lawrence are concerned about the timing, location, design, public sector cost, traffic impact, market impact and other implications of new development. Citizens know that real estate development is complex, with many and varied implications for different parts of the community. The Smartcode appears to provide for very rapid movement from a development proposal to a building permit, with little or no opportunity for public review, input, and negotiation. This process seems to assume that every development implication has been anticipated and properly accommodated in TND charrette process. This seems improbably in the extreme.

Will the Smartcode be modified to provide for citizen review and input on significant development proposals, with decision by the City Commission?

How do we ensure retail survival?

The editorial on retail survival (Lawrence Journal World, January 7, 2007) correctly identifies the problem but misidentifies the solution. Lawrence, and especially downtown Lawrence, confronts a problem with a surplus of retail space. As you say, “demand has slowed”. Population growth has slowed as has income growth. This leads to lower growth in retail spending, the engine that drives demand for retail space. Unfortunately, growth in the supply of retail space has continued at an unsustainable pace, leaving the city pock marked with vacant and, in some cases, blighted shopping centers.

You suggest that, as downtown competes with this surplus of retail space elsewhere in the city, that it “meet that competition head-on”. Experience in many other markets tells us that this is a prescription for failure. If more space is built than can be supported, competition will pick some winners and leave some losers to deteriorate. The community will be left with the blighting influence of the failed space. Topeka is a nearby example; both its downtown and its White Lakes Mall sit largely empty and blighted because of overbuilding elsewhere.

Lawrence can overbuild and let competition pick the winners leaving the city to suffer with the deteriorated losers. Alternatively, Lawrence can be smart and limit the growth in retail space, keeping it in line with the pace of growth in retail demand. Stores will be occupied, and downtown can thrive rather than just survive.

The market left to itself is not smart enough to pace its own growth; it is prone to overbuilding. Planning for balanced growth is an essential function of local government if the city is to protect the retail centers it already has and is to prevent the blighting influence of surplus growth.

What do Impact Fees Do?

As the LJW editor (12/12/2006) indicates, impact fees are, indeed, an issue for all residents of Lawrence.

Who pays for the costs of new infrastructure?

Developers pass impact fees along into higher house prices because buyers of homes in new subdivisions cannot hop across the city limit into a competing town, as is true in a larger metropolitan context. However, homebuyers do have alternatives; they can buy homes in existing neighborhoods. In the absence of impact fees, the costs of development are passed along to all residents of the city, including those far from the new infrastructure.

Contrary to the claim in the editorial, impact fees do not inflate the real estate market. Only in the most extreme cases—where the most severe shortages exist—would the substitute existing homes experience a price increase. For Lawrence, prices in the existing market will be unaffected by the impact fees.

Should we continue to favor sprawl or wise reuse?

As the editorial stated, “Providing and maintaining the city’s infrastructure is a communitywide responsibility” but that does not say who should pay for it. At issue is the share paid by the new homebuyer and the share paid by the residents who live elsewhere in the City.

The developers have built new subdivisions faster than the city’s population needs them. This sprawl adds to the tax burden of all taxpayers as we have been paying for the new infrastructure. This sprawl also accelerates the decline of older neighborhoods as homebuyers are siphoned away from older neighborhoods. We must pay for their redevelopment. It is not unreasonable, at a time of overbuilt housing and declining older neighborhoods, to ask the buyers of the homes in the new, sprawling subdivisions to pay a greater share of the costs of that sprawl. This may cause some homebuyers to opt for an existing home in an older neighborhood, bringing much needed investment to these areas. This will also free scarce City resources to address the pressing needs for the City’s older infrastructure. This is what impact fees do.

What is a sure formula for a "Lesser Lawrence"?

The Lawrence Journal World criticizes those who are concerned with excessive growth by stating, "Unfortunately, there are some in Lawrence who belong to the "Lesser Lawrence" fraternity when, in fact, the city needs dreamers, entrepreneurs and residents with the vision and enthusiasm to build Lawrence into an even finer and stronger city."

What is a "finer and stronger city"?

Many visions of the future of Lawrence exist, but it is doubtful that any of these visions included deteriorating older neighborhoods, blighted shopping strips, and a decaying downtown. It is equally likely that all of the visions seek strong older neighborhoods, vibrant shopping strips, and a downtown that attracts shoppers not only from Lawrence but from beyond. A "finer and stronger city" means development that serves to maintain and enhance our older neighborhoods, ensures the economic feasibility of our existing shopping centers, and preserves and improves our downtown.

Unfortunately, not all development leads Lawrence to a finer and stronger city. Some development leads to a weaker city that is more vulnerable to blight and decay. The city's leadership needs to know the difference.

How do we know good development from bad development?

The city needs to seek balance between the growth in demand for real estate, new as well as old, and the growth in the supply of new real estate.

The growth in demand for real estate is a function of the growth in the city's population and the growth in that population's income. If Lawrence remains an attractive city with good homes in viable neighborhoods, with good schools, and with good jobs with competitive wages, it will attract new residents. If Lawrence allows its older neighborhoods to deteriorate, its shopping centers to fall empty, its downtown to decay, and its base of jobs to pay sub-par wages, it will not attract new residents. This growth in demand can only be influenced by the city's actions; it cannot be controlled.

The growth in supply is under the city's control. Too many people, including the editors of the Journal World, equate all growth in supply with progress. History shows that this approach to development leads to overbuilt cities. When cities build more supply than their growth in demand can absorb, bad things result. We need only to look at nearby Topeka to confirm this. The new neighborhoods prosper, but older ones decline because there is insufficient demand to attract investment. The new retail centers succeed, but the older ones decay because there is insufficient demand to fill their stores. Older downtowns deteriorate because the shopping moves to the centers at the perimeter of the cities.

Overbuilding our supply of housing and retail space is the path that Lawrence has taken for too long. This is a sure formula that will lead to a "lesser Lawrence."

It is the job of the city's leadership to gauge the growth in demand and to find a way to match the growth in supply with the growth in demand. This will help preserve older neighborhoods by directing sufficient investment into these older areas to keep them viable. This will help to maintain older shopping strips by keeping them occupied with retail vendors who will attract sufficient business to remain economically feasible. This will help to protect the downtown as the unique place that identifies and defines Lawrence and that attracts visitors from outside the city. This will lead to a much greater Lawrence.

What is the Myth of Development?

Many hold a false belief that all development is good.

The Lawrence Journal World buys into the myth that all development is good. In the editorial of October 28, 2006, it stated, "The company [Wal-Mart] would have hired many employees, would have provided extra income for many families and would have spun off added taxes for the benefit of the entire community."

Examination of the facts shows this to be incorrect.

1. No net gain in employment

While it is true that the company would have hired many employees, there would be no net gain in employment in the community. The total number of jobs in the retail sector is a function of the total spending in the retail sector. Adding new stores does not mean new spending. New stores do not add new people or new income. The new stores only displace workers from one store to another. We saw this when the Wal-Mart on south Iowa expanded; it caused the closure of the Food-4-Less. The gain in jobs at Wal-Mart was canceled by the loss of jobs at Food-4-Less.

2. No net gain in income and possibly a loss

If retail workers will not see any increase in their numbers, will they at least see a gain in their wages? With Wal-Mart, the answer is "No". Kroger will probably close the Dillon's store at 6th and Wakarusa if a Wal-Mart opens at the intersection. The Dillon's workers will lose their wages and benefits. Wal-Mart is notorious for paying low wages and offering few or no benefits to its workers. Thus, there is certainly no gain in wages, and probably, there will be a loss. More workers will be without a health plan, leaving the community vulnerable to greater unpaid usage of the City's hospital facilities.

3. No new sales taxes

Sales taxes from retail sales are paid by the consumer, not the vendor. Adding more stores does not increase the population or its income. It only changes the location where the sales tax is paid. Thus, adding a new Wal-Mart will not provide any increase in sales tax revenues for the community. It will only take it away from other stores and send it through Wal-Mart, with no net gain to the community.

4. Short-term gain in property taxes with a long-term loss

There will be a short-term gain in property taxes. A new Wal-Mart store will pay property taxes. This is an immediate gain to the City. However, because the retail maket in Lawrence is saturated with a surplus of stores, opening a new Wal-Mart will only cause other stores to close. As these stores close, they are still subject to property taxes, even if they are empty. But chronically empty stores create blight that is expensive to fix through redevelopment. This redevelopment generally comes with high public expenditure. A short-term gain with a new store will be lost through the high, long-term cost of blight elsewhere in our community.

It is a myth to believe that all development is good. There is little doubt that growth is good, but excessive growth is cancer. Lawerence, like any growing community, needs to be smart. It needs to distinguish between well planned beneficial growth and growth that does not serve the long-term interests of the community.

Can good design cure bad development?

Design is important, but it cannot fix all of the problems resulting from bad planning.

The City has gone through a long and detailed process, attempting to determine whether or not a Wal-Mart should be built on the northwest corner of 6th and Wakarusa. Law suits have been filed. Landowners have made claims that it is their “right” to build whatever they want. Planning staff have been battered from all sides. Angry citizens have felt betrayed by their elected officials. Developers have effectively become a political party, attempting to purchase the votes they want on the City Commission.

Now it looks like Commissioner Highberger will switch sides, leaving the progressives, and joining the pro-developer camp. He indicates that if the design of Wal-Mart is improved, he will vote for the development.

An improved design, a few more trees in the parking lot or placing the buildings closer to the street, will do nothing to resolve the market impact. The town is already overbuilt in retail space. Adding a new Wal-Mart to an oversaturated market will only cause other stores to close and become vacant. Finding tenants will be difficult to impossible. It is probable that we will simply add to the already large stock of empty, deteriorating, and blighting vacant retail buildings that already deface our community. The jobs in those stores will be lost. The workers will have the unhappy choice between unemployment or going to work for Wal-Mart.


Good design is not the same as good planning.

No issue galvanized voters in the 2003 election as did the Wal-Mart issue. The voters called for good planning. They did not want sprawl, hurting the older districts of the City. They did not want overbuilding of commercial space, hurting the existing commercial districts, especially the downtown. Unfortunately, the leadership of the City failed to deliver. Sprawl and overbuilding continues unabated. No amount of architectural details can cover this failure.

Do we need to worry about keeping developers happy?

"Yes" is not always the correct answer.

Developers are interested in building. The only answer that they want to hear when seeking planning approvals and building permits is "yes". Any other answer is, from their perspective, the wrong answer.Very often the community is best served by an answer other than "yes". Often the answer is simply "no". The proposal does not conform to the City's plan. The proposal is simply a bad proposal. Sometimes the answer is "not now". The proposal is premature because the infrastructure is not available to support the proposal or the proposal cannot be absorbed in the market without significant negative impact on the market. The proposed development may be too far from existing sewers or roads. The proposed development may add too much space to an already saturated market. The answer may be "not this design". The proposal may be too big or too poorly configured for the site or generate traffic or other problems. Developers are not happy with any of these answers.What are the consequences of developer's being unhappy?


Not all development is helpful.

This community has, for too long, equated progress with building. The difficulty with this equation is that not all development is a good thing. The community cannot grow and prosper without development, but not all development contributes to the prosperity of the community. Planning is how the community guides its growth and distinguishes between developments that are good for the community and those that are not. Left up to the developers, the community’s growth would not follow the plan. Left up to the developer, the community’s growth would be plagued with sprawl and excessive building as well as with a deteriorating downtown and declining older neighborhoods.

Guiding a growing community is tricky. Growth is a luxury that, if used well, can benefit all parts of the City. If left to the developers it will be squandered in the most profitable locations leaving the older parts of the City to deteriorate. Downtown can thrive and older neighborhoods can be revitalized if we carefully manage the growth. However, this is not the path of least resistance for the developers. Developers are prone to excessive growth, which should be curtailed, and are prone to sprawl, which needs to be redirected back to the older parts of the City.

The community should manage its growth in a way that is beneficial to the community as a whole. The community should not succumb to the pressures to make the developers happy.

What does Lawrence need in a Director of Planning?

Successful planning is much more than zoning administration.

Lawrence has confronted many difficulties as it seeks to cope with the rapid growth of its population. This led the prior Director of Planning to be overly focused on current planning at the expense of long-range planning and the ability to investigate the implications of public sector participation. Too often, the Director of Planning accepted that keeping developers happy was the measure of successful planning. Rather, the measure of successful planning is guiding the development process toward the successful implementation of the community’s comprehensive plan. The plan does not call for deteriorated neighborhoods and blighted shopping districts, but this is what we are getting. Given this focus on current planning (zoning administration) the staffing of the planning department failed to acquire individuals skilled at long-range planning and real estate development.

A few quick facts demonstrate the problems resulting from this process.

First, from 1990 to 2000, the housing stock grew by 27 percent while the population grew by only 22 percent. This 5 percent surplus corresponds to units and population lost to the City’s older central neighborhoods. The planning staff should have monitored these conditions and advised the Planning Commission and the City Commission as the pace of subdivision approvals began to outpace the population growth. It would have been very easy for the community to slow the pace of subdivision approval, but discussion of this pacing problem was not even raised by the staff and made part of the deliberations. In a growing community, there is no need to accept decline in any neighborhood. Successful growth management can direct some investment into all areas.

Second, from 1990 through 2005, the supply of retail space grew by 4.1 percent per year while retail spending grew by only 1.6 percent per year. Thus, the pace of growth of retail space was about two and one-half times the pace of demand for that space. The outcome has been the many empty shopping centers and strip malls blighting many areas of the City. A further outcome is the many retail buildings being converted into office space, spreading the problems of glutted retail market into the office market. Again, the staff failed to carry out normal planning analysis alerting the Planning Commission and the City Commission on these matters as the development proposals have moved forward.

Under the prior Director of Planning, staff did not evaluate or attempt to correct market analyses submitted by developers. Developers are required to submit a market impact analysis with their development proposals. The simple submission of even a flawed analysis was accepted as meeting the market analysis requirement. This renders the requirement meaningless and misinforms the decision makers.

These problems suggest that the new Director of Planning needs to have skills far beyond zoning administration. While zoning administration is important, it is only a portion of the work that needs to be conducted by the Planning Department.

Smart growth requires skills in market analysis, real estate investment analysis, and economic development analysis.

Skills are needed in:

Long Range Planning. The Director of Planning needs to understand standard procedures of market analysis. One of the key roles of planning is to help keep the pace of growth of supply in balance with the pace of growth of demand. It has long been known that real estate developers are prone to over building various markets, leading to empty and blighted older spaces. It is much easier and less expensive for a city to prevent blight than it is to attempt the redevelopment of blighted space after the available demand has already been satisfied by a glut of new space. The practice of depending upon market analysis from developers leads to poor decisions. Developers will always find a way to twist the numbers to justify their developments. If the City is to make good decisions on its pace of growth, it must receive valid, professional market analysis from its own staff.

Real Estate Development Negotiations. The Director of Planning needs to understand how to negotiate public-private partnerships in real estate. Too many times, the City has entered into a partnership only to have the deal fall well short of its goals. Examples would be the Riverfront Mall and the Downtown 2000 project. In other cases, the Planning Commission or the City Commission asked for input on the financial feasibility of reducing the scale or changing the design of a proposal. The staff failed to answer the questions because they did not know how to address these issues of financial feasibility given their single-minded focus on zoning issues. Examples would be the Border’s Bookstore and the Hobbs-Taylor development. If the City is to make good decisions on its role and participation in developments of this type, it needs to have guidance of planning staff skilled in understanding real estate feasibility analysis and in negotiating the level of public participation needed to bring projects to feasibility.

Economic Development Planning. The Director of Planning needs to understand how to evaluate and implement successful public sector initiatives directed at business development and retention. The community has too long equated business advocacy with local economic development. This has led the City into the embarrassing position that more recipients of tax abatements are in non-compliance than in compliance. This reduces, even eliminates, the City’s capacity to effectively negotiate economic development packages. If the City is to make good decisions on its level of public subsidy to private firms, it needs planning staff informed on current practices in economic development and skilled in these negotiations.


For a Director of Planning to be successful, this person must, at least, be conversant in all of these areas. For the Planning Department to be successful, the staff must possess skills in all of these areas and have the courage to guide the City well, even when this means denial of a developer's proposal. All growth is not good. The Director of Planning and the staff working for this person need to know the difference between growth that is supportive of the City and growth that is harmful and need to guide the City accordingly.

Why do developers overbuild?

In theory, the market for real estate should be self-correcting. If prices fall and vacancies rise, developers should take these signals as indicators that no more space should be built. If prices rise and vacancies fall, developers should take these signals that more space is needed in the market. This is good theory, but it does not work. We know that developers are prone to building more space than the community can absorb. New space is added to markets that cannot fill up the existing space. So why do developers overbuild?


1. Developers will take any tenants.

Developers are concerned that their own space becomes occupied. It does not matter to them whether the tenants are new to town or are already in town and moving from an existing shopping center to the new one. Equally, developers do not care if the new center satisfies growth in demand only captures demand away from an existing center. If the new shopping center empties out an existing shopping center, this causes blight which is bad for the community. When Wal-Mart opened its supercenter, Food-4-Less closed. Wal-Mart is not satisfying new demand, it is simply capturing demand away from existing stores, leaving us with empty shopping centers.


2. Commercial development takes a long time.

Development is a slow process. A developer may read a signal saying that it is time to build in 2003. By the time the development is ready for occupancy, it is 2006. The market may change in the intervening time, shifting from a market needing new space to a market in surplus with no new spaced needed. The empty office structure in the 1800 block of Wakarusa is an example. The developer began in the belief that the office market would be strong. Instead, the structure has been empty for years because the office market turned soft.


3. Correct actions by individual developers do not add up to correct actions for the market.

Developers act alone. Several developers may read market signals to build. Individually, each is properly reacting to market signals. Collectively, the combined actions of all developers create too much space. We saw this in apartments in 1997. We normally add about 400 apartments per year, but that year we added about 1,200. Each developer was properly responding to market signals, but each wished that the other developers had not built. The resulting surplus hurt the older smaller apartment building owners hardest. It took about 3 years to absorb that surplus.

4. Tenants are more mobile than buildings.

If retail vendors see better opportunities in a different location, they will move when the net benefits of moving outweigh the costs. The commercial real estate left behind cannot be moved. Redevelopment of an outdated building can be costly, usually more costly than building a new structure on the periphery of the city. Redevelopment is tricky and generally has difficulty competing with newer, larger shopping space. The failure of the Downtown 2000 redevelopment plan is an example of this problem. There is simply too much supply for the few tenants seeking stores, and it is hard for expensive downtown redevelopment to compete with life-style centers at the edge of the City.



These conditions lead real estate markets to overbuild resulting in chronic vacancies and deterioration. When the vacancies and deterioration last long enough, blight is the result. Blight not only lowers the value of the surplus properties but it can lower the value of surrounding properties, causing a widespread loss in value. This is costly, ugly, and avoidable.

If a city like Lawrence wants to avoid such losses, it can correct the developers' propensity to overbuild through simple regulation of the flow of new space into the market. The rule is simple, do not allow the developers to build more space than the market can absorb. In retail markets, this means allowing the supply of space to grow only as fast as the growth in retail spending. In housing, this means only letting the supply of new units grow as fast as the growth in population.

Lawrence's failure to follow these rules has brought it to a very unfortunate position. The City has allowed so much retail space to be built that the downtown is being hurt along with several other older existing shopping centers. The City cannot proceed with its redevelopment plans downtown. Older shopping centers cannot attract new tenants. The City has allowed so much housing to be built that it is causing older neighborhoods to lose population and to lose investment needed to renovate older homes.

Lawrence needs to recognize that the real estate market is full of imperfections. Just because a developer wants to build does not mean that it is a good idea. Often the City needs to take the position that the developer must wait until the City can absorb the new development without harm to the remainder of the City.

Can downtown retail face down the competition?

The Sunday editorial, “Downtown future” is correct that maintaining the status quo isn’t an option. However, the editorial asserts that downtown can compete with developments built elsewhere in town. Evidence from here and throughout the nation suggests that this is not true.

Growth in retail space has outpaced demand for that space.

For years, Lawrence has approved more retail developments than it can absorb. From 1990 through 2005, retail spending grew by only 1.5 percent per year after inflation. During the same years, retail space grew by 4.1 percent per year. This is clear evidence that developers build more space than is needed. The results are empty space blighting parts of the City.

These new centers may enjoy a brief success when they open, but in the long-run they either cause blight in other shopping centers or fail themselves. The empty hulks are seen all over town.

• The Riverfront Mall was promised as the new anchor for downtown. It failed because of too much competition elsewhere. Now it is an uncomfortable mix of office and hotel and very little retail. The chances of it returning to a retail anchor are diminished with each additional development elsewhere.

• The Tanger Mall was promised as the new retail gateway to the City. It failed as well. It now stands largely empty, greeting entrants to the City with a blighted shopping center.

• Many other small strip malls sit empty or only partially occupied and in disrepair, especially along 23rd Street.

• Many shopping centers, including the Southern Hills Mall, 10 Marketplace plus others, have had to lease prime space to office uses because of a lack of demand for retail space. This spreads the problems with a glut of retail space into the office market, hurting it as well.


This overbuilding hurts redevelopment plans for downtown.

• Lawrence partnered with developers to redevelop part of downtown. The City built an $8 million parking garage on the 900 block of New Hampshire Street. In exchange, the developers were to build retail, office and residential space. The tax proceeds from this space were to pay for part of the cost of the garage. The redevelopment plan failed, in large part, because the City permitted and continues to permit too much space to be developed elsewhere.

• The new Hobbs-Taylor development on the 700 block of New Hampshire is having difficulty finding retail tenants because too much space is available.


The City should take steps to prevent the harm from these market failures.

If Lawrence wants its downtown to succeed, it must help the process. If it wants its downtown redevelopment plans to prosper, it cannot depend upon the retail vendors choosing downtown over the many developments in place an planned for West 6th Street. Experience in Lawrence and other cities suggests that new space at the suburban perimeter will be more appealing to the retailers that are being courted. If the City wants downtown to win the competition, it needs to help downtown. The editorial suggests that in the long-term we should let downtown “face down its competition”. In fact, in the long-term, downtown developments have tried to do this and lost.

The damage goes beyond downtown. Lawrence has already become a City pock-marked with deteriorated and empty retail centers, blighting many neighborhoods. If we want new growth to reinvest in the downtown and other older districts of the city, the process must be guided. It cannot be left to the developers and the retailers. We do not have enough demand to support both excessive growth in new shopping districts and redevelopment of our existing shopping centers.

It is long past time to reign in the growth of retail space in this town. Lawrence needs to bring the growth in retail space in line with the growth in spending and direct that growth where it is desired, into a vibrant downtown. Downtown Lawrence is one of the key identifying features of this community; we need it to prosper.

Are we building more housing than the City needs?

The pace of housing construction should match the pace of population growth.

Homebuilders in Lawrence appear to be building more housing than we need. From 1990 to 2000, the population rose by 22%. During the same time period, the housing stock grew by 27%, 5 percentage points than the amount needed to support the population growth. Note that the 27% growth in the stock is net growth, new units minus units demolished. Thus, the surplus growth was beyond the growth needed to cover losses of older units.

Current statistics suggest that the population growth rate is declining. The Census Bureau believes the City's growth rate has slowed from 2.0 percent per year to less than 1 percent per year. Yet, current building permit data suggest that housing is still being built at a rapid pace.

What is the harm?

Widespread vacancies lead to reduced investment, especially in rental properties. Older neighborhoods lose population as households leave older neighborhoods and move to new, unneeded subdivisions. Neighborhood schools close. Property values fall. The new investment in maintaining homes in older neighborhoods declines.

What is the benefit?

There a benefit from overbuilding. Home prices and rents fall or fail to rise as fast as they might otherwise. This is helpful for homebuyers and people who rent. However, everyone has an interest in the overall stability of the community. Once a household buys a home, that household has an interest in price stability rather than price decline. Similarly, renters have an interest in the long-terms health of the rental stock. If rents are held too low for too long, landlords reduce maintenance expenditures, lowering the quality of the rental stock.

Everyone--both owners and renters--have an interest in price stability. This means allowing the housing stock to grow at a pace that is sustainable, a pace that matches the population growth.

Achieving this is not hard. It simply means monitoring the growth in population and pacing the rate at which new subdivisions are approved. It is clear that depending upon the developers to set this pace will lead to long-term oversupply of homes. This is what was done all through the 1990s and into the current decade. Now that population growth appears to be slower than experience in the past, it is important that we reign in the pace of growth of housing development. Out goal is to have it match the pace of growth of population so as to not harm existing neighborhoods and to channel some of the growth back into existing neighborhoods.

Comments on the Market Impact of Wal-Mart at 6th and Wakarusa

Re: Proposed Development of Wal-Mart at 6th Street and Wakarusa Drive
Market Impact Study by Richard Caplan


Sent to the Planning Commissioners:


I have had the opportunity to review the various market impact studies on the Wal-Mart development prepared by Richard Caplan. The studies are flawed, leading to an incorrect conclusion.

Using the data from the Caplan studies and correcting the flaws, it is clear that the retail market of Lawrence cannot absorb the proposed Wal-Mart store and that the development of this store will cause other retail space already located in the market to fail.


1. Growth in the supply of retail space has far outpaced the growth in demand for retail space.

Caplan makes use of sales tax receipts from 1990 through 2005 to proxy demand for retail space. This is a good approach. However, the Caplan report uses the current dollar growth to project growth in demand. This is the same, incorrect, procedure he used in 2003 with his first market analysis.

As I pointed out in 2003, these numbers must be adjusted for inflation in order to estimate growth in retail spending. The applicant admitted to this flaw and withdrew the market analysis. The revised market analysis claims to correct sales tax data for inflation, but this correction is not shown in the data.

When corrected for inflation:

a. From 1990 to 2005, growth in retail spending is only 1.6% per year suggesting that the City should have kept retail space down to that same rate of growth. However, since 1990, the City's retail stock grew by 4.1% per year and by 4.9% per year from 1996 to 2005, far outpacing growth in demand leading to the widespread vacancy that we have today.

b. From 2000 to 2005, retail spending actually fell, indicating that there is no new demand for additional retail space.


2. The rate of population growth has declined.


The Caplan analysis makes extensive use of the Development Strategies Inc. (DSI) study. The DSI study makes use of population growth rates that are higher than Lawrence experienced even when the City was growing at its peak rate of 2.2% per year in the 1980s. DSI offers no justification for this assumption that population growth will be higher in the next decade than it ever has been in the past.

Caplan makes no mention of the Census Bureau's recent report suggesting that the City is now growing at about 0.6 percent per year. This Census figure is corroborated by the declining school enrollment, the high rental vacancy rates, and the declining inflation adjusted retail sales tax receipts.


3. Income growth has slowed corroborating the slow growth in retail spending.

Caplan uses U.S. Department of Commerce data to claim that income grew 14.4% from 2000 to 2004 suggesting that this indicates growing retail demand. What the report fails to state is that this only a 4.4 percent increase after inflation.

The Kansas Department of Labor Employment Survey provides local, thus better, data on income growth. The employment survey finds that wages grew by only 3.4% from 2000 to 2005 after inflation. This wage growth translates into about 0.7% growth in income per year.

Even over a longer period of 1996 to 2005, wages grew by only 1.1% per year. If multiplied by 0.6% growth in population per year, the growth in retail demand is only 1.7% per year. This closely corresponds to the 1.6% per year in real growth in retail spending found in the sales tax data. With either approach retail demand is growing by much less than the growth in retail space. This translates into a need for only about 110,000 square feet per year, if the City was not already overbuilt. This indicates that the City cannot absorb retail space at the rapid pace at which it is now being planned and built.


4. The vacancy rate in the retail market is higher than Caplan and DSI assert.

Caplan makes use of the DSI estimated retail vacancy rate of 3.9%. On a total stock of 6,479,000 square feet, this vacancy rate suggests about 250,000 square feet of vacant space. Simple addition of known, long-term vacant buildings adds to more than 250,000 square feet. For example, the Tanger Mall is 135,000 square feet alone. This indicates that the DSI study did not properly count vacant space and cannot be relied upon for an analysis of the vacancy conditions of the City.



Several conclusions can be made after correcting the flaws found in the Caplan study.

1. The City has permitted developers to build more retail space than the City can absorb. This is hurting existing retail centers. If a second Wal-Mart is built at 6th Street and Wakarusa Drive, this additional retail space will cause a comparable amount of space to go vacant elsewhere in the community, blighting these existing shopping districts.

2. Population growth and income growth has slowed in the community. This necessitates that the community slow the pace of retail expansion in the future so as to not further blight existing shopping districts.

3. The City has already allowed too much space to be built leading to widespread and long-term vacancies. This should cause the City to exercise restraint before permitting any expansion of the already bloated supply of retail space.


Communities throughout the nation have learned to monitor the health of their real estate markets and to plan accordingly. Cities can better achieve their planning goals if they react appropriately to market signals. The Lawrence retail market is dangerously overbuilt and will only become worse if additional space is added to the supply. This leads to the conclusion that a Wal-Mart store should not be developed now at 6th and Wakarusa Drive.