These articles are reprinted with permission from The Home Town Advantage Bulletin, a free email newsletter published by the Institute for Local Self-Reliance. To read back issues or join the mailing list, visit www.newrules.org.

"When . . . a large development wants to be in your town, you see the tax values surrounding that. . . I think the tendency is to think this is really going to give us a solid foundation," George Fowler, mayor of Pineville, North Carolina, told the Charlotte Observer. "But you don't realize at that particular point the impact it's going to have on the services you have to provide."

Pineville is one of a growing number of towns that have added large retail stores in recent years only to find that the stores do not generate enough tax revenue to cover their impact on public services, particularly police costs.

Over the last decade, Pineville has attracted six million square feet of new retail, including a major shopping mall, big box stores, chain restaurants, and gas stations. Many communities aspire to have such a large commercial tax base in order to keep residential tax rates low.

But Pineville, home to 3,400 people, is struggling financially. The town takes in $2.3 million in property taxes, but spends almost all of it---$2.2 million---on its police force. The police spend most of their time dealing with crimes like shoplifting, bad checks, and credit card fraud originating at the shopping centers. Commercial property accounts for 96 percent of all police calls.

Desperate to control rising costs, Pineville has put the brakes on retail growth. It recently tightened its zoning rules and turned down two retail developments, including a Wal-Mart supercenter. The town concluded the store would require hiring two new police officers at a cost of $120,000 per year, but would generate just $100,000 in taxes.

Pineville hopes to attract more residential growth, but the traffic congestion and retail sprawl have made the town less attractive to families. Last year Pineville raised its residential tax rates.

Other towns struggling with rising public safety costs include East Lampeter, Pennsylvania, where District Justice Ronald Savage has added two days to the monthly court calendar just to deal with crimes at Wal-Mart, which account for about one- quarter of the town's non-traffic citations, criminal misdemeanors, and felony complaints.

The volume of police calls in West Sadsbury, Pennsylvania, jumped 27 percent following the opening of a Wal-Mart. In Vista, California, Sheriff's Lt. Grant Burnett says shoplifters at a new Wal-Mart have been a major contributor to the 24 percent rise in the town's crime rate.

Downtown business districts do not generate the same level of crime for several reasons. They are not open 24 hours a day. Criminals passing through seem to prefer the anonymity of a Wal-Mart store along the highway to the intimacy of Bob's Hardware on Main Street. Local retailers, moreover, do not call the police for every bad check or shoplifting incident, while chain stores have a policy of prosecuting every offense.

Three times as much money stays in the local economy when you buy goods and services from locally owned businesses compared to chain stores, according to an analysis by the Institute for Local Self-Reliance and Friends of Midcoast Maine.

The analysis tracked the revenue and expenditures of eight locally owned businesses in the Maine towns of Rockland, Camden, and Belfast. They represented a range of goods and services, and collectively employed 62 people and had sales of $5.7 million in 2002.

The survey found that the businesses spent 44.6 percent of their revenue within the surrounding two counties. Another 8.7 percent was spent elsewhere in the state of Maine. The four largest components of this local spending were: wages and benefits paid to local employees; goods and services purchased from other local businesses; profits that accrued to local owners; and taxes paid to local and state government.

All eight of the surveyed businesses banked with locally owned banks. They purchased inventory from local manufacturers, advertised in local newspapers, and hired local accountants, printers, internet service providers, and repair people.

The other 46.7 percent of their revenue left the state. This out-of-state spending included inventory purchased from out-of- state companies, mortgage interest, rent, credit card fees, supplies, insurance, and equipment leasing.

A similar expenditure profile was created for a major big box retailer with outlets in Maine. Because national retailers do not reveal detailed financial information, the study estimated expenditures (payroll, supplies, services, utilities, taxes, etc.) based on national data, statements by company officials, and information on one of its Maine outlets.

The analysis found that the chain returns just 14.1 percent of its revenue to the local economy, mostly in the form of payroll. The rest leaves the state, flowing to out-of-state suppliers or back to corporate headquarters.

The analysis concludes that expanding local businesses would be a better economic development strategy for the region than recruiting chains. Based on current growth rates, retail sales in the three cities will expand by $74 million over the next four years. If all of this additional spending were captured by new and expanding locally owned businesses, it would add $23 million more to the local economy each year than if all of the new spending were captured by chains.

The survey also found that the local businesses contributed more to charity than national chains. The eight businesses made $24,000 in cash donations, which amounts to 0.4 percent of their revenue. That's four times as much, relative to overall sales, as Wal-mart gave to charity in 2002, and twice as much as Target gave.

Big box retail, shopping centers, and fast-food restaurants cost taxpayers more than they produce in revenue, according to a fiscal impact analysis in Barnstable, Massachusetts.

The study, conducted by Tischler & Associates, compares the tax revenue generated by different kinds of residential and commercial development with the actual cost of providing public services for each land use. Barnstable is a community of 48,000 people on Cape Cod.

The study found that big box retail generates a net annual deficit of $468 per 1,000 square feet. Shopping centers likewise produce an annual drain of $314 per 1,000 square feet. By far the most costly type of development, according to the study, are fast-food restaurants, which have a net annual cost of $5,168 per 1,000 square feet.

In contrast, specialty retail, a category that includes small-scale Main Street businesses, has a positive impact on pubic revenue (i.e., it generates more tax revenue than it costs to service). Specialty retail produces a net annual return of $326 per 1,000 square feet. Other commercial land uses that are revenue winners include business parks, offices, and hotels.

"This study shatters the common misperception that any sort of growth creates revenue," says Christopher Cullinan of Tischler & Associates, a fiscal, economic, and planning consulting firm. "Communities often talk about development in terms of the new revenue it will bring, but they rarely give serious considerations to the on-going costs of servicing that development."

The two main factors behind the higher costs for big box stores, shopping centers, and fast-food outlets, compared to specialty retail shops, are higher road maintenance costs (due to a much greater number of car trips per 1,000 square feet) and greater demand for public safety services.

-- Tischler & Associates: http://www.tischlerassociates.com

When you spend $100 at the chain Borders Books & Music, your purchase creates only $13 worth of local economic activity. That same $100 spent at locally owned book or record store generates $45, or more than three times as much local economic activity.

That's the conclusion of a new study conducted by Civic Economics and published by Livable City in Austin, Texas. The study, "Economic Impact Analysis: A Case Study," examines the local economic impact of two of Austin's venerable independent businesses---Waterloo Records, widely considered to be the best music store in the nation, and Book People, a beloved, 32-year- old bookstore. The study compares their contributions to the local economy with the economic return the community would receive from a typical Borders store.

The study was prompted by plans to develop a retail complex that will include a 25,000-square-foot Borders outlet and a Whole Foods store at the same intersection where Waterloo and Book People are located. The development is slated to receive $2.1 million in public subsidies.

"This analysis demonstrates a clear failure of public policy to steer desirable development at the site in question," the study concludes. "As presently configured, new development at the corner will yield a net loss to the local economy. Moreover, previous decisions have placed the city in the position of subsidizing such an outcome."

The two local stores opened their books to Civic Economics so the firm could track how much of their incoming revenue is re- spent in the local area. According to the study, every $100 in sales at Waterloo and Book People returns $30 directly to the local economy. Using a standard multiplier (an estimate of how many times dollars re-circulate locally) and accounting for induced effects (greater household spending due to greater economic activity), the study concludes that the direct return of $30 results in a total local economic impact of $45.

For the Borders comparison, Civic Economics relied on numerous sources---including interviews with former employees, the company's public records, and studies of similar stores conducted by Bank of America---to develop an estimate of what happens to dollars spent at a typical Borders. The study concluded that every $100 spent at Borders results in a direct return of $9 and a total local economic impact of $13.

The gap in direct return ($9 vs. $30) can be attributed to three factors. First, Waterloo and Book People have larger payrolls. "When people wonder why there's such a big difference, I tell them to go up to the fourth floor of Book People and look at all the professionals writing ad copy, buying inventory, and doing accounting," says Dan Houston of Civic Economics. Borders houses all of these functions at its headquarters in Ann Arbor, Michigan.

Another factor is that, compared to chains, locally owned businesses purchase more goods and services locally. Waterloo, for example, generates $600,000 annually in consignment sales of CDs by local bands which are recorded and produced locally. "The plastic case on the CD is about the only component that comes from out-of-state," notes Houston. Although Austin's Borders stores do have sections featuring local bands, they only sell CDs from major labels, which return little of the sale price back to the Austin economy.

The last factor is that a much larger share of the profit at a locally owned store stays in the local economy compared to a chain.

The study concludes that a typical Borders store generates $820,000 in local economic activity, compared to $2.8 million generated by Book People, which is roughly the same physical size as Borders at 22,000 square feet. Waterloo, which is smaller but has higher sales per square foot, pumps $4.1 million into the Austin economy.

Finally, the study looks at the likely competitive impact of the proposed Borders store. The study estimates that half of Borders' sales will be siphoned from Waterloo and Book People.

The study then considers three scenarios---one in which Borders experiences better than industry average sales growth, one in which growth is average, and one in which the store's revenue declines over a period of five years. For each scenario, the study finds that local economic activity will decrease---despite the fact that a new Borders will boost the area's overall retail sales. In the average scenario, the study predicts the city will experience a net loss of $2.4 million in economic activity over five years.

"Redeveloping this corner is important, but it must be done without hurting the economy and nearby local businesses," declared Bill Spelman, chair of Livable City. The group hopes the study will persuade Austin to withdraw public subsidies for the project.

-- Civic Economics provides economic analysis and strategic planning, and is looking for opportunities to conduct similar studies in other communities. http://www.civiceconomics.com

-- For a copy of the Austin study, go to Livable City at http://www.liveablecity.org.

In the last issue of this newsletter, we reported on two price surveys conducted by the state of Maine and New York City that found that independent pharmacies had lower prescription drug prices compared with chain drugstores, supermarkets, and mass merchandisers like Wal-Mart.

In December, another prescription price survey conducted by the New York Statewide Senior Action Council in Albany, New York, concluded, "The lowest prices for generic drugs were found at an independent pharmacy. . . contrary to the belief that chain drug stores with high volume purchases would pass on the savings to customers."

For example, prices for Lovastatin, a cholesterol medication, ranged from $84.50 at the independent Lincoln Pharmacy to $199.97 at Rite Aid. The online pharmacy Drugstore.com offered Lovastatin it for $99.99, Wal-Mart for $136.62, and Target for $146.39.

-- Senior Action Prescription Drug Price Survey: http://www.nysenior.org/generic.htm