Thursday, February 19, 2009

Supermarket Retention and Public Policy Equity

New York City is facing a supermarket crisis, as published reports indicate that one third of the city’s larger food stores have disappeared in the past few years. This is a dangerous trend on a number of different levels, and if the trend isn’t reversed there will be some serious economic as well as health repercussions that will have to be addressed.

The Bloomberg administration, in recognition of this crisis-and with some prompting from UFCW Local 1500, as well as the RWDSU- is looking to develop a policy to promote the building of supermarkets in undeserved areas; and they've come up with a number of intriguing ideas that are currently being circulated with the industry-and with the supermarket unions that have been pushing the city to intervene to strengthen local markets presence.

We welcome the attention since we have been the most consistent voice on this issue-and have hectored the city to get moving on the development of a coherent policy of, that not only encourages the building of new supermarket, but also addresses the retention of supermarkets that are now servicing the neighborhoods of the city under a set of challenging conditions.

The city's draft plan only addresses the new construction side of the equation-offering a set of zoning and tax incentives that are worthy of consideration. One missing ingredient here, however, is the absence of an land acquisition policy for supermarkets looking to build on city-owned property. This is a significant lacuna, since acquisition costs are a key variable that gets in the way of new supermarkets in undeserved areas.

The reality is, that the ideal protocol for local supermarket development can be devised when the project involves publicly owned land. Too often with the current administration, city owned property has been put out to bid with little or no thought given to whether the publicly sponsored development could be utilized for the siting of a new supermarket.

Instead of proceeding in this manner, what the city needs to do is to set aside city owned property for conveyance to a local joint venture; at a nominal cost in order to insure that the ultimate supermarket end use can be affordable for both a supermarket operator, as well as the community that would avail itself of the groceries sold at the new market.

Once the conveyance is arranged-and the transfer of ownership could be either through a direct sale for a small consideration, or through a long term ground lease of, let’s say, 50 years; also at nominal cost, the LDC would create a partnership with an entity that would provide it with the real estate and financial expertise to properly manage the joint venture-the new entity would also monitor all land use issues, and environmental issues of the development.

That being said, even if this policy were to be developed-and Williamsburg, East New York, the Lower East Side and East Harlem all have areas where this protocol could be put to good use-it leaves the issue of retention unaddressed; because the most serious aspect of the supermarket crisis is the loss of existing markets because of high rents, taxes and unnecessary regulatory burdens.

In addition, the public subsidizing of new markets raises equity issues if the new markets are introduced into areas where existing supermarkets have been struggling for many years with no (positive) government intervention whatsoever. The new subsidized markets would create an unlevel playing field-and may exacerbate the survival difficulties that are being experienced by the local markets.

In some ways this conundrum is somewhat similar to what is facing the Obama mortgage bailout policy-where folks who have struggled while playing by the rules are going to be passed over for others who haven't. So, if a truly equitable and successful supermarket policy is to be developed the retention side of the equation.

So before, or at very least coterminous with, devising a growth strategy, the city must develop a retention plan. What would such a plan look like? In the first place it would look to create a real estate tax abatement program that would treat neighborhood markets as a public health facility. By doing so-and the abatement must be significant-the city is acknowledging that these retail outlets are essential city services and need to be subsidized so that they can profitably remain in the city’s most underserved neighborhoods.

Secondly, the city needs to devise a program that will relieve these markets of some of the burdens of high cost energy and garbage disposal. Perhaps energy providers can be given tax credits for lowering electric rates to its supermarket customers. In addition, the city needs to devise a commercial waste disposer pilot program for supermarkets-an initiative that will lower market disposal costs by up to 90%.

And one last point; if a new supermarket is promoted and subsidized in an underserved area, there needs to be an expressed mitigation strategy for supermarkets doing business in the trade area, markets that are paying the full complement of taxes and fees. This mitigation should go beyond the suggestions already made, and should be expressly designed to level the competitive playing field.

But let's give credit here where it is due-the administration and the unions have stimulated an important discussion of a crucial public policy issue. Now the policy needs to be fleshed out in more detail-and the possible unintended negative repercussions need to be ameliorated before the final policy is unveiled. We look forward to the continued negotiation, and are hopeful that good policy can be devised before scores of more markets disappear.