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HomeMy WebLinkAboutagenda.council.worksession.20080701MEMORANDUM TO: Mayor and City Council FROM: Ben Gagnon, Special Projects Planner ~~ THRU: Chris Bendon, Director, Community Development~~„ DATE OF MEMO: June 27, 2008 MEETING DATE: July 1, 2008 RE: Succession Planning /Community-Owned Businesses REQUEST OF COUNCIL: There is no request for Council action at this work session. BACKGROUND: This is a continuation of staff and consultant aided research on the subject of Aspen's commercial mix. DISCUSSION: Similaz to the June 24 work session, staff is bringing the results of various reseazch efforts to the attention of the City Council as -essentially - "food for thought." Our research efforts are not complete, but enough relevant information has been developed to bring to Council's attention as we continue forward with this complex topic. Although there is more reseazch and investigation to conduct, staff has drawn some preliminazy conclusions on certain topics under the heading of commercial mix. Staff believes the community and Council is familiar with the following scenario: A business owner and property owner has long ago paid off his or her mortgage and is enjoying running their business and the company of their longtime friends and patrons. Ultimately, this person decides to sell for the kind of astronomical prices that are prevalent in the Aspen market. Because of the high purchase price, the new buyer can't get enough income from the previous use and decides to redevelop and/or change the use to one that generates higher revenues. Thus disappeazs the previous use. Today, staff's overriding concern is that certain businesses that fall under the category of "sundries" -- providing necessities such as pharmaceuticals -- could be subject to this scenazio at almost any time. Staff believes it would be irresponsible not to take steps to meet this challenge head-on, before we are in the less enviable position of reacting to it. Consultant Mark White will be talking on July 1 about the concept of "succession planning," under which a representative of the City could approach various business owners and property owners to inquire about their future long-term plans and suggest various options for maintaining a use. Mr. White will be talking about some of these succession planning options, including community-owned stores. He will walk Council through a number of examples of successful community-owned stores in different types of towns across the country. One attraction of community-owned businesses is that it can bring the community to an interesting decision point regarding what it really wants - an exercise that could yield some creative and innovative ideas for a new business. At the same time, a show of proof is required - a demonstration of financial commitment within the community - to ultimately open the doors and make a go of it. Staff is interested in this approach largely because it begins to address perhaps the most critical concern with regard to commercial mix, and that is the potential loss of what might be called "critical use" businesses. At the same time, this approach requires workable and creative solutions to maintaining such uses -recognizing that the business owner/property owner is going to move on at some point. With regard to solving such problems through top-down regulation, staff cannot find a remotely legal regulatory solution that requires a certain use to remain at a certain property. Even if such a regulation were available, staff believes that such apunitive - almost certainly dramatic downzoning -would be fundamentally unfair to a business/property owner who has served the community's basic needs, and would be an unacceptable solution to the community. On the other hand, the potential for commercial mitigation is an option that staff continues to explore. Establishing space for local-serving uses could be part of a package of solutions if Council finds the current commercial mix to be significantly unbalanced. By July 1, staff will have generated abuild-out estimate for a potential future net increase in commercial space in the downtown area. This estimate will provide a sense for how much space might ultimately be gained for local-serving uses through a mitigation requirement. At the same time, Mr. White will walk through how such a mitigation program might be established, and the challenges involved -understanding that no community in the United States has adopted a cormercial mitigation program at this time. Again, staff is not asking for any formal action from City Council, but always appreciates feedback and direction as we work through this complex issue. EXHIBIT A: Forum News: "Community-Owned Stores" EXHIBIT B: Excerpts from report by Mark White NATIONAL HISTORIC PRESERVATION COMMUNITY-OWNED STORES: New Anchors for Older Main Streets By Stacy Mitchell Six years ago, Powell, Wyo. (population: 5,373), lost its only department store when Stage, a regional chain, decided to shutter a portion of its outlets. Residents suddenly faced a 50-mile round trip to the big-box stores in Cody or a 200-mile round trip to the mall in Billings, Mont., to buy many basic items. An even bigger concern for town leaders was the cascade of economic losses the store's closure would likely set in motion. Many feared that, as residents staffed trav- eling to Cody or Billings for things they used to buy at Stage, they would purchase other goods there as well, including many of the types of products sold by Powell's remaining Main Street merchants. And so the decline of Powell's tradirional down- town would accelerate, echoing what is happening in cities, towns, and villages across the country. Aker trying unsuccessfully to attract one of the big store chains-all of which declined due to the sparse population-Powell resi- dents decided they would have to take mat- ters into their own hands. They established a community corporation, capitalized it by selling shares to hundreds of local families, and opened their own department store called the Powell Mercantile. The Merc, as [he store is known, has not only filled a critical community need, it has also turned a profit for five years running, doubled in size, and injected new life into the downtown. "It has been hugely impor- tant to the vitality of our downtown," said Kim Capron, executive director of the Pow- ell Valley Chamber of Commerce. "The Merc has become an anchor tenant for the whole downtown. It's such a large draw." The success of the Powell Mercantile has inspired at least half a dozen other towns in Wyoming, Montana, and Nevada-all too small and remote to interest national or regional chains-to open their own depart- ment stores. The concept is now spreading to the much more populous Northeast, where local residents are seeking communiry- focused alternatives to big-box retailers. COMMUNITY CORPORATIONS DEFINED Community corporations are similar in many respects to other publicly traded cor- porations. Shareholders meet periodically to vote on major matters and elect a board of directors. The board, which is typically made up of local civic and business leaders, oversees the enterprise, while a store man- ager handles day-to-day operations. But unlike most stock corporations, community-owned stores typically have provisions in their charters and bylaws that prevent out-of-state residents from buying stock and limit how many shares any one person may own. This ensures that the business remains locally and democratically controlled. This democratic structure makes community corporations fairly similar io cooperatives. Indeed, fledgling community-owned depazt- ment stores can look to the success of food co-ops for inspiration. These consumer- owned stores, which began to proliferate in the 1960s, now number nearly 300 and have annual sales of about $1 billion. Cooperatives and community corporations differ modestly in some respects. By law, the activities of co-ops must be fairly closely tied to meeting the needs of their member- owners, whereas community corporations may have somewhat broader missions. CONTINUED ON PAGE 2 Published by National Trust Forum, a program of the Center for Preservation Leadership In Bonaparte, Iowa, creation of the Township Stores by local residents was just the beginning of a downtown revitalization effort. The smallest official Main Street community in the U.S., it earned a Great American Main Street Award in 7996. Photo by Michael & Sherry Meek, Fly-by Photography. COMMUNITY-OWNED STORES CONTINUED FROM PAGE 1 Setting up as a community corporation may also make raising sufficient start- , up capital a little easier, because a single investor can buy multiple shares. A TOOL FOR SAVING HISTORIC MAIN STREETS Essential to preserving our historic down- towns is making sure that these districts remain economically viable. Without healthy businesses to occupy the storefronts, down- towns not only cease to function in their historic role as the center of community life, but the buildings themselves invariably deteriorate as property owners no longer have a steady stream of income to pay for maintenance and restoration. Staying economically viable is particularly challenging for small villages and town cen- ters. It open requires residents to intervene directly to keep their local businesses going. Such was the case in Bonaparte, Iowa (population 458), when White's Shopping Center, a major downtown retailer, closed its doors 22 years ago. For more than three decades, White's had sold most of the necessities of life, from groceries and clothing to hardware and appliances. Four residents decided to take action. They formed a nonprofit corporation, Township Stores Inc., and raised over $100,000 in capital by selling $2,000 shares to more than SO local residents. They used the capital to renovate the five 19th-century buildings that White's had occupied and launched several new businesses, including a grocery store and a hardware store. Inspired by Township Stores, the community embarked on a full-scale downtown revital- ization program, based on the Main Street Four-Point Approach® developed by the National Trust for Historic Preservation. Today the grocery store is still operating and, thanks to the revitalization effort the Township Stores project sparked, Bonaparte is still firmly on the map. In Vermont and New Hampshire, several longstanding general stores have likewise been saved by community investment. When the general store and lunchtime gath- ering spot in Hebron, N.H., closed in 1997, more than half of the village's 400 residents chipped in to collectively buy the 1940s building and lease it to new operators. In the New Hampshire town of Harrisville, the village store, dating from 1838, was purchased in 2000 by the nonprofit Historic Harrisville, Inc., renovated, and leased. IDEA TAKES OFF IN THE WEST Community ownership has received more attention in recent years wich the opening of more than half a dozen community-owned department stores. While community own- ership had previously been used to save existing businesses, these new department stores were all started from scratch to fill particular local needs and provide a strong anchor for downtown shopping. Harrisville General Store, N.H. Photo courtesy of Historic Harrisville, Inc. Among the best known is the Powell Merc, which has been featured in several national news stories. But it was directly inspired by another one. As town leaders were strug- gling to address the loss of Stage, they learned about an enterprise called Little Muddy Dry Goods 450 miles away in Plen- tywood, Mont. This small-town department store had been launched by a group of resi- dents who had each put up $10,000 in capi- tal. Acontingent of business and civic leaders from Powell visited Plentywood and became convinced that the same model could work in Powell. When they returned, they formed a board, incorporated, and filed papers with the state to offer stock in the Powell Mercantile. Shares were priced at $500, much lower than in Plentywood, with the hope that a larger number of people would invest. Residents responded enthusiastically. Within months, the enterprise sold more than 800 shares, generating $400,000 in capital. About a year later, the Merc opened its doors in the 7,000-square-foot storefront previously occupied by Stage. The store has been a huge success. I[ offers customers good service and the convenience of shopping close to home. Prices are rela- tively low as well, because the store has no debt to service and no investors clamoring CONTINUED ON PAGE 6 ForumNews RICHARD MOE President PETER H. BRINK Senior Vice President, Programs KATHERINE ADAMS Director, Center for Preservation Leadership ELIZABETH BVRD WOOD Program Manager, National Trust Forum KERRI RUBMAN Editor RON WOODS Business Manager The National Trust for Historic Preservation, a private, nonprofit membership organization, champions preser- vation by provitling leatlership, education, advocacy, and resources [o people working to preserve, improve, antl enloy the places Iha[ matterto Nem. Its Washing- ton, D.C., heatlquarters staff, six regional off¢es, antl 26 historic sites work with Me Trust's 270,000 members and thousantls of local community groups in all 50 states. For more information, visit [he National Truses websi[e a[ www.PreservationNa[ion.org. Forum News: (ISSN 1534-2949; USPS Publication No. 013-063) is Published bimonthly by the Center for Preservation Leadership a[ [he National Tmz[ for His- toric Preservation, l]96 Massachusetts Avenue. N.W., Washington, O.C. 2D036 as a beneft of National Trust Forum membership. forum members also receive four issues of Forum Journal and six issues of Preservation. Annual tlues are $115. Periotlicals postage paitl at Wash- ington, D.C., and a[ adtli[ional mailing offre. Postmaster Send address changes to Forum News, 1]a5 Massachu- setts Avenue, N.W., Washington, D.C. 20036. Copyright 2008 National Trust for Historic Preservation in Ne United Stales. Prin[etl in the UnI[etl Stakes. Of the total amount of base annual dues, 861s for a subscription to Preservation for one year. Support for [he National Trust is provided by membership dues; endowment funds: in- tlividual. corporate, and foundation contributions; and grants from state antl fetleral agencies. Forum News is a forum in which [o express opinions, encourage tle- bata, antl convey information of importance and of gen- eral interest to Fomm m tubers of the National Trust. Inclusion of makerial or product references does not constitute an endorsement by [he National Trust for His- toric Preservation. To obtain permission [o reprint any part of [his publication please call (202) 588-fi063. NATIONAL TRUST FOR HISTORIC PRESERVATION COMMUNITY-OWNED STORES CONTINUED FROM PAGE 2 Powell Mercantile, Wyo. Photo courtesy of the New Rules Project, Institute for Local Self-Reliance. for a high rate of return. Also key has been the know-how of an experienced inventory buyer who previously worked as a regional manager for the Stage chain. The Merc has been profitable since it opened in 2002. In 2006 the store had profits of $32,000 on $634,000 in sales. Rather than pay dividends, shareholders have opted to reinvest their earnings. In 2007 the Merc bought the building next door, more than doubling the size of the store. By bringing more people downtown more often, the Merc has boosted sales at other downtown businesses. It's also given the community a new sense of pride and self- determination. Many residents refer to the Merc simply as "our store." "Because the community owns it, they really support it," explained Capron. The Merc, in turn, goes out of its way to support the community, she noted. "They take the lead and always participate in downtown events. They are more than just a retailer. They see it as their mission to be there for the community.° Sharon Earhart, one of the founders of the Merc, believes the store has done more for Powell than a chain could have. "I'm so glad that when we asked the big stores to come open up in our town, they said, `Are you kidding? Get a life.' So we did! And a much better one," she said. The store's success has inspired several other community-owned department stores in the Rocky Mountain West. Residents of the Wyoming towns of Worland and Torrington have established their own stores: Washakie Weay which opened in 2003, and Our Clothing Store, started in 2005. When J.C. Penney pulled out of remote Ely, Nev., residents capitalized their own store with nearly $500,000 in stock shares, priced at $500 apiece. The Garnet Mercantile opened in 2004 in the same 1910 building, whose facade now sports the Art Deco look of the town's heyday. In Livingston, Mont., the Livingston Mercantile, owned by 250 local shareholders, celebrated its first year in business in December 2007. All these stores now serve as major down- town anchors, keeping residents shopping locally. The stores have joined together to form a buying cooperative to reduce costs by buying some goods in bulk. EAST COAST CATCHING ON In isolated Western towns, community- owned stores have provided an antidote to a sudden dearth of staple goods within a reasonable distance. In the East, community- owned stores are catching on less out of dire necessity and more as a sought-after alternative to big boxes. In 2006 a grassroots group in Saranac Lake, N.Y., managed to rally residents and head off construction of a Wal-Mart superstore. But they knew that it would be a short-lived victory unless they found a way to fill a local need for more affordable shopping options. As long as this gap remained, Wal-Mart would eventually return and be welcomed by the community. The group launched the Saranac Lake Com- munity Store to provide low-cost clothing, shoes, linens, craft items, and baby goods. Shares went on sale to the public in July 2007, and by January 2008 the venture had attained nearly 50 percent of its goal of $500,000 in start-up capital. Residents of Greenfield, Mass., have also been working to establish acommunity- owned store. The initiative was prompted in part by the closure of Ames, a regional chain of discount department stores, which leh a gap in the availability of low-priced goods. Unlike isolated towns in [he West, Greenfield has four Wal-Mart stores within about 20 miles. Several years ago, residents voted against Wal-Mart's application to open in town. Mercantile advocates hope that, by launching aloes-priced alternative, they can prevent further incursion by chains and maintain the vitality of Greenfield's downtown and homegrown businesses. With the support of grants from the USDA Rural Business Enterprise program and the Greenfield RedevelopmenrAuthority, and help from the Franklin County Community Development Corporation, a steering committee spent three years laying the groundwork for the enterprise. They prepared a detailed business plan, incorpo- rated, and formed a board of directors made up of bankers, attorneys, civic leaders, and other community members. In 2007 they began selling shares in the Greenfield Mercantile, hoping to raise $600,000. The planned store may make use of a 19th-century brick building down- town recently vacated by a furniture store. Starting acommunity-owned store is no easy task. It requires months of dedica[ed work from volunteers and a significant financial investment from many local families. It's certainly harder to do than simply succumbing to more big-box sprawl. But, as the founders and owners of these stores attest, they yield dividends that go far beyond shopping options and stock earnings. They bring people together around a common enterprise. They fill vacant storefronts, both directly and indirectly, that would otherwise multiply on Main Streets. They contribute [o a more robust local economy and a greater sense of community self-reliance. Stacy Mitchell is a senior researcher with the New Rules Project, a program of the Institute for Local Self-Reliance. Her book, Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses, was recently named one of the top ten business books of the year by the American Library Association's Booklist. For further information, see How to Launch a Community-Owned Store at www.bigboxtoolkit. com/images/pdf/com m u n ity_store_howto. pdf. To learn more about the New Rules Project's efforts to support local businesses, and to sign up for its a-mail Hometown Advantage Bulletin, go to www.newrules.org/retail. NATIONAL TRUST FOR HISTORIC PRESERVATION' Exhibit B Excerpts from Report by Consultant Mark White 4 Fiscal or Public-Private Partnership Tools 4.1 Community Enterprise Community enterprises involve direct investment in and ownership of the enterprise by the affected community. A notable example is the National Football League's Green Bay Packers. The Packers are a business corporationz whose shares are publicly traded and owned principally by its fans. The entity is a publicly owned, non-profit corporation with 4,750,934 shares of stock that are owned by 112,015 stockholders. Stock shares include voting rights, but the redemption price is minimal. Stock does not pay dividends, does not appreciate in value, and does not carry season ticket privileges. The articles of incorporation prohibit any person from owning more than 200,000 shares.3 This arrangement keeps the team under the control of its fans, rather than a unified ownership entity. This type of cooperative arrangement can also apply to locally serving businesses. Citizens in several western states have banded together to open community owned stores in response to the closing of existing stores, to fill the local shopping needs of residents. Others, such as the Willey Street Co-op in Madison, Wisconsin, simply provide food at affordable prices to its owners. The Willey Street Co-op has operated for 35 years in a traditional, compact neighborhood where most customers arrive on June 25, 2008 City of Aspen ~ Commercial Mix Strategies foot or bicycle. Others, such as the Powell Mercantile in Powell, Wyoming, were a response to an urgent community need for basic goods and services in a rural location. Local residents become shareholders, meet periodically to vote on store issues, provide local civic and business leaders who oversee the community store, and forego dividends and appreciation in exchange for providing a community asset. These stores can provide a variety of products, such as clothing, shoes, furniture, and household items. There are many ways td structure a community enterprise a Consumer A cooperative is an enterprise that is owned by its members (such cooperatives as retail merchants), where each member has an equal say in decisionmaking and receives a share of any profits generated.s The International Cooperative Association (ICA) defines a cooperative as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through ajointly-owned and democratically-controlled enterprise.b A cooperative operates under 7 general principles: i. Voluntary, Open Membership: Open to all without gender, social, racial, political, or religious discrimination. 2. Democratic Member Control: One member, one vote. 3. Member Economic Participation: Members contribute equitably to, and democratically control, the capital of the cooperative. The economic benefits of a cooperative operation are returned to the members, reinvested in the co-op, or used to provide member services. 4. Autonomy and Independence: Cooperatives are autonomous, self-help organizations controlled by their members. s. Education, Training and Information: Cooperatives provide education and training for members so they can contribute effectively to the development of their cooperatives. They inform the general public about the nature and benefits of cooperation. 6. Cooperation Among Cooperatives: Cooperatives serve their members most effectively and strengthen the cooperative movement by working together through local, regional, national and international structures. 7. Concern For The Community: While focusing on member needs, cooperatives work for the sustainable development of their communities through policies accepted by their members. A cooperative allows independent businesses to remain June 25, 2008 City of Aspen ~ Commercial Mix Strategies competitive with national retailers by giving small merchants greater purchasing power allowing them to lower the cost of goods through volume buying and purchasing. Coops are often able to negotiate directly with manufacturers. Coops can also provide additional advantages to independent businesses including national advertising, brand identity, expert marketing and business advice. These have a long history in food retailing. A consumer cooperative is distinguishable from a membership cooperative. Membership coops include hardware alliances and grocery alliances such as the Independent Grocers Alliance (IGA). Coop members can vary widely in their operations and can individually tailor their own inventory. Independent retailers can form trade associations to cooperatively market, purchase, and engage in other joint ventures. One example in Boulder, Colorado is the Boulder Independent Business Alliance that was created in 1998 and now represents more than 125 businesses in the City. The role of the alliance is to represent independent businesses in public policy, promote members through joint advertising, and marketing, member to member discounts such as reduced rates on advertising though locally run media outlets, and future benefits such as pooled insurance programs and the formation of a community investment fund. Community Owned Under this option, the community provides start-up capital for a Business business that is owned and operated by a local entrepreneur. For example, local residents could capitalize a business, with modest interest rates or discounts. Community These are capitalized through stock shares sold to local residents. Corporations The bylaws typically stipulate that stockholders must live in the - state. Community corporations are run by an elected board of directors. Investors generally seek community benefits rather than financial gains. Owner Occupancy Local retailers can ensure a stable location at a reasonable price if by Private they buy their building or store. Cities can encourage this through Corporations or property tax or income tax incentives, orlow-interest loan funds Individuals dedicated to small business owners. Commercial Land A commercial land trust (CLT) borrows from the community land Trusts (CLTs) trust concept that has been applied to affordable housing. In the June 25, 2008 City of Aspen ~ Commercial Mix Strategies context of affordable housing, a land trust is a private non-profit corporation created to acquire and hold land for the benefit of a community and provide secure affordable access to land and housing for community residents.$ A CLT can effectively establish and maintain affordable housing and the same model could be used for commercial buildings with the requirement that buyers or lessees be independent businesses. Commercial Land Trusts are funded mostly by CDBG funds. Publicly Owned The city itself could buy a commercial building and contract for its Space management with the stipulation that the space be leased only to businesses that serve community needs. Rents should be stable and below market. Identify Spill-Over The City can identify underutilized commercial districts and focus Space revitalization efforts there to make the district a viable location for localstores9 Most of these enterprises are the product of local, private civic cooperation. These efforts do not typically involve local government. However, the City could play a role by becoming a shareholder, providing space, writing down land costs, offering grants or low-interest loans, or otherwise offsetting startup and maintenance costs. It could also provide matching grants orinvestments -for example, a pledge to buy a given number of shares for every designated increment of shares that are sold on the open market. The City could also establish an economic development department or dedicated staff to assist with ongoing management. A community enterprise raises a number of institutional and operational issues. These include: / Ownership -many cooperatives assign a vote to each share. Others offer shares in blocks or other arrangements in an attempt to expand the sale of shares.10 Most cooperatives control either the absolute number or percent of shares that an individual investor can hold. / Share Price. Higher prices yield more startup revenue if the market can support it, while lower prices could attract more investors. Most community owned cooperatives have priced their shares $100-500. The Willey Street Co-op prices its shares at $56, and allows this amount to be paid over time. It relies principally on product sales for ongoing revenues. June 25, 2008 City of Aspen ~ Commercial Mix Strategies / Benefits of Ownership. Most community owned stores limit or deny dividends and price appreciation for shareholders because the investment is seen as a civic benefit. This also limits decisions that are motivated by solely by profit rather than the wider public interest. Instead, ownership provides voting rights and access to information, such as newsletters. / Shareholder Location. A cooperative could limit the sale of shares to local residents, in order to ensure that the operation and management is consistent with local needs. However, most community owned cooperatives have sold their shares on a statewide basis, which expands the universe of investors. / Management. With most community owned stores, management is selected by shareholders. The following table summarizes the characteristics of several community owned businesses that provide locally serving products: Business Location Population Produce Started Structure Own or Annual Employees Store size r (2000) Rent? Sales Little Plenrywood, 2,061 Clothing, 1999 LLC rent $240,000 5 6,000 Muddy Dry MT yarn, managed by '' Goods, LLC bedding, members shoes, gift items, jewelry Orono Orono, ME 9,112 Pharmacy 1999 Business Own ~ "- ~~~!^+ Community Corporation (initially rented) Pharmary Powell Powell, WY 5,373 Department 2001 Profit Own $560,000 10 it 7,SDD Mercantile store Corporation (initially (the rented) "Merc") Garnet Ely, NV 4,041 Department 2004 Corporation Own 7 _ 30,OD0 Mercantile store, furnfture Wazhakie Worland, 5,250 Clothing 2002 Profit - 12,000 ; Wear WY Corporation Lune 25, 2008