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Urban Decay

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					                                                                                     Target Store
       City of San Rafael                                            Environmental Impact Report


4.12       URBAN DECAY
This section of the EIR evaluates potential impacts regarding the creation of urban decay or
deterioration that could result from implementation of the proposed project. Consideration of
this topic in environmental documents prepared under the California Environmental Quality
Act (CEQA) has increased over the recent years in direct response to the California Appeals
Court decision (December 2004) in the case known as Bakersfield Citizens for Local Control
v. City of Bakersfield. In that decision, the Court determined that CEQA Guidelines Section
15054 requires such research and analysis, “when the economic or social effects of a project
cause physical change, this change is regarded as a significant effect in the same manner as
any other physical change resulting from the project.

In the Bakersfield case, the proposal was for the construction and operation of two shopping
centers, both of which include a Wal-Mart Supercenter. The Bakersfield Citizen’s case
against Wal-Mart emphasized existing case law (beginning with Citizens Association for
Sensible Development of Bishop Area v. County of Inyo [1985]), where the Court stated, “the
lead agency must consider whether the proposed shopping center will take business away from
the downtown shopping area and thereby cause business closures and eventual deterioration
of downtown Bishop.” The Bakersfield court held that, “when there is evidence suggesting
that the economic and social effects caused by the proposed shopping center ultimately could
result in urban decay or deterioration, then the lead agency is obligated to assess this indirect
impact.”

More recently, in the Anderson First Coalition v. City of Anderson (June 2005), the Court
found that social or economic changes that may have a physical impact should be considered
in an Environmental Impact Report (EIR). In addition, the Andersen case distinguished the
Bakersfield case, thus reaffirming the need for an EIR to consider potential social and
economic impacts associated with a proposed project.

In order to compile the appropriate background data with which to evaluate potential
environmental impacts, as well as to provide other information with which to consider the
proposed project merits, Economics Research Associates (ERA) conducted a study of the
proposed project. The conclusions of the ERA study are presented in a memorandum to the
City of San Rafael (City) and were the basis of the analysis in this section on urban decay
impacts. The ERA memorandum entitled San Rafael Target Urban Decay Analysis (Urban
Decay Analysis) is included in its entirety as Appendix I.

4.12.1     METHODOLOGY

To assess the potential for urban decay, ERA’s Urban Decay Analysis included the following
elements:

    Targeted research on population growth, employment, income and demographic
      trends
    Historic taxable sales data for Marin County and the City, projected to a ten-year
      baseline forecast of retail sales



Draft  September 2008                       4.12-1                                  Urban Decay
Target Store
Environmental Impact Report                                                                  City of San Rafael



     Per capita retail sales for the retail trade area (described below) to estimate net new
       retail demand
     Industry averages for store performance, estimated future sales
     Comparison of net retail volume created by the proposed project to net retail demand
       for 2009 to 2019
     Determination of net sales impact of the proposed project on retail sales in the City


4.12.2       ENVIRONMENTAL SETTING

BACKGROUND AND TERMINOLOGY

In general, urban decay can be described as the physical effect, including facilities that are
poorly maintained and in disrepair, deterioration of buildings and improvements, visual and
aesthetic impacts, increase in property crime (e.g., graffiti) and increased demand for
emergency services, which result from increases in retail closures and long-term vacancies.

A 2004 study by the Bay Area Economic Forum described the urban decay process as follows:

“Vacant buildings, along with their large parking lots, can attract litter, graffiti, and
vandalism, as well as loiters and homeless populations. A decaying building both worsens its
own prospects for refurbishment and weakens the vitality of the buildings around it. And big
box stores, which are built quickly and cheaply, often have a lower quality of construction than
other buildings, meaning they tend to deteriorate faster.”1

The initial impetus of urban decay often originates from financial conditions faced by
individual property owners; if a landlord is no longer collecting rent on a vacant property and
does no believe that it can be re-leased, the incentive to maintain the property may
evaporate. The effect can spread to adjacent properties and become self-fulfilling as
customers start to avoid the area, and other property owners or tenants perceive an area as
no longer viable. Urban decay can be reinforced by a reduction in the fiscal resources of local
governing entities because of declining sales and property tax revenue.2

It is worth noting that a freestanding big box retail building that has been abandoned, also
known as “ghost box,” or declining regional mall, known as “grayfield,” can pose a
particularly strong risk for urban decay if not re-leased quickly. Not only are these facilities
bigger and thus generally more difficult to quickly re-lease or reuse compared to smaller
“infill” sites, they are generally more visually significant and thus provide a more widespread
signal of decay and negative business climate. In contrast, a number of smaller parcels with
varied building types often have a better chance of being adapted and reused simply because
they can house a greater number of potential tenants.3


         1
           Supercenters and the Transformation of the Bay Area Grocery Market Industry: Issues, Trends, and
Impacts, Bay Area Economic Forum, January, 2004.
         2
           Wal-Mart Supercenter Economic Impact Analysis – Final Draft Report, prepared for the City of
Fairfield, Economic Planning Systems, September 2005.
         3
           Ibid.


Urban Decay                                         4.12-2                             Draft  September 2008
                                                                                    Target Store
       City of San Rafael                                           Environmental Impact Report


DESCRIPTION OF TRADE AREA

For the purposes of the Urban Decay Analysis, the “retail trade area” boundaries have been
defined as the southern portion of the urbanized area in Marin County (County). The retail
trade area is bound by the coastline to the south and the east, Mt. Tamalpais State Park to
the west, and the mid-point between the proposed Target Store site in San Rafael and the
closest existing Target Store to the north in Novato. To the east the Richmond/San Rafael
bridge forms a boundary, as it was assumed that any customers to the east of the bridge
would prefer to shop at the Target Store located in El Cerrito. In addition to the City of San
Rafael, the retail trade area encompasses nine other jurisdictions: Fairfax, San Anselmo,
Ross, Larkspur, Corte Madera, Mill Valley, Tiburon, Belvedere and Sausalito (refer to Figure
4.12-1, Retail Trade Area).

SAN RAFAEL DEMOGRAPHIC AND ECONOMIC TRENDS

The following is a summary of the historic and projected population and household trends
and economic conditions in the region. The Urban Decay Analysis utilized this information to
estimate future retail demand in the retail trade area.

Regional Population and Household Trends

The population of Marin County grew by over nine percent between 1990 and 2005. During
that same time period, the City increased at almost twice the rate, resulting in an increase of
approximately 8,600 people. Population growth in neighboring Sonoma County outpaced
both Marin County and the City, increasing by over 23 percent from 1990 to 2005. The
Association of Bay Area Governments (ABAG) projects that Marin County and Sonoma
County will grow at slower rates through the year 2035. Populations of Marin County and
Sonoma County are expected in increase by 7.1 percent and 11.8 percent, respectively. Over
the next 15 years (2020 to 2035) the rate of growth is expected to slow to 4.6 percent for
Marin County and 6.3 percent for Sonoma County. According to ABAG, the population of
San Rafael is projected to grow at a slightly faster rate than the Marin County average (7.1
percent) through 2035, which equates to an additional 4,200 people by 2020 and 4,000 by
2035.

Household incomes in Marin County are expected to continue to rise through 2012. In 1990,
over 60 percent of households in the County earned from $15,000 to $74,999 and eight
percent of households had an income over $150,000. By 2000, the proportion of Marin
County households earning over $150,000 doubled to 19 percent. By 2012, 56 percent of
households in Marin are projected to have incomes over $150,000. Additionally, the number
of Marin County households earning more than $150,000 is estimated to be 37 percent in
2012 compared to 29 percent in 2007, an increase of eight percent in five years.

Retail Trade Area Population Trends

The following is a summary of retail trade area population trends used in the Urban Decay
Analysis:




Draft  September 2008                      4.12-3                                 Urban Decay
Source: ERA, 2008




               0    6 Miles           12 Miles
                                                          Target Store EIR

                              APPROXIMATE        Retail Trade Area
                                                          Figure 4.12-1
                                                                                  Target Store
       City of San Rafael                                         Environmental Impact Report



    Approximately 162,000 residents live within the proposed Target Store retail trade
      area
    The median age in the retail trade area has increased since 2000 and is projected to
      continue to mirror the growth of Marin County through 2012
    The median age in San Rafael has historically been two to three years lower than the
      retail trade area
    From 2000 to 2007, the population of the retail trade area has increased at a slower
      rate than the Marin County average, suggesting people are moving away from the
      area
    Between 2007 and 2012 the retail trade area will add almost 1,100 new residents,
      representing approximately 35 percent of the population growth and 30 percent of the
      new households in Marin County
    The median household income for the retail trade area is higher than the Marin
      County average and for the City at a rate of almost 33 percent from 2000 to 2007
    By 2012, ERA estimates that the retail trade area median household income will
      reach almost $120,000 per year

The combination of growth in spending power, coupled with continued population and
household growth is expected to increase the retail demand within the retail trade area.

Historic Employment Trends

Historically, the City of San Rafael has had the largest share of employees in Marin County,
over 20 percent since 1997. The City of Novato (north of City and outside the retail trade
area) has the second largest share of employees in the County. The strongest employment
growth in Marin County since 1997 has primarily been in the south part of the County,
within the retail trade area. From 1999 to 2001, after a period of rapid growth, employment
in all regions declined. During this time the County’s unemployment rate rose to a high of
4.9 percent in 2002 and 2003. Employment began to increase again and unemployment rates
fell for most regions in 2004 and 2005. From 2002 to 2007, jurisdictions within the retail
trade area added approximately 1,200 new employees. This number accounts for almost 50
percent of new employees in the County. Since 1997, unemployment rates in Marin County
have consistently been lower than the state average.

Total non-farming employment growth in Marin County averaged 2.2 percent per year from
1996 to 2000 and -0.6 percent from 2001 to 2006. In 2006, the largest employment sectors in
the County were professional, business, education and health services. These sectors account
for approximately one third of total non-farm employment. Retail trade was the fourth
largest employment sector in the County in 2006, with just over 13 percent of total non-farm
employment, approximately 14,400 employees. From 2003 to 2006, employment in retail
trade decreased by over 10 percent.




Draft  September 2008                     4.12-5                                Urban Decay
Target Store
Environmental Impact Report                                                     City of San Rafael



Net Sales Impact on Retail Trade Area

The overall impact of the expansion on net sales in the retail trade area depends on whether
projected retail demand can support the retail sales volume expected at the new Target
Store. ERA has identified, by major retail category, the expected short-term and long-term
retail demand for the retail trade area as well as the expected sales volume for the new
Target Store.

Historic Per Capita Taxable Sales Trends

According to the ERA’s Urban Decay Analysis, the per capita retail sales in both Marin
County and San Rafael increased at a compound annual rate of about 3.5 percent from 1997
to 2006, more than two times the rate of retail sales increase for the State of California
during the same period. Marin County’s total per capita retail sales increased over 37
percent, from approximately $9,300 in 1997 to just under $12,800 in 2006. Similarly, San
Rafael’s total per capita retail sales increased over 36 percent, from $16,150 in 1997 to nearly
$22,000 in 2006.

In Marin County the largest retail category by per capita retail expenditures was Food Stores
followed by Auto Dealers and Suppliers. The largest retail category in San Rafael was Auto
Dealers and Supplies followed by Building Materials and Farm Equipment. By far, the
fastest growing retail category in both the County and the City was Service Stations (i.e.,
fueling stations). From 1997 to 2006, Service Station retail sales have increased by 7.9 and
8.4 percent in the County and City respectively. Apparel Stores, General Merchandise and
Drugstore retail categories have seen the least growth in retail sales in both Marin County
and San Rafael, with Apparel Stores per capita sales actually dropping more than 20 percent
from 1997 to 2006. In order to project future retail sales demand in the retail trade area,
ERA averaged the per capita retail sales of the nine cities that comprise a large part of the
retail trade area.

Future Retail Demand

To determine future retail demand, ERA adjusted 2006 per capita retail sales to reflect 2008
levels, using the increase in consumer price index (CPI) from 2006 to 2008. The total
projected per capita retail sales are estimated to be around $22,660 in 2009. ERA then
applied this number to the estimated population of the retail trade area to determine total
retail sales demand by retail category in 2009, 2014 and 2019. A real income adjustment
(e.g., inflation) of 0.3 percent annually was assumed for this analysis. As such, ERA estimates
that per capita, retail demand will grow to $23,000 in 2014 and $23,350 in 2019. Total retail
demand is projected to grow from $3.7 billion in 2009 to over $3.8 billion in 2014 and almost
$4 billion by 2019. Total demand for General Merchandise and Drugstores will increase to
$423 million by 2014 and $439 million by 2019. This represents an increase in per capita
General Merchandise demand from $2,490 in 2009 to $2,560 by 2019.

New Retail Demand

In order to calculate new retail demand, ERA compared the projected annual retail sales in
2014 and 2019 with estimated retail sales demand in 2009 to estimate the net new sales

Urban Decay                                  4.12-6                        Draft  September 2008
                                                                                                   Target Store
       City of San Rafael                                                          Environmental Impact Report


demand in the retail trade area. The results indicate that total net new retail sales demand of
over $146 million is expected by 2014 and more than $293 million by 2019. Although Target
Store sales are reported as “general merchandise” the actual sales of a Target Store run
virtually the full gamut of retail categories, including apparel, automotive supplies, non-
perishable food and drink, home furnishings, and the category “other”, which consists of the
sales of a wide variety of specialty retailers who do not fit into the set categories.

Estimated Future Retail Sales Volume

The proposed 137,424-square-foot Target Store would generate approximately $300 (in
constant 2008 dollars) net per square foot.4 The analysis is based, in part, on Target
Corporation’s retail sales mix as reported in the 2007 annual report. ERA estimates sales of
the proposed Target Store to be 31 percent General Merchandise and Drug, 19 percent
Furnishing and Appliances, 15 percent Apparel, 15 percent Food, and 15 percent other.
Target is expected to generate over $41 million in annual new sales within the retail trade
area.

4.12.3       ENVIRONMENTAL ANALYSIS

THRESHOLDS OF SIGNIFICANCE

Section 15131(b) of the CEQA Guidelines state that a project’s economic impacts on a
community are considered significant only if they can be tied to direct physical changes in
the market area (i.e., physical deterioration of existing retail centers/facilities). Accordingly, a
project may create a lasting physical change in the market area if one or more of the
following occurs:

     Any diversion of sales from existing retail facilities would have to be severe enough to
       result in business closings and subsequent long-term vacancies
     The business closures would have to be significant enough in scale (i.e., in terms of
       the total square footage affected and/or loss of key “anchor” tenants) to affect the
       viability of existing shopping centers.

Based on these standards, the effects of the proposed project have been categorized as either
a “less than significant impact” or a “potentially significant impact.” Mitigation measures
are recommended for potentially significant impacts. If a potentially significant impact
cannot be reduced to a less than significant level through the application of mitigation, it is
categorized as a significant unavoidable impact




         4
          Target’s average revenue per square foot in 2006 was $316, which includes the “Super Target” category
that outperforms the smaller format such as the one planned for San Rafael. ERA has discounted the per square
foot impact on the trade area to reflect the fact that a certain number of Target customers currently reside in the
trade area and will shift from the Novato and East Bay stores to the new San Rafael store. Target has cited this
trend in annual reports as being responsible for relatively low same-store sales performance.


Draft  September 2008                                4.12-7                                         Urban Decay
Target Store
Environmental Impact Report                                                     City of San Rafael



POTENTIAL IMPACTS AND MITIGATION MEASURES

Business Closings and Viability Impacts

     IMPLEMENTATION OF THE PROPOSED PROJECT WOULD NOT RESULT
       IN BUSINESS CLOSINGS OR COULD AFFECT THE VIABILITY OF
       EXISTING SHOPPING CENTERS OR DISTRICTS.

Level of Significance Before Mitigation: Less Than Significant Impact.

Impact Analysis: ERA’s Urban Decay Analysis concludes that the proposed project would
not have a significant negative impact on existing retailers, based on the analysis below.

Comparison of Net New Demand to Sales Volume and Potential of Urban Decay

In order to determine the potential for the proposed Target Store to cause long-term urban
decay, the Urban Decay Analysis compared the projected new retail sales demand with the
expected net new sales volume created by the Target Store.

Explanation of Relationship Between Demand and Supply and Urban Decay

In a situation where supply exceeds demand, there is a potential for urban decay as a result
of business closures, depending upon the relative strength of other retail stores and store
sites. However, if demand exceeds supply, there should be sufficient retail spending such
that any business closure would only result in a temporary vacancy. While the introduction
of a strong retail competitor could accelerate the decline of already marginal businesses, in
an environment where retail demand exceeds supply, any vacancies would be rapidly
absorbed with new businesses or expansions of existing businesses.

More precisely, if the supply of retailers were considerably greater than the demand, the less
competitive shopping centers in weaker locations in the region would have difficulty
attracting retail tenants. Over time, landlords may not be able to afford the upkeep in these
buildings, thus resulting in urban decay.

In the case of the City, rising incomes and increasing population mean that there is demand
for additional retail space. Any space vacated by marginal retails as a result of more efficient
competition would be occupied by newer tenants able to compete in the new environment.
Thus, while the introduction of a strong new retail store may result in some store closures, in
an environment where retail demand exceeds retail supply, the closure of a store is highly
unlikely to result in urban decay.

New Retail Demand Versus Projected New Target Store

According to the Urban Decay Analysis, the new sales volume created by the proposed Target
Store would exceed the projected demand for Furnishing and Appliances, General
Merchandise and Drug, and Apparel Stores in 2014, but would represent approximately 46
percent of overall new demand in the retail trade area. By 2019, the retail trade area
demand would increase such that Target’s sales volume would be less than the projected new


Urban Decay                                  4.12-8                        Draft  September 2008
                                                                                  Target Store
       City of San Rafael                                         Environmental Impact Report


retail demand in all individual categories, and 23 percent of new demand overall. For
additional information regarding ERA’s analysis of the Target Store, refer to Appendix G in
this EIR.

Conclusion

The proposed project would likely not cause blight or urban decay in the City for the
following reasons:

     Net new retail demand greatly exceeds supply by 2019 in all categories, and greatly
       exceeds supply overall by 2014.

     Significant numbers of Target Store customers are likely to be existing customers
       who currently travel to Novato or El Cerrito and, therefore, would not affect demand
       for existing retailers in the trade area.

     Given the unmet demand in other retail categories, any potential vacancies created by
       the new Target Store could be occupied by retailers catering to those categories.
       Therefore, commercial vacancy rates in the City would not substantially increase as a
       result of the proposed project.

     Marginal retailers in competing retail categories may close as a result of the Target
       Store. However, new tenants would be able to compete effectively against the Target
       Store given that they cater to retail categories with a higher level of unmet demand.
       It is important to note, however, that by 2014 there is unmet demand in most retail
       categories and by 2019 there is unmet demand in all retail categories.

Mitigation Measures: No mitigation required.

Level of Significance After Mitigation: Not applicable.




Draft  September 2008                     4.12-9                                Urban Decay

				
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