Economics of Wal-Mart

Economics of the Lower Garden District Wal-Mart

Page 2 – This isn’t such a sweet deal for New Orleans!!!!

Despite what the developer has purported, this Wal-Mart is NOT going to help the City of New Orleans. Below, we flush out the REAL facts:

1. Jobs: No Real job gain in New Orleans

a. Nationally, for every two jobs a Wal-Mart creates, three higher paying jobs are lost in the surrounding community which would mean a net lossof 250 jobs. Source: economic study by Donella Medows, Dartmouth College, regarding the effect of Wal-Mart in Massachusetts

b. The developer estimated that the number of net new jobs to Orleans Parish would only be 44 jobs at a pay rate of $8.95 per hour assuming Wal-Mart pays at the average rate of other retailers. In fact Wal-Mart jobs are at minimum wage and the average employee works less than 40 hours per week. Source: “Payment In Lieu of Tax (PILOT) Program” Cost/Benefit analysis for Historic Restoration, Inc. prepared by Metro-Source, L.L.C.

c. A 1994 report by the Congressional Research Service warned Congress that communities need evaluate the significance of any job gains at big-box stores against the loss of jobs due to reduced business at competing retailers. The new jobs also “provide significantly lower wages than jobs in many industries, and are often only part time positions.”

2. City Revenues: New Orleans will actually LOSE money on this project

a. Without serious reductions in the developer fees and allowable operating costs, the City of New Orleans will experience a negative cash flow over the next ten years of as much as $3,151,000. Source: Draft of the “St. Thomas Hope VI & Wal-Mart Evaluation, New Orleans City Council, April 11, 2002 prepared by Lambert Advisory LC.

3. Cost of the HOPE IV Development: Inflated costs of development means too much money for the developer

a. “The St. Thomas HOPE VI as presented by the developer stands out as one of the most expensive … efforts in the United States with Total Development Costs per Unit of $199,900.” Even when excluding social service elements of the plan, the total development costs for St. Thomas are $179,000 per unit vs. $118,000 per unit nationwide. Source: Draft of the “St. Thomas Hope VI & Wal-Mart Evaluation, New Orleans City Council, April 11, 2002 prepared by Lambert Advisory LC

i. Architect & Engineering Fees: $2.16 million, should not exceed $1.4 million
ii. Consultant Fees: $1.06 million, should not exceed $0.53 million
iii. Developer/Program Manager Fees: 12% of total costs, should not exceed 10%

b. The costs exceed HUD guidelines by over 50%. This is particularly significant considering that HUD guidelines include land acquisition and HRI is leasing the land for $1 per year. The excessive costs have created the “gap” that necessitates the financing provided by the TIF.


4. Impact on Small Businesses: Wal-Mart will hurt surrounding businesses

a. Nationally, 200 small businesses close when a Wal-Mart opens in a neighborhood.

b. In addition to the lost sales tax revenues that the Lambert study estimates, the City will lose inventory tax revenue, occupational license fees, and the incremental sales taxes that merchants who will leave the City spend. A merchant with $500,000 in annual sales will conservatively generate $50,000 in direct revenues to the City.

c. The “Lambert Study” cited above does not include any estimates for the loss of secondary jobs that will naturally occur as local retailers that go out of business no longer utilize the services of local accounting businesses, legal services, insurance business, delivery and freight services, etc. The net result in this shift of retail sales from locally owned businesses that buy goods and services locally to Wal-Mart is economic contraction.

5. Economic advantages granted exclusively to Wal-Mart that create an unfair market environment

a. Wal-Mart has been granted a parking lot sized beyond what the City ordinances allow. “There is a question of fairness to other City of New Orleans business in granting Wal-Mart’s request to extend its parking allowance.” (Draft of the “St. Thomas Hope VI & Wal-Mart Evaluation, New Orleans City Council, April 11, 2002 prepared by Lambert Advisory LC)

b. Wal-Mart’s property tax assessment is 70% of the value of the land and building. (Payment In Lieu of Tax (PILOT) Program” Cost/Benefit analysis for Historic Restoration, Inc. prepared by Metro-Source, L.L.C.) Commercial property tax assessments for retail businesses in the same area are 100% to 150% of the value of the land and buildings.
c. Wal-Mart will occupy 12% of the HOPE VI site and will benefit from the infrastructure improvements paid for by tax payer dollars. $480,000 in money from the City of New Orleans will subsidize the infrastructure improvements for Wal-Mart.


6. The land deal: HRI makes enough money off the sale of HANO land to Wal-Mart to pay for their other 9 acres!

a. The commercial portion of the development totals 17 acres acquired by HRI at an average cost of $10.00/sq. ft. HRI is selling 8 acres to Wal-Mart for $18.00/sq. ft. Half of the 8 acres will be land purchased from HANO for $6.33/sq. ft. The land sale from HANO to HRI to Wal-Mart will retire HRI’s debt on the remaining 9 acres. (Thus making the retail portion of the land subsidized by public funds).

7. Impact on tourism: Tourists spend money at the area’s unique shops NOT at a Super Wal-Mart.

a. 24% of the non-resident tourists coming to New Orleans list shopping as their favorite activity. This was the highest rated draw for tourists, the second highest rated activity was gambling at 17%. Source: Travel Industry Association of America, as reported in the Times-Picayune, August 16, 2001

b. “Wal-Mart does represent the first wave of potential interest and focus in the area among national specialty or category retailers which will most certainly impact many smaller businesses…We have seen this trend occur in other cities, drive up rents, and in the end leave the area with blandness with little attraction for either locals or tourists. . Source: Draft of the “St. Thomas Hope VI & Wal-Mart Evaluation, New Orleans City Council, April 11, 2002 prepared by Lambert Advisory LC

c. If the City, by pursuing a strategy that will close the very businesses that draw tourists to New Orleans, the revenue from regional tourism will decrease.

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