Economic Impact Review – Los Angeles

In October 2004, after months of debate on the consequences of big-box development, much of it initiated by the Los Angeles Alliance for a New Economy , the city of Los Angeles enacted the following law, which requires proposed superstores to pass an economic impact review in order to obtain approval to build.

Thelaw applies to retail stores larger than 100,000 square feet that devote more than 10 percent of their floor space to food and that are seeking to locate in economic assistance zones. These zones are economically depressed areas where the city has used subsidies and other incentives to encourage development. They account for about half of the city’s land area and contain most of the sites that would be large enough to accommodate big-box stores.

Underthe law, the City Planning Commission must weigh the economic benefits and costs of the proposed superstore, and may only grant approval if it determines that the store “would not materially adversely affect the economic welfare of the Impact Area.”  The Impact Area is defined as a three-mile radius around the site.

The developer is required to submit an economic impact analysis that evaluates ten factors detailed in the ordinance. These include whether the superstore will adversely affect existing retailers in the area; its net impact on jobs and job quality; and its impact on tax revenue and city costs.

Thecity has the option of hiring independent consultants, at the developer’s expense, to review the analysis.  The analysis is also reviewed by the Community Development Department (or a redevelopment agency where appropriate), which may submit additional material and is required to make a recommendation to the Planning Commission. The ordinance also mandates a public hearing and opportunity for residents to submit testimony.

The Planning Commission weighs all of this in making its decision.  The City Council has final say should the commission’s decision be appealed.

Oneshort-coming of the ordinance is that it applies only to Wal-Mart and Target supercenters that have grocery departments. It does not affect warehouse stores such as Costco and Sam’s Club, and other large retailers, such as Home Depot and Wal-Mart and Target stores without grocery departments. Another is that the analysis is submitted by the developer, rather than an independent consultant hired by the city — although the city does have the option of arranging for an independent review of the developer’s study.

In addition, the 100,000-square-foot threshold exempts Wal-Mart’s 99,000-square-foot”urban” supercenter—a new format unveiled in 2004 that is designed to have as much economic impact as a full-scale supercenter, but carefully configured to be a size that will fit the constraints of inner city sites and skirt the growing number of city ordinances limiting stores to 100,000 square feet.

Excerpted below are the relevant portions of the Los Angeles Municipal Code. The full code can be accessed via the city’s web site.


Excerpted below are the relevant portions of the Los Angeles Municipal Code

(a)     Definitions. (Amended by Ord. No. 176,166, Eff. 10/4/04.)  For purposes of this Subdivision the following words and phrases are defined as follows:

Economic Assistance Areas means the existing geographically defined areas: Five State Enterprise Zones, Federal Empowerment Zone, Federal Renewal Community Zone, thirty-seven Community Redevelopment Agency Project Areas, and Earthquake Project Areas, and a one-mile buffer surrounding each of the above-identified zones, as identified by the Community Development Department and as shown on the “Los Angeles Economic Assistance Areas” Map, dated January 2004, which is attached to Council File No. 00-1675 S2 and is on file in the Community Development Department, and which may be amended from time to time.

Major Development Project means the construction of, the addition to, or the alteration of, any buildings or structures which create or add 250,000 square feet or more of warehouse floor area, 250 or more hotel/motel guest rooms, or 100,000 square feet or more of floor area in other nonresidential or non-warehouse uses.  The above definition shall apply to the cumulative sum of related or successive permits which are part of a larger project, such as piecemeal additions to a building, or multiple buildings on a lot as determined by the Director of Planning.  For the purpose of this subdivision, floor area shall be as defined in Section 12.03 of this Code.

Non-taxable Merchandise means products, commodities, or items not subject to California state sales tax.  For purposes of this ordinance, the definition of non-taxable merchandise shall not include, without limitation, Sales Floor Area devoted to any of the following categories: services, including the services of a chiropractor, optometrist, optician, physician, surgeon, podiatrist, dentist, spa, gym, nail salon, and travel accommodation services; theaters and other entertainment uses; and food products sold through vending machines.

Sales Floor Area means the interior building space devoted to the sale of merchandise, but excludes restrooms, office space, storage space, automobile service areas, or open-air garden sales space.  For the purpose of determining the total sales floor area of a single business establishment, the aggregate square footage of all adjacent stores that share common check stands, management of the business operation of such adjacent stores, controlling ownership interest in the business operation of such adjacent stores, warehouses, or distribution facilities shall be considered a single business establishment.

Superstore means a Major Development Project that sells from the premises goods and merchandise, primarily for personal or household use, and whose total Sales Floor Area exceeds 100,000 square feet and which devote more than 10% of sales floor area to the sale of Non-Taxable Merchandise.  This definition excludes wholesale clubs or other establishments selling primarily bulk merchandise and charging membership dues or otherwise restricting merchandise sales to customers paying a periodic assessment fee.  This definition also excludes the sale or rental of motor vehicles, except for parts and accessories, and the sale of materials used in construction of buildings or other structures, except for paint, fixtures, and hardware.

(d)     Superstores in Economic Assistance Areas.  (Added by Ord. No. 176,166, Eff. 10/4/04.)

(1)     Additional Findings. In addition to the findings otherwise required by this Section and set forth in Paragraph (b) of this Subdivision, prior to approval of a Superstore that is located in an Economic Assistance Area, the City Planning Commission or the City Council on appeal shall find, after consideration of all economic benefits and costs, that the Superstore would not materially adversely affect the economic welfare of the Impact Area, based upon information contained in an economic impact analysis report submitted by the applicant, any other information received or obtained by the Community Development Department or the Community Redevelopment Agency, a recommendation by the Community Development Department, or the Community Redevelopment Agency pursuant to Subparagraph (3) below, and any other information received before or at a public hearing required by this Section.  The phrase “Impact Area” refers to a three mile radius surrounding the proposed location of the Superstore.

(2)     Procedures.  An application for approval of a Superstore pursuant to this paragraph shall follow the procedures for conditional use permits otherwise required by this Section.  In addition, the applicant shall prepare and submit the economic impact analysis report referenced in Subparagraph(1) to the Community Development Department or to the Community Redevelopment Agency, where appropriate, for review in conjunction with its application to the Department of Planning.  The economic impact analysis report shall be reviewed by the Department or Agency and/or a consultant, if deemed necessary by the Department or Agency and paid for in full by the applicant.  The Community Development Department and the Community Redevelopment Agency shall complete its review of the report within 60 days after receipt of the report from the applicant. The report shall identify whether:

(i)  Efforts to establish a market larger than 20,000 square feet within the Impact Area have been unsuccessful or whether the proposed use will have an adverse impact or economic benefit on grocery or retail shopping centers in the Impact Area;

(ii)     The Superstore would result in the physical displacement of any businesses, and, if so, the nature of the displaced businesses or would create economic stimulation in the Impact Area;

(iii)    The Superstore would require the demolition of housing, or any other action or change that results in a decrease of extremely low, very low, low or moderate income housing on site;

(iv)    The Superstore would result in the destruction or demolition of any park or other green space, playground, childcare facility, community center;

(v)     The Superstore would provide lower in cost and/or higher in quality goods and services to residents than currently available or that are currently unavailable from a cost benefit perspective within the Impact Area in which the project is proposed to be located;

(vi)     The Superstore would displace jobs within the Impact Area or provide economic revitalization and/or job creation.  For purposes of determining this impact, the applicant must identify the number of jobs displaced or created, the quality of the jobs, whether the jobs are temporary or permanent, and the employment sector in which the lost jobs are located;

(vii)     The Superstore would have a fiscal impact either positive or negative on City tax revenue;

(viii)  Any restrictions exist on the subsequent use of the property on which the Superstore is proposed to be located, including the provisions of a lease if applicable, which, in the event the owner or operator of the Superstore vacates the premises, would require the premises to remain vacant for a significant amount of time;

(ix)     The Superstore will result in any materially adverse or positive economic impacts or blight on the Impact Area; and

(x)  Any measures are available which will mitigate any materially adverse economic impacts, if any, identified by the applicant, if necessary.

(3)     Recommendation. The Community Development Department, or the staff of the Community Redevelopment Agency if the Superstore is proposed to be located in a redevelopment area or in the surrounding one-mile buffer zone, shall review the economic impact analysis report and, after consideration of economic benefits and costs, make a written recommendation as to whether the proposed Superstore will result in a materially adverse economic impact on the Impact Area and, if so, whether conditions are available which will mitigate the economic impact.  The written recommendation, including proposed mitigation measures, if any, shall be submitted to the Department of Planning by the Community Development Department, or the staff of the Community Redevelopment Agency, as appropriate, in accordance with the written procedures on file with the Department and the Agency.

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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.