January 23, 2004 - From the January, 2004 issue

Proposed L.A. City Ordinance Targets Big Box

As Wal-Mart and other big-box retailers ramp up efforts to open "supercenters" in California, many cities throughout the state have taken steps to enact ordinance's tailored to ban these retail/grocery monstrosities. At the prompting of the Council Housing & Economic Development Committee, the Los Angeles city attorney's office is currently drafting such an ordinance. TPR is pleased to present this interview with Cecilia Estolano, Special Assistant to the City Attorney and supervisor of the Real Estate and Economic Development Practice Group, to discuss how Los Angeles' anti-suprecenter ordinance is taking shape.


Cecilia Estolano

Cecilia, Wal-Mart is in the headlines of news stories throughout the country and especially here in California. There's much talk here in the city about the so-called "Wal-Mart ordinance" being drawn up. Walk us through this. What's at stake, and what's the outline and the status of this ordinance?

First, the ordinance to which you refer is not intended to single out Wal-Mart. It's an ordinance to regulate superstores. What the ordinance would do, as the Council has directed, is to prohibit so-called "superstores" in what we're terming "economic assistance areas" within the city of Los Angeles. It wouldn't ban them from the entire city, but only in those areas where the city has invested substantial state, local and federal resources in economic revitalization. We're defining superstores as a retail establishment over 100,000 square feet that has 10% or more of its floor area dedicated to non-taxable merchandise. We are exempting from that membership clubs that sell primarily bulk merchandise. The reason we're using this definition is because this particular type of development has negative land use, environmental, as well as economic impacts on the community. The status is, we are working on the drafting of the ordinance right now. We'll probably have it out for circulation within the city family within the next couple of weeks. Then, two weeks after that, we expect it to go back to the City Council for consideration.

Obviously the City Attorney's Office isn't the point person politically moving this through the Council, but you are charged with drafting it. Clearly, it's fair to describe it as the Wal-Mart ordinance because the superstores are the new vehicle for Wal-Mart to introduce retail groceries with their otherwise retail or bulk business. So, the question is, what are the environmental and economic downsides that justify an ordinance like this. Legally, what's the classification?

On the environmental and land use side, you have the impacts of big-boxes generally, plus increased traffic that comes from this particular combination of retail plus nontaxable merchandise. The city of Oakland recently adopted a similar ordinance. Their ordinance actually banned superstores outright from the entire city. But, they looked at some traffic generation rates and found that this particular combination actually generates more traffic than other types of big box configurations. So, for example, big retail stores tend to attract a lot of folks in a region. Meanwhile, grocery stores tend to attract community members on a more regular basis. When you put the two uses together, you have extremely high traffic volumes. Add that to the impact of having acres and acres of parking, the storm water runoff impacts of that, and the "heat island" effect that comes from those acres of parking. Typically these big box supercenters have some design issues. They are big massive structures that don't have articulation and that don't have good design quality.

On the economic impact side, you're looking at these superstores undermining tens of millions of dollars in investment that have gone into some of the most economically devastated areas of the city. By pulling in nontaxable merchandise, i.e. grocery stores, they're going to be competing with the supermarkets and the shopping centers that form the anchor for a lot of community retail strips and shopping centers. So, the theory is, and a lot of the evidence has born this out, that when you have a superstore go in, it draws away consumers from a supermarket. That supermarket, which had been the anchor for a shopping center or shopping strip, then is shuttered, and all of the little businesses surrounding that supermarket suffer because they're not getting the foot traffic they used to. As a result you have an instance of whole commercial retail areas going under as a result of the big box superstore moving in.

We've had a public strategy for years on redevelopment to encourage investment and economic activity in these underserved communities. What would be the problem of a supercenter going in to what was formerly called the Santa Barbara Plaza, or in San Pedro or Wilmington? What would be the economic problem that requires political intervention in this way?

In areas you're talking about in particular, the city actually has invested quite a bit of money in trying to attract supermarkets to those areas, albeit not entirely successfully. But, I know certainly in the Crenshaw area, I worked for Councilwoman Ruth Galanter when she worked very hard to bring in a Lucky supermarket. The city has already invested money to bring supermarkets to those communities, and those supermarkets do serve as anchors. So what we essentially would be doing is undermining our own investment policies over the last twenty or thirty years to the benefit of one particular retailer, or one particular niche of land use, should we permit these supercenters to take root in these communities. That's the harm that the City Council has determined they want to address.

So, one argument I hear is very upfront, and there's another argument that's below the surface. The argument up front is, we as a public entity, the city, have an economic stake in some of these investments, and we're going to use public policy to protect that investment. The second argument is, there's a major labor dispute going on with supermarkets that are challenged by these superstores, and we're going to engage in supporting the existing supermarkets in that labor dispute. Is this an accurate portrayal of the situation?

Some might make that argument. We're the attorneys drafting the ordinance; we're not involved in the politics people might attribute to this ordinance. I might add though, the motion on this ordinance occurred long before the supermarket strike began and that we had been working on these concepts for over a year. So this is not a new idea, and it is not a result of labor strife. It just happens to be hitting at the same time.

What's the history of the city successfully intervening in the marketplace in ways like this?

This is an interesting ordinance because this isn't an economic development program per se. This is not the city intervening through direct investment. But, this ordinance is forcing the city to make a decision about the kind of uses we want in our community. We do it all the time.

For example, when we declare things an historic preservation overlay zone, we determine there are certain uses we want to protect and certain kinds of buildings that we want to discourage. We don't want, for example, to obliterate the history of a community, so we try to preserve the existing structures. One would argue that this would constitute intervening in the marketplace, and it might prevent us from getting increased density or an increased diversity of uses in the community. But, we make a policy choice that we want to preserve our historic uses.

Similarly we can say that we want to preserve community-serving neighborhood retail shopping centers and retail strips. The city of Oakland made a similar determination back in November when they passed their big box ordinance. We're doing the same thing here. We're determining the type of mix of uses and retail that we think, in our best judgment, protect the land use patterns and provide the most diversity of consumer choice to the community.

For every action we know that there is a reaction. And, assuming this ordinance is drafted and adopted by the Council and precludes this activity in these zones, obviously these stores would go outside of these zones and, given the history and the success of these stores around the country, suck the consumer energy away from the neighborhoods that you're trying to protect through this ordinance. How do you respond to that? Again, it's not the city attorney's job, but what's the reaction you've heard during your investigation?

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When we talk about economic assistance areas, what we've actually created is a mile buffer around those zones. So, sure it could be that Super-Wal-Mart or Super-K-Mart decides to locate in an area just outside of the buffer zone that we've created, and we understand from retail shopping patterns that some folks may be drawn to these stores. But our view is, just because you may have that spillover affect, doesn't mean that we should negate our public policy goals.

Super-Wal-Marts and Super-K-Marts have not come to the urban areas yet. We don't actually have a model for them coming. We've looked at what they've done in other communities, in rural communities and suburban communities, so we don't really know whether they're going to locate in areas that have much higher commercial retail prices. We just really don't know, truly, what the impact will be if they're barred from coming to these particular areas. But it's possible that they could locate in adjoining communities outside the city of Los Angeles, and it could be that we are foregoing some of that sales tax revenue.

However, we also know that by protecting the integrity of our own commercial neighborhood shopping districts, we will be buttressing the investment we've already made over the last 20 to 30 years in these communities, and we'll also be retaining the pedestrian vibrancy of some of these areas. So, it remains to be seen what's going to happen with this ordinance. If it's approved in its current form, how will Wal-Mart and Super-K-Mart and other retailers choose to challenge this ordinance?

Some have said that the superstore issue is in some way linked to the proposed Community Impact Report (CIR). What is that status of the CIR ordinance?

The ordinance on the citywide basis does not look as if it's moving anywhere. The Community Redevelopment Agency had taken a first crack at putting together a CIR policy. That was essentially tabled for a citywide approach. Councilmember Garcetti introduced a motion several months ago to take a look at the citywide approach, but we haven't really heard from the Community Development Department on what they're doing on that. They took the lead on this and we haven't seen a lot of action from the Community and Economic Development Committee that Councilmember Garcetti chairs.

It is my sense that folks are getting through things one step at a time. The focus right now is on the superstore ordinance. Perhaps once this is done, people may focus again on CIR? Having said that, certainly our office is anticipating that we're going to need to be drafting some sort of a Community Impact Report ordinance. We have had discussions with the Los Angeles Alliance for a New Economy (LAANE) to go over some ideas that they have in how their concept would apply on a citywide basis. But, these have been very preliminary discussions and, again, we haven't heard from them in a while. I think people are really focused on the superstore ordinance.

What is the status of the Bay Keeper Sewer Spills litigation?

This litigation has been going on since 1998 and we are set to go to trial in April. The case came out of the El Nino spill. When City Attorney Delgadillo first came into office and brought me on board, this was one of our top priorities, to try to settle this lawsuit. We made a run at it our first year and we were unsuccessful. Now, as we're nearing trial date, we have had a resurgence of interest in settlement. Under the leadership of the Chair of the Regional Water Quality Control Board, Susan Cloke, we've reignited settlement discussions and are quite hopeful that we can wrap this up within the next several weeks. If we did this, it would be a big win for the people of Los Angeles. It would commit the city to investing in their sewer system, and do it in a practical and cost effective way. It would also give the folks who use this fabulous resource, the Santa Monica Bay, some comfort that we're doing what we can to keep the bay clean, keep our streets clean from sewer spills, and do it at a reasonable cost. So, we're very hopeful that we're going to arrive at a conclusion to that lawsuit.

When you took this position, you expressed a desire to reduce the friction and the delay in the entitlement process in order to encourage the development of housing in desperately needed areas of the city. What successes can you highlight for our readers?

We've been successful in a number of areas. On housing production, in projects that are getting city funded, we have maintained a turn around time of one-to-three days for processing loan documents, and drafting loan documents, that come out of the City Attorneys Office. It is an extraordinary feat at a time during which we've seen the number of lawyers decrease in that area.

On development reform in the land use context, we've worked hand-in-hand with the Planning Department and with leaders in the development community to try to streamline certain processing requirements. On the real estate side, in our CEQA division, again we have worked very closely on trying to streamline the review approval process. We've been trying to have our development agreements more standardized in the city. There are not that many of them that come through. We're learning as we go and we're trying to standardize them a lot more.

In the use of city property, when we're selling surplus city property, again, we've been working closely internally to try to reduce this incredibly lengthy process of conveying surplus property to the private sector for productive use. It is unbelievable the number of roadblocks involved in that process, and we've been working closely with our clients at the General Services Office in reducing those roadblocks.

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