Executive Summary

Strategies for Maintaining and Increasing Sales Tax Revenue:

The infill development task force is convinced that the regional Tulsa metropolitan retail economy is undergoing a structural shift. Due to metro development patterns, the coming of age Tulsa's suburban retail market and other factors discussed in this report, retail sales are occurring more and more frequently in Tulsa's neighboring suburbs while City of Tulsa retail sales and sales tax revenues are beginning to decline as a result. The committee believes this is an observable fact and presents quantitative data which support this observation.

The result of this phenomenon is a decline in sales tax revenues flowing to the City of Tulsa. Because this decline is structural in nature, city revenues will not return to a growth pattern when economic conditions rebound; instead revenues will continue to stagnate or even see further declines.

The forces creating this trend cannot be addressed directly. Tulsa has no method or ability to prevent retail development beyond its borders nor would it be advisable to attempt to do so if such a method existed. Instead it is the committee view that Tulsa leadership must persuade Tulsa citizens to adapt to changing nature of the market.

The committee sees two primary strategies which may be employed to maintain and increase sales tax revenues.

First, Tulsa should develop, centralized and connected within its borders, unique regional attractions, which will serve the purpose of continuing to attract shoppers to Tulsa.

Secondly Tulsa must replace retail customers that are lost to suburban shopping by creating new and interesting places for them to live, here within our borders. For every shopper who no longer visits Tulsa due to increased suburban shopping convenience, Tulsa must attract a new full time resident to live within Tulsa.

This report is not intended to express any unfriendliness toward Tulsa's suburban communities nor raise a spirit of antagonism in midst of the productive dialogues which are presently underway. Instead the report is calling attention to a potentially severe financial crisis which threatens the revenues available to fund public safety, road, water, sewer, and flood prevention infrastructure, and all manner of public services. Our Suburban neighbors will be well served by a healthy and vital Tulsa at the core of our regional economy. Recognizing the nature of the potential threats ahead is the first step towards ensuring our mutual prosperity.

This report is prepared by the Infill Task Force of the Economic Development Committee of the Metropolitan Tulsa Chamber of Commerce.

Prologue

The Task Force’s goal was to determine potential centers of infill activity, so that government could place emphasis on the development of infrastructure, create incentives for redevelopment, and in general pay attention to opportunities as they arose. The task force was selected from community leaders, with an emphasis on those with direct real estate experience, especially with infill development. The committee membership is listed on the second page of this report.

Early meetings centered upon the generalized need for infill development, the obstacles in place that effectively deter active redevelopment, and a selection of sites that have the greatest potential for infill development and redevelopment. All of those issues will be explored in this report.

It became evident in our discussions, however, that the committee felt strongly about a number of issues related but unstated by the initial goal of the committees work:

First, the committee felt strongly that infill development in Tulsa, Oklahoma does not simply represent an alternative form of land development and redevelopment. The need for infill development has suddenly attained urgency driven by the apparent permanent downturn of sales tax revenues and the dramatic lack of greenfield land to develop.

Second, once the committee’s emphasis turned to the loss of sales tax revenues, it became important that this report define the factors that drive retail development, retail sales and the resulting sales tax revenues. 4

Third, in each meeting, the committee’s discussions consistently returned to the need for an urban sports/convention/entertainment project. The issues discussed in this report will attempt to emphasize that, not only is such a project important to insure Tulsa remains competitive, it also will be critical in stemming the decline of tax revenues.

As a result, the committee has chosen to name this report, “Strategies for Maintaining and Increasing Sales Tax Revenues -- Infill Development”.

Definition of Infill Development

Infill development takes many forms. The phrase has been defined and redefined by realtors, architects, neighborhood association, professional organizations, and environmental groups, among many others. The concept has become confusing because we hear new phrases such as “Smart Growth”, Livable Communities” or others, which attempt to describe the quality or design of development. For the purposes of this report, we will make the following distinctions:

“Greenfield Development” will be used to designate the development of vacant, undeveloped sites, whether they exist at the edges of the city’s development or in the center of established neighborhoods. While there may exist undeveloped sites within existing, older neighborhoods, it is hard to determine why they should be defined differently than a similar vacant site within an established newer neighborhood, e.g.: at 97th & Sheridan. To enter into an argument over defining the geographic line between a “greenfield” and an “infill” vacant tract is unproductive;

“Infill Development” will be used to designate the re-development of property for the purpose of increasing the density of its use, or for the purpose of changing its use.

Introduction

Tulsa, Oklahoma has reached the stage in its maturity as a metropolitan center where its surrounding bedroom communities, once support for the growth of the center city and its business and retail development, now have grown their own business infrastructure and their citizens are working and shopping within the former bedroom community. The reasons for the phenomenon are several, its future reality predictable and the solution obvious. This report will attempt to clearly define the current state of our development as a city center within a larger metropolitan community, discuss basic economics related to retail development and the resulting sales tax revenue, and suggest several strategies for the future that will allow Tulsa to maintain and potentially increase the sales tax revenues which are its very life blood. At the end of the report, several immediate action items are suggested.

A Historical Overview

From the establishment of the railhead in 1882, Tulsa has been central to the growth of the region. As a transportation center, surrounding communities were inextricably linked with Tulsa. As Tulsa grew and prospered, so too did the cities closely ringing Tulsa’s perimeter. Ease of access and abundance of developable land in these surrounding cities proved attractive to residential developers and their customers seeking to escape the big city. Expansion of industries and ready employment at Tulsa’s fringe enhanced the growth of Broken Arrow, Owasso, Sand Springs, Sapulpa, Bixby, Jenks and Glenpool. But while many lived in the surrounding communities, they worked and shopped in Tulsa. Without adequate population, each surrounding town was ignored by retailers that sought population mass to insure their success. And as Tulsa grew larger, more and more businesses were attracted, and the cycle continued until several events occurred, almost simultaneously.

First, the developed borders of the surrounding communities and Tulsa grew together, so as to be almost indistinguishable as separate communities; second, the individual communities became of large enough population to be considered as expansion sites for retailers; and, third, as the dense population centers of major metropolitan areas of the northeast and western United States became fully developed, retailers turned their attention to overlooked smaller markets for expansion. The result is the virtual overnight transformation of the retail landscape of the Tulsa metropolitan area. Once only of interest to grocers, drug stores, fast food and local mom and pop retailers, the cities of Broken Arrow, Sand Springs, Owasso and others are now the new locations of national big box stores like WalMart, Lowes, Home Depot, Kohls, with many more to come. At this writing, major projects are in planning for Broken Arrow, Bixby, Claremore, Glenpool, and Sand Springs. No longer is the resident of the surrounding community forced to come to Tulsa to shop. Shopping has come to them. The phenomenon has nothing to do with the fact that the surrounding communities all were in desperate need of the sales tax revenues to support their ever-growing capital and operating costs. It had nothing to do with effective or aggressive Chamber efforts. It occurred because the population densities were finally right for it to happen. And it occurred to Tulsa’s detriment because Tulsa had reached its development limits. Tulsa had no further reasonable land area to develop.

Declining Revenues

The net result of this unfortunate phenomenon is that ever increasing percentages of new development, residential, office and retail, will occur outside Tulsa’s city limits. In addition, sales experienced by retailers within Tulsa as a result of customers from outside the Tulsa city limits will decline as those customers shop in increasing numbers within their own community. The results, if left un-addressed, could be staggering.

Tulsa has already seen vacancies within the retail sector as large box stores close as a result of various factors. Most have closed as a result of increasing competition within the same market area, or nationally as particular chains are unable to compete profitably with newer concepts. Home Base and Builders Square have been driven out by Lowes and Home Depot, not only locally but nationally as well. How long can three or four different stores represent the same products within the same market area? How many computer stores will survive, how many bed and bath stores, etc? Even fewer will survive as sales dwindle or competition out-positions them. How long will the Home Depot downtown prosper if Lowe’s builds stores in Sand Springs or south along US 75, and Lowe’s completes its store at 15th & Yale? Can it survive with sales generated only by residents and businesses in North Tulsa and Mapleridge? For a graphic depiction of the fragmentation of the home improvement market, please see the maps, Exhibits la and 1b in the Appendix.

And as sales decline so also do sales tax revenues. If one assumes that a major retail store requires a minimum of $200 per square foot in sales per year to survive, then a 50,000 square foot box store generates, a minimum of $10,000,000.00 in sales per year; a Lowes or Home Depot, at more than 150,000 square feet, generates $40,000,000.00 plus, representing, at 2% sales tax available to the city coffers, $800,000 in sales tax to the City of Tulsa per year per store. Including the third penny for capital expenditures ( a 3% take for public purposes) the revenue represents, $1.2 million per year. Add to that number, sales tax from the multitude of ancillary small national, regional and local stores that exist as a result of the presence of the big box. It is easy to see that declining sales and the failure of several big stores could lead to substantial losses of sales tax revenues. At this writing, Target has relocated its 71st and Memorial store to 71st and US 169. What large box store exists to fill the vacancy at 71st and Memorial? Will the vacancy fill with lesser discount boxes such as has occurred on the northwest corner of the same intersection? Will the remaining medium and small tenants in the center remain at lease renewal if the old Target is still vacant or will they relocate in Tulsa or just east of 71st & Garnett, in Broken Arrow, or to the new Lowe’s in Bixby? Look at the current vacancies at other locations in the corridor: K-Mart, Builders Square, Service Merchandise and Home Place. Almost one million square feet of space is vacant in the 71st & Memorial corridor alone. Where are their replacements?

Numerical Data

The committee has attempted, with limited available information, to gain a quantitative grasp on the magnitude tax dollars lost due to increased suburban retail development. The staff has conducted a preliminary analysis of the retail trade flow between cities for which data has been available.

For the years 1992 until 2001, retail sales growth in Tulsa has appeared robust. Growth rates have exceeded 3% per year for the past seven consecutive years. (Appendix, Exhibit 2) However, these have been nominal growth rates, not real. After these Exhibits have been discounted for inflation, we see that real growth has exceed 3% only once in the ten year time frame and while growth has generally been modestly positive, Tulsa has seen real term declines in 1993 and growth rates of less than .5% in two of the past three years. These simple inflation adjustments shed the first illumination on this problem and are shown in Exhibit 3 of the appendix.

Several of Tulsa’s surrounding communities have shown considerable real retail trade growth for the period 1992 to 2001. Consider Exhibits 4 and 5 in the appendix. Most notable is Owasso’s remarkable sales increase by a factor of 123%. Bixby has doubled their retail trade for this period. Tulsa ranks 6th out of seven cities in terms of retail sales growth for this period. Also notable regarding Owasso is how clearly they are demonstrating their understanding of this phenomenon, Owasso is specifically marketing their community as a location to capture shoppers before they even reach Tulsa shopping facilities. Exhibit 7 is a very intelligent graphic from an Owasso economic development marketing piece targeted toward retailers.

While inflation adjusted figures have revealed Tulsa’s flat performance in two of the past three years, in terms of retail sales per capita, Tulsa has seen real declines in 2000 and 2001. (see Exhibit 7) Also very interesting is the fact that Owasso has for the first time ticked upward to surpass Tulsa in real retail sales per capita. (Exhibit 8)

Even more dramatic is the depiction of Retail Center Square Footage per Capita in the city of Tulsa and the surrounding communities shown in Exhibit 9 in the Appendix. Excepting Owasso, which has just opened over one-half million square feet of space with a population of just over 19,000, Tulsa has over twice the square footage of retail space per capita than the surrounding communities. Tulsa has been able to support this large capacity of retail due to Tulsa’s historical role as a regional shopping destination. Not just members of surrounding communities but citizens from even smaller cities and rural areas beyond have come to Tulsa for their retail needs, and much to Tulsa’s benefit. This begs the question, how great is the magnitude of this retail dollar importation.

By comparing figures provided by the Stata Data Center on city retail sales to consumer expenditure estimates from demographic provider Claritas, an estimate of the magnitude of retail imports and retail exports was prepared for the year 2001 for Tulsa and for the surrounding cities. Total retail sales in Tulsa for the year came in at $4.6 billion. Estimates for spending made by the citizens of Tulsa came in at $3.9 billion. The $700 million difference between these two numbers represents the value of retail spending which is imported into the Tulsa economy by non Tulsa residents. Two percent of that import value represents the tax revenue available for City of Tulsa operations, or roughly $14 million dollars from outside shoppers. Exhibit 10 and Exhibit 11 demonstrate these figures. At present the committee has not located specific historical consumer expenditure data to create a trend line for this retail trade flows estimate. Our suspicion is that a such a historical data comparison would reveal Tulsa’s retail import value on a declining trend. However, Exhibit 13 does demonstrate the decline in the City of Tulsa’s relative capture of metropolitan area sales. In 1995, Tulsa retail sales accounted for 82.4% of metro area sales. That market share has declined every year since and fell to 78.1% of metro area sales in 2001.

Conducting such an analysis does require various interpretive assumptions in dealing with the raw data. Staff looks forward to peer review of this material with City of Tulsa research and financial officials.

We have already seen the debate as government attempts to deal with lost revenue. What goes first? Police and fire protection, or street and infrastructure maintenance? Does the ensuing deterioration of services or quality of public improvements result in additional flight to the suburban cities. The threat is that Tulsa could face an ever-downward spiral of declining revenue? If this analysis in fact leads to confirmation of such a trend, our best and brightest efforts will be necessary to reverse it.

Strategies for Success

Tulsa’s goal then must be to maintain or increase sales tax revenues so that Tulsa can
continue to prosper and grow. This report has shown that retail survives as a result of
the purchasing power of its resident population and the external population it attracts.
This is a crucial concept to understand. As new retail develops nearer the population it
serves, then existing retail must have additional support to make up for the resulting loss
of customers. To provide that additional support, the City must adopt three distinct
strategies:

1) Dramatically increase Tulsa’s convention and tourism business;
2) Maintain and dramatically grow Tulsa’s residential base; and,
3) Aggressively accommodate and maximize retail opportunities where they exist.

These two important strategies can only be achieved by focusing of several basic, but critical initiatives:

1) Centralize, not Disperse Important Cultural, Sports and Civic Attractions;
2) Maximize natural assets;
3) Create a culture for growth;
4) Create a structure for growth

Strategy No. 1:

Dramatically Increase Tulsa’s Convention And Tourism Business

Few question the desirability of a “Tulsa Project”. Virtually all of the recent local political campaigns contained a central business district revitalization project as a key
initiative to be pursued following election. Everything from the commercialization of the Arkansas River to extensive new sports and entertainment venues has been suggested. Certainly convention facilities need updating and enlarging and a new arena should be constructed. Effective, attractive convention facilities will naturally create a more vibrant hospitality industry in the CBD and increase the demand for restaurants to serve convention attendees. We believe these dynamics are well understood.

The Committee’s discussion, however, centered more around the question of how can Tulsa maximize the development of such improvements so that the entire Central Business District of Tulsa is enhanced and again becomes the business, entertainment and cultural center of the metropolitan area and the region. If planned correctly, Tulsa’s CBD will attract large numbers of residents and visitors in such great numbers and with such regular frequency that quality, large-scale retail, restaurant and entertainment development will occur. And it will occur with the quality which the Tulsa CBD deserves and in the location that best works to enhance the whole.

The challenge in developing such a project will be the assembly of a large enough parcel of property to support not only the planned civic facility and its attendant parking, but also surrounded by enough additional land area for the retail, restaurant and entertainment development or redevelopment. The committee saw this issue as the greatest detriment to the last Tulsa Project proposal. While the proposed site had adequate land for the development of the facility and parking, there was no available surrounding land area or suitable building stock to take advantage of the tremendous numbers of people attending the events. In other word, it is not enough to just build a civic facility. Tulsa must build the facility and multiply the dollars spent by the attendees by enticing them to stay longer, feeding them, entertaining them and selling them goods and services.

In the opinion of the committee, in order to create redevelopment that will cause the CBD to become the business, entertainment and cultural center of the metropolitan area and the region, Tulsa must centralize the development of cultural, sports and civic attractions. This means that Tulsa should aggressively pursue new museums (Air & Space, film, photography, etc), cultural attractions (art museums or annexes, artist lofts and incubators, etc.), sport venues, entertainment venues and see that they locate in or adjacent to the CBD. It means that Tulsa should recognize its important assets and capitalize on them by linking them together. OSU-Tulsa, the Greenwood Cultural Center and Jazz Museum, the River, Gilcrease and Philbrook should all be linked in a meaningful way, and the link should come together in the CBD.

The Uptown area should be recognized as the natural link between the CBD and Tulsa’s greatest asset, the Arkansas River, and the CBD should be encouraged to jump the inner dispersal loop. Tulsa needs to find a way to break through the physical barriers of the inner dispersal loop that fragments the great assets of Tulsa into lonely islands.

We should re-question why housing must occur in the CBD? Can it not occur as
effectively in the Uptown area and link it to the CBD by creating attractions in each area
that excite the users of each so they desire to continually move from one to the other?
We should give up the idea that all of the CBD should be vibrant and active after 5:00pm.
Most of the wonderful active 24 hr cities have portions of their business district which do
not have activity after 5:00.

And most importantly, Tulsa must focus on creating development where it is best likely to succeed, not try to force it to occur simply to utilize available land or to satisfy an unrealistic objective. Through careful planning, aggressive marketing, centralization of cultural, sports and civic attractions, maximization of existing assets and effective linkages, the Tulsa CBD can again become the business, entertainment and cultural center of the metropolitan area and the region.

Strategy No. 2

Maintain And Dramatically Grow Tulsa’s Residential Base

Creating a dynamic urban environment with outstanding cultural, sports and
entertainment attractions that draw visitors from the metro area and the region will be
challenging. The example of the MAPS projects in Oklahoma City, however, is widely
reported and the results can be seen, touched and experienced by our population. MAPS
effectively demonstrates the possibilities that can be achieved.

The more difficult, but infinitely longer lasting and effective solution to declining tax
revenues will be to maintain and dramatically grow Tulsa’s residential base.
Unfortunately in this case we have no commonly recognized example. We will need to
be guided by the experience of much larger cities and much older cities. To accomplish
this strategy will take courage creating a more dense residential base will touch
many people where they live... literally.

Except for the north and west quadrants of Tulsa, few greenfield development
opportunities exist for high density housing. Redevelopment opportunities exist in the
CBD within the Brady and East Village districts. Most reports suggest that only about
1% of the population desires to live in the Central Business District. But real
opportunities and the opportunity to significantly grow the city’s residential base only
exist in areas where a majority of people want to live.

But real barriers to real opportunities exist. The last decade has seen Tulsa’s
neighborhoods become increasingly wary of development. Protests of individual zoning
cases has led neighborhoods to organize to protect themselves from what they see as
encroachment upon the peace and tranquility of their neighborhoods. Where they can,
they have taken dramatic steps to protect themselves, most notably in the Utica Square
area, through the use of a zoning overlay district called "HP".

This report does not disagree with a neighborhood’s right to protect itself from damaging
encroachment. The committee’s concern comes from neighborhoods utilizing such steps
to forever preclude reasonable redevelopment. Areas along 15th Street, 21St Street, Utica,
Lewis, Peoria and others have enormous potential for any number of high quality higher
intensity uses, which are precluded by zoning lines too close to the arterial street. The
only development which can occur, is that which can fit in some cases on as small as a
125 foot deep lot. With arterial setbacks, landscaping and other requirements, major
portions of these highly coveted arterials can simply not be redeveloped.

Another example of possible redevelopment, which may demonstrate the potential the
committee believes exists is the east side of Riverside Drive between 33rd and 51St Street.
The Arkansas River represents to many Tulsa’s single greatest natural asset. And while
it is an asset to be capitalized by commercial development, it also an asset without equal
for high-density residential development. An unequaled high-density residential site,
sought after by market rate developers could be created with the following work: a
relocated or additional low water dam; construction of the Riverside Parkway from 33rd
to the 51st Street bridge; widening of the River Parks; construction of pedestrian access
over Riverside parkway; and, combined with the existing ODOT right-of-way, assembly
of several hundred feet of depth east of the relocated Riverside Parkway. What will
result is tremendous demand for townhouses, lofts, apartments and condominiums from a
population that does not want to live in the suburbs, but instead want to create a lifestyle,
built around a vibrant urban environment with exercise and views offered by the river,
Brookside, just a short walk away, and ready vehicular access to the balance of the city
via the Parkway. This opportunity exists today in a variety of locations. The demand is
there because the housing is built where the people want to live, by maximizing our
natural or built assets, and creating exciting environments that draw active young and
older adult dwellers.

The natural and built assets are all around us, Utica Square, Cherry Street, Brookside, the
River Parks, TU/Florence Park and others. The challenge is to create an understanding in
Tulsa’s population about how this can happen and about why it must happen. And, when
Tulsa is able to take the first step toward increasing residential density in an important
area with rich natural or built assets, we must insure that what is built is an exciting, bold,
dynamic, successful project, that will significantly dispel the fears of other
neighborhoods.

Strategy No.3

Aggressively Accommodate And Maximize Retail Opportunities Where They Exist

In many ways, the barriers to additional retail development are the same as those faced in increasing residential densities. The neighborhoods most dramatically under-served by retail are those in the general mid-town area. Opportunities for increased retail square footage exist in multiple locations: Utica Square, Cherry Street, Brookside, the central Harvard corridor, and the Uptown area, among others.

The experience of the committee was that retailers looking at Tulsa want to enter the market at one of two locations, either the 71st and Memorial corridor or the Utica Square area. Upon the successful opening at the one location, generally these retailers will open a second unit. What Tulsa is missing is the retailer’s second store in the Utica Square area, and in a great many cases, Tulsa is losing both of the retailer’s units, because higher quality, more upscale retailers will only open in the Utica Square area first.

Tulsa should be aggressively looking for ways to accommodate the large numbers of retailers unable to currently serve this market.

Creating a Culture and Structure for Growth

Two of the four initiatives suggested by this report, namely 1) centralize, not disperse important cultural, sports and civic attractions, and 2) maximize natural assets have been covered in the discussions of the recommended three strategies. The remaining two initiatives, creating a structure and a culture for growth should be well understood.

Tulsa must redefine itself by its actions and attitude toward development. Leadership is the key. Our mayor and city council must, with a united voice, set the tone for the future. Tulsa’s leadership must take the time to study and understand the opportunities and obstacles to creating the vibrant, dynamic city we all envision, and craft long-term strategies to achieve the goal. The opportunities, obstacles and solutions must be effectively and consistently communicated Tulsa’s citizens. Major landowners and stakeholders must be brought on board, especially those in the Brady, East Village, Uptown, Utica Square and Brookside areas. And department by department, commission and board, each must be structured to fulfill the mission. Tulsa’s citizens must become terrified of continuing the status quo, emboldened by the future opportunities and ready to participate positively in the process.

Infill Opportunities

Each committee member was asked to suggest ten infill project areas that they believed had the greatest potential for successful development or redevelopment. Some sites represented are greenfield sites by this reports definition. A compilation of the sites are shown on the aerial map, Exhibit 14 in the Appendix.

Summary

Infill development is no longer just a tool in Tulsa’s development toolbox. With relatively few exceptions, infill development is the only tool available to grow the city of Tulsa and its revenue base. The current decline in sales tax revenues, in the opinion of the committee, will be joined by other tax revenues, and will continue their decline, wreaking havoc with the ability of the city of Tulsa to meet it operating and capital obligations. Tulsa must act decisively to turn Tulsa’s future course to one of dynamic growth, positioning itself as the regional center of northeast Oklahoma. Tulsa should adopt the strategies and initiatives put forth by this report, and the committee respectfully suggests it should immediately act on the following recommendations:

1) Immediately restudy Tulsa’s civic, cultural, entertainment and sports
opportunities and determine finally the location and land area required for a new “Tulsa Project”;

2) Immediately engage professional consultants to develop models of retail growth in the Tulsa metro area and its effect upon retail sales and tax revenues with in the city of Tulsa; and,

3) Immediately study the potential for the development of a redevelopment or infill development district classification in the Tulsa Zoning ordinance which would facilitate the redevelopment of important areas of higher density residential and new infill retail projects.

4) Tactically refine the message of this report and disseminate it as critically important to the dialogue and communication regarding Tulsa’s future.