Neighborhood-Serving Business Development
While small businesses are a major source of economic stability for residents, providing significant entrepreneurial and employment opportunities, provide essential and affordable neighborhood goods and services and contribute to an area’s socio-economic and cultural vitality, the City has historically addressed the sector’s needs with benign neglect – focuses on attracting elusive macro industries (bio-sciences), on massive physical developments and, in neighborhoods, on commercial property rather than enterprises.
San Francisco’s draft five year Consolidated Plan’s consideration of small business development and assistance proposes, under the goal of insuring that residents are economically self sufficient proposes, a set of strategies to establish, enhance, and retain small businesses and micro-enterprises; and under the goal aiming at strong, vibrant and stable neighborhoods and communities, strategies for strengthening commercial corridors in low- and moderate-income neighborhoods. While the list of strategies appears rather comprehensive in proposing various business assistance services, it suffers from critical deficiencies:
- It sets out no activities to produce an economic development plan for each area that assesses needs, feasibility, business mix and development/assistance strategies to insure balanced development of enterprises providing the needed mix of neighborhood serving goods and services, that are at an affordable rate, do not displace existing businesses nor result in commercial gentrification and actually contribute to an area’s overall socio-economic and cultural vitality and diversity. And it fails to consider a citywide plan covering all these plans in a comprehensive approach linking macro, medium (especially light industry, business services and PDR) and the neighborhood plans.
- Present City efforts ignore the need for business, resident and institutional cooperation in planning and implementing local economic development strategies and programs and ignore the need to utilize participation vehicles which encourage the maximum access to local “assets”. Rather, the City focuses on very narrowly based entities which are dominated by property owners (thus real estate interests rather than business operation interests) with some existing business operators/owners, through “community initiatives” created, managed and funded by the City or Community Benefits Districts which are set up by a vote restricted to property owners and managed by boards which tend to be dominated by real estate interests.
- The list of services and assistance to back up each objective are weak in areas that might identify and encourage new businesses, provide full range assistance (for example, while market assessment is listed as a strategy, marketing generally consists of promotional brochures, some advertising and local fairs ignoring any scientific attempt to assess feasibility and propose comprehensive market access strategies) and particularly in the area of small business financing (equity, start up and operating capital), and where possible procurement and service contracts with major businesses. A number of NEDOs (neighborhood econ dev organizations) are funded but these do not cover all neighborhoods and communities, have limited services with constrained capabilities and especially capacities and which, with one exception, do not engage in neighborhood wide economic development planning.
In short, the City’s traditional economic development approach – let the private sector determine and control development goals and objectives, focus on physical development and not the viability of business enterprises to occupy that property and in neighborhoods organize along property ownership lines (CBDs) while encouraging activities (property improvement, security) which end up paving the way for commercial and retail gentrification.
Our recommendations redirecting that – determine what goods and services are essential to meet the needs of existing residents, particularly lower income and working class people, and seek out and provide comprehensive assistance to strengthening existing or starting up new businesses in accord with that.
In the end no matter what assistance is provided in lower income and working class communities the primary factor threatening business viability is the depressed nature of the market – residents have insufficient income and together provide a weak market for any small business enterprise. It is thus absolutely critical that the City’s neighborhood serving small business program be linked to a robust effort to attract and strengthen light industrial, business service and PDR enterprises citywide while also strengthening the workforce development program coupled with an aggressive effort to secure local hiring commitments from major businesses.
The following recommendations outline some approaches to supporting the City’s critical neighborhood-serving commercial corridors.
1. Create a commission to set the city’s economic development policy, including linking neighborhood economic development with other economic development endeavors
Establish a body (commission) to set policy for and oversee the economic development operations, under the auspices of and reporting of the Board of Supervisors and Mayor. This is essential in providing citizen and policy setting oversight of a critical agency, the primary entity addressing economic development and workforce issues, which is presently operating in the absence of any oversight whatsoever and, while it’s an independent agency and no longer a “Mayor’s Office,” it largely considers itself responsible to and operating under the Mayor. Neighborhood small business development would be part of the tasking of this oversight body with the added benefit that this development would be considered as part of and linked to all other business and economic development endeavors.
2. Ensure that neighborhood economic development entities and CBDs truly represent resident, worker, and small business interests
The City must set up and staff neighborhood economic development entities that represent resident as well as local business interests (to insure overall community benefit and not just property owner/real estate interests). Based on scientific needs, resources, economic conditions, market, financial feasibility and local asset assessments, the body, in an open community process, will devise a comprehensive area (neighborhood, commercial strips, industrial areas) economic development plan laying out specific small business strengthen and expansion objectives and a comprehensive assistance package designed to achieve those. See section on “Reforming Governance of Economic Development.”
3. Develop a comprehensive and robust commercial corridor program
The City’s services and assistance need to identify and encourage new businesses, assess feasibility, propose comprehensive market access strategies, provide full range assistance, especially small business financing (equity, start up and operating capital). We should establish coordinated small business and economic development plans for commercial corridors, with a focus on small business attraction, retention, and development strategies. The plans should augment and not duplicate the NEDO’s core work of small business planning, technical assistance, and loan packaging services. The plans should also focus on stabilizing and strengthening existing businesses and encouraging new neighborhood-serving business development. Below are possible strategies for small business assistance, both to stabilize and strengthen existing businesses and to get new neighborhood-serving businesses (non chains) established and viable.
- Tenant improvement and/or façade improvement grants and loans for small businesses
- Establish revolving loan funds for microloans ($5,000 – $50,000) with fixed interest rates for small businesses that have limited or no access to a bank loan
- Visual merchandizing consulting assistance for small retail businesses
- Marketing funds for ongoing business attraction and retention campaign efforts
- Lease negotiation services to assist small businesses interested in locating in the area as well as those small businesses struggling to stay in business during economic downturns
- Business incentive grants to assist with marketing, rent and property improvements (eg, Macon, GA program offers up to $10,000 grants)
- Assistance to help small businesses purchase their buildings (with the intention of augmenting existing programs such as the SBA 504 program)
- Rent write-downs
- Land write-downs through city purchasing and re-conveyance for small business development (eg, historic buildings)
- Tax increment financing districts to fund property acquisitions for sale to businesses as retention strategy. Repayment could be at interest only until property is resold or refinanced.
- Establish pool of “patient equity” to encourage mid- or long-term equity investments in area businesses (not grants or loans) to businesses that received a return on the contribution on a time-deferred basis.
- “Negative sandwich leases” where an intermediary organization assumes negotiated master lease on multiple-unit commercial space, along with management responsibilities, then sublets it to a variety of tenants with low base rent and increase $1.00 per foot, per year. Would require some money for subsidies as economic development strategy.
- Nonprofit building ownership, to serve as a fallback location for good businesses that cannot, in the short term, survive by paying rapidly escalating rents.
- Adjusting/creating commercial spaces for small businesses which may be doing sufficient volume to survive if they weren’t paying rent for a space that’s too large.
- Targeted incentives such as low-interest loans to small businesses threatened by gentrification.
- “Percentage leases”—a base rental plus a percentage of the volume over a set amount (particularly mitigates risk for small start ups)
- Demolition controls on existing viable buildings (commercial rents in newly constructed buildings are typically higher than space in existing buildings)
- Establish nonprofit incubator building ownership with shared small business resources, to serve as a fallback location for good businesses and start-up businesses that cannot, in the short term, be viable by paying rapidly escalating rents
4. Link neighborhood economic development to job training and placement
Neighborhood small business development should be directly linked not only the services of a local NEDO but to local job training and placement entities to insure maximum impact in meeting resident entrepreneurial and employment opportunities.
5. Link neighborhood corridor development horizontally and vertically with other economic development sectors
Small business planning should consider an area’s “assets” that might link businesses horizontally or vertically. While this may apply more for industrial and service operations than neighborhood serving businesses, a vibrant local industrial base provides jobs to enhance resident purchasing power and creates micro markets as well.
6. Make local culture, the arts, and public services an integral part of neighborhood economic development
Neighborhood commercial strips should be considered as a resource to encourage related development that tends to improve an area’s vitality and attraction such as incorporation within the commercial steps of art and cultural, environmental, public services that attract people to the area and contribute to its socio-economic health.
7. Support micro-enterprises and informal businesses.
Provide support structures for micro-enterprise businesses, including business support and low-rent space (such as industrial business incubators). Furthermore, in times of economic crisis, all efforts should be made to not criminalize informal economic activity, from street vending, to day labor, to working on cars in the sidewalk.