$7,000: In Your Community

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We took stimulating the local economy in Ithaca, New York very seriously. My vacation pictures WIN.

A while back, we talked about how much money would find its way back into your pocket if you went from being a two-car to one-car family (here). At the end of that article, I alluded to the the financial gains that our communities would also see as a result of this shift.

So we’re starting today with the premise from the last article – you have an extra $540 per month in your pocket. It’s great for you – what does it do for your community?

CEOs for Cities says this about the effect of low car-ownership rates in New York City:

It’s no secret that New York City’s high density, extensive transit and excellent walkability are fundamental contributors to the lifestyle enjoyed by its citizens. However, as this study shows, these factors are also major contributors to their economic well-being. Because New Yorkers drive substantially less than the average American, they realize a staggering $19 billion in savings each year — money that their counterparts in other metro areas spend on auto-related expenses. And because they spend so much less on cars and gasoline—money that quickly leaves the local economy—New Yorkers have much more purchasing power to spend locally, stimulating the city’s economy.

(The whole article is well worth a read, by the way. The link again HERE.)

It’s tempting to think that this is unique to New York City, but the economic principles are the same everywhere – and we DON’T have to operate at NYC densities in order to make it work. We’ll start by looking at why keeping money in the local economy is desirable, and then circle back around to how that relates to car ownership.

When it comes to the local economy, the basic principle at work is called the local multiplier effect. Here’s how it works: You have $10 in your pocket. You go to Lemonjello’s and get coffee for you and your kids. That $10 pays a staff member, who goes down to New Holland Brewery and tries a Black Tulip Tripel Ale (which is great, by the way). The chef takes the $10 spent there to the Holland Farmer’s Market to buy tomatoes for the salads. The farmer then takes the $10… you get the idea? This $10 has already functioned as $40 in our community, and it continues to be recycled through our local economy.

Obviously, it’s not quite that simple. Lemonjello’s uses a local roaster, but the coffee beans themselves are certainly not grown in Michigan. New Holland probably gets some of their restaurant supplies from Sysco or some other national retailer. There’s an attrition of dollars to national or international interests. There are benefits to this as well, but it stops that multiplier effect in its tracks.

Here’s the rub: Local businesses recycle many, many more dollars through the local economy than chain businesses do. Chain stores are able to be price-competitive because they take advantage of economies of scale, which they do by purchasing in large quantities from centralized suppliers. As a rule, they also don’t pay very well. Because of this the vast majority of the dollars that we spend there leave the local economy, as the chart below shows.

Local businesses keep far more money in the area than chain retailers do.

Here’s where this ties in to our car discussion: Most automotive spending functions in the same way as a chain retailer does. About 73% of the money we spend on gas purchases and 86% of the money we spend on car purchases immediately leaves the local economy (here). It’s a similar story for insurance.

Now, if you dropped a car and then spent every penny you saved in that transaction at Walmart and Applebee’s and Lowe’s, there would be essentially no impact on your community. You still win, but it’s a wash for your community. The dollars still leave.

But you won’t do that.

There’s a reasonable argument that local businesses will do better with more bicycle an pedestrian traffic than the big-box retailers just because they’re more accessible and neighborhood-based. It’s easier to run past a neighborhood business than it is to traverse the Walmart parking lot (do they make those things nightmares on purpose?) if you’re on foot or on a bike.

My back-of-the-envelope calculation indicates that the Holland-Zeeland area would see as much as $300 million* returned to the local economy^ EACH YEAR if every two-car household became a one-car household.

To put that in perspective, the City of Holland is currently trying to raise $2.1 million to repair the DeZwaan windmill. Cleaning up Lake Macatawa is expected to cost $12 million. We could do both of those projects in January, then build the equivalent of the entire lauded Portland bicycle system by June with that kind of savings.

(According to Elly Blue’s Dinner and Bikes presentation, this system cost $65 million to implement – and that over the course of over 20 years. In Grand Rapids, bike infrastructure has been costing about $10,000 per mile.)

Yes, I know that’s not how it really works. But it serves to illustrate just what an insane amount money we’re talking about here, even with necessarily imprecise numbers. And it doesn’t take into account savings due to:

  • decreased health care costs as a result improved health due to more active transportation
  • decreased health care costs as a result of fewer motor vehicle collisions
  • decreased infrastructure costs as a result of fewer traffic lanes needed

Now, it’s true that there would also be costs to owning and maintaining fewer cars. Oil change shops, car dealerships, and repair shops would suffer; some would go out of business. And because some sort of transportation would still be required – bus, bike, or feet – a certain amount of savings would be offset by these costs. The net gain is still mind-blowing.

The question is, what would it take to get there? And what are our biggest barriers? Logistics? Politics? Culture?

What do you think? Would it be worth it to you to shoot the moon and go for crazy?

After I finished writing this, I asked that the good folks over at the Strong Towns Netowrk check my numbers, and they steered to a series that Elly Blue (yes, of Dinner and Bikes!) wrote on the very same topic. You can find the first installment HERE – I recommend it highly. And last month, Copenhagenize did a similar breakdown for the city of Seattle.

*The average household size in Michigan is 2.51 people. The population of the Holland metropolitan area (the cities of Holland and Zeeland, Holland Charter Township, Park Township, Laketown Township, and Zeeland Township) is around 108,000. This means there are about 42,835 households in our area. As of 2007, a statistically average household owns 1.9 vehicles, so I rounded up to two. So at two cars per household, that’s about 85,670 vehicles at $7,000 each.

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3 thoughts on “$7,000: In Your Community”

  1. I support it! Holland has the opportunity to make itself more equitable to all of its citizens by reducing its auto-dependency just like the country it takes its name after. This doesn’t mean eliminating cars altogether, however, altering its priorities. It won’t shutter every business, but reduces excess. In its place, new business or jobs are created.

    I am a big advocate of what Western Michigan is doing in general, but it needs to take it to the next level. The local business/reduced car per family argument is a strong one but it is the politics and culture continue to keep the status quo strong. Until someone has a proven model that they can put together in a city specific measurable plan, then they keep going back to the unsustainable well as indicated in the Strong Towns mantra.

    The simplicity of your example on a 1:1 basis isn’t necessarily how it works but it is close. The $10 that you start with whittles down, but is recycled more than just going to Chili’s even though those employees live in your community – it’s where the profits go… Vehicles & Gas produce revenues and taxes that a civic body uses for other projects. The key is to show the breakeven on the replacement of the current growth model and where forecasts begin to exceed what is being practiced today.

    You might appreciate Civic Economics and some of the studies they have done (one in GR)
    http://www.civiceconomics.com/

    It might be worthwhile to find out how many vehicles are registered in Holland to cite specifics.

    -Keep up the good analysis!

    1. Thanks for your feedback, Erik; that’s helpful. It hadn’t even occurred to me to look for registration data! That would be more precise. Taking a look at actual local revenues is a place I’d like to get to soon – grounding the Strong Towns theories in specific local data seems like an essential step in making this argument. Thanks again for your input.

      1. I hear ya, I’m at that same point. I see how things could be, run some quick calcs, but there is some stranglehold of not wanting to change combined with not enough of a quantifyable argument. There’s more and more people who seem to “get it” everyday! Great blog btw.

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