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Losing Russell’s Corporate Offices: Impact to the downtown economy

There are several factors that I can see impacting downtown Tacoma. I’m not an economist nor do I know who Russell does business with, so this piece is not intended to be a thorough examination of the issue. What I’d like to do is to put the matter into a different perspective as an alternative to the ‘failure is not an option‘ mentality that seems to be prevalent in downtown Tacoma and city government.

Breaking the issue down:

• Restaurants and Catering - This is likely to be an area that is heavily hit, particularly in the immediate vicinity of the Russell offices. The biggest impact would likely be the lunch rush. Offices, particularly those in the financial industry which tend to function in the normal (Monday through Friday) work week, in my experience, don’t promote a great deal of restaurant patronage during the evenings and weekends. And being from a family that has owned several restaurants, I can say that it’s a tough business and prone to failure. It’s profits are marginal and require volume to be profitable. However, these businesses have 4 or 5 years to adapt to the coming changes.
• Hotel - Rumors floating around the Internet on this issue are implying that a lot of the hotel business that Russell generates is in King County (Seattle, SeaTac, etc.) So I’m guessing that Tacoma will not get the full impact of this potential move since it’s not fully benefiting from Russell’s presence. In addition, there are a number of construction and remodeling projects that are based on predictions for demand in the downtown Tacoma area. Changes to these projects will likely be a buffer for the impact of the move on the hotel industry downtown.
• Retail - Corporate offices don’t tend to generate a lot of business for local retailers (other than their employees’ personal patronage of the businesses which I talked about in Part I.) Office furniture and supplies are generally the biggest expense for an office that might be made in retail stores, but most offices purchase through catalogs or suppliers who deliver so, proximity isn’t an issue. I’m not aware of all of Russell’s vendors and spending patterns, so maybe others can shed some light on this in the comments.
• Services and Supplies - As I mentioned above, offices tend to order what they need from vendors who are not necessarily in close proximity to their offices. Some of the other services and supplies are tied to the building (such as building maintenance and construction, cleaning and restroom supplies, elevator and other equipment servicing, etc.), so those things won’t be going anywhere even if Russell moves.
• Taxes
  • Property taxes will be affected by land values, but will remain as long as the building does. So the move won’t affect those very much.
  • Sales tax is tied to retail (as well as restaurant and hotel) but as I said above, there are likely to be mitigating factors on those as well.
  • Business taxes will likely see the biggest impact. Unfortunately, this is a sorry statement about our city government. This problem, in my opinion, is not the result of Russell leaving, but is likely more of a cause for Russell leaving. So I have very little pity for the city government as they try to figure out how to handle this problem. Hopefully they won’t be able to pass the burden on to anyone else, but rather will cut back on their own expenses and pet projects (light rail, the spire on the convention center, corporate welfare as they attempt to attract other businesses, etc.)
• Real Estate and Office Space - This issue is always in flux, and with commercial real estate there are ample opportunities to adapt the properties to the demands of potential tenants. The push for building more Class A office space to attract businesses looking for it has been on for years and, in my opinion, has been a relatively fruitless venture. I’m sure the industry will continue to adapt to the real local conditions and demands, rather than the contrived projections put forward by dreamers. I’ll explore more of this in an upcoming post.
• Philanthropy - While this may be impacted by the corporation shifting it’s donations to a new community, I think that much of it comes from private individuals who just happen to work for Russell. Private donations are usually made to the community where a person lives, rather than where they work. However, this is difficult to predict, especially with a company like Russell that is associated with a relatively large amount of giving.
• Other amenities - Since I don’t work downtown I’m not sure if there are other amenities that are regularly patronized by Russell employees and customers (during the workday). Maybe some of you can help me out in the comments.

So, while I’m not taking a Pollyanna view of the matter, there clearly are some mitigating factors that will lessen the impact of a Russell move, especially if their new location is within commuting distance.

In this series:
If Tacoma loses Russell (Part I)
If Tacoma loses Russell (Part II)
If Tacoma loses Russell (Part III)
If Tacoma loses Russell (Part IV)
If Tacoma loses Russell (Part V)
If Tacoma loses Russell (Part VI)
If Tacoma loses Russell (Part VII)

This entry was posted on Thursday, January 10th, 2008 at 6:54 pm and is filed under Tacoma Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.