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New study: SL drawing business in, but locals' income doesn't match up

Thursday, March 12, 2009

There is good news and bad news in a new in-depth Iowa State University economic analysis of Storm Lake and other cities in the state.

The good news is that Storm Lake ranks 18th among the 100 largest cities in "pull factor" - its relative ability to draw in people from outside the immediate area. The city "pull" rate is 1.77 - meaning that about 177 percent compared to the actual population use the city to shop, obtain services, eat and drink. Storm Lake joins area communities Spirit Lake (4th), Spencer (9th) and Fort Dodge (17th) in the top 20, scoring far ahead of metro areas such as Des Moines, Sioux City, Waterloo and Cedar Rapids.

The news is not so rosy in retail sales. Storm Lake saw "real sales" (adjusted for inflation) fall slightly, from $147 million in 2007 to $146 million in 2008, and the city ranks 39th among the larger Iowa cities in per capita sales in 2008 - at just over $15,000 per person per year. In comparison, sales by businesses in Spirit Lake are over twice as high at $31,000 per capita. Storm Lake average personal income is well below state average, and $5,000 less per year that neighboring Spencer.

A state expert suggests that some weaker businesses will need to be weeded out by the economic troubles in order for the remaining ones to thrive.

Iowa's retail per capita sales have gone down 4 percent between 2000-08, despite record-setting consumer spending nationally, according to ISU economist Meghan O'Brien. But she said she had expected worse from the numbers for the past year. "If anything surprised me, it's that maybe our numbers weren't down more," said O'Brien.

Not surprisingly, the business economies of Iowa's majority of rural cities are crashing, while more and more sales are concentrated in the few metro areas - only 16 of Iowa's 99 counties managed retail sales above state average in 2008. Sales in the Iowa suburbs are even beginning to hurt the biggest cities. O'Brien says that trend will force some communities to view retail health differently and look for innovative approaches for growth.

One of those approaches may be tourism, an area in which Storm Lake has invested heavily to create the King's Pointe municipal-owned resort, waterparks and and other projects. Iowa hotel/motel tax revenue actually increased by a healthy 10 percent last year, while large cities nationally lost tourism revenue.

That may indicate that in the country's current economic climate, Iowans chose to save money by traveling closer to home in 2008. Storm Lake hotel/motel tax was up 58 percent.

In fact, the northwest Iowa lakes region is the bright spot for the entire state. The Iowa Great Lakes corridor for the first time overtook the Des Moines area for the state's highest per capita retail sales in 2008. "In terms of per capita sales, number one is now Clay County (Spencer), number two is Polk County and number three is Dickinson County (Okoboji-Spirit Lake).

"One of the things to consider is how high energy prices are affecting travel," she said. "And if people aren't leaving Iowa to take cruises and vacations elsewhere, perhaps they're using our lakes more. Those could be economic shifts that have a positive impact within the state."

But overall, the economic retail news is not good in the report, which analyzes data from the Iowa Retail Sales and Use Tax Report, generated by the Iowa Department of Revenue. O'Brien concludes that the retail sector finds itself in a bubble that requires strong correction - meaning some businesses won't survive.

"I hate to put it this way, but not everybody should survive," O'Brien said. "This is a bubble as much as it was for the housing sector. There was a speculation, development and growth done for short-term gains that are not sustainable for long term growth. Some businesses have to go for us to find any sense of equilibrium, and that makes people understandably nervous since they don't want that to be their business.

"But in the retail economy right now, there are very few people making profits," she said. "All the profits are centralized to a small percentage of firms, with everybody else just trying to break even. When you weed out some of that excess, the remaining firms will be in a better position to be more profitable and tailor themselves more to consumer demands. That's something that, frankly, we need."

Here are some key findings in the local study:

* In Storm Lake, the study found fiscal 2008 retail sales down by less than 1 percent, from $147 million in 2007 to $146 million in 2008. For Buena Vista County, sales fell 1.6 percent from $176 million to $173 million.

* The average retail sales per business in Storm Lake was $379,586 last year, down 2 percent from 2007. For BV County, the average business saw only $272,278 in sales, down 2.6 percent.

* ISU estimates that population actually increased slightly in Storm Lake this past year, and that it has risen nearly 600 people since 2000, a 6.3 percent increase that dwarfs the state's growth of 4 percent. Buena Vista County saw a 1.9 percent increase since 2000, the report says.

* About 24 percent of Storm Lake's population is under age 18, near state average. Storm Lake leads the state average in percentage of young adults, with two college campuses, and is higher in senior citizens with several retirement facilities, but lags behind the state in the traditional higher-income sector of 35-65 year olds.

* About 32 percent of Storm Lakers are high school graduates, and about 20 percent are college graduates, both slightly behind state average.

* Storm Lake personal income rates are estimated at $25,099 average per year as of 2007, a decrease from 2006, and far below the state average of $32,675 and rising. As of the last Census study, about a quarter of Storm Lake households get by on under $20,000 a year, while over 30 percent make over $50,000 - again clearly poorer than the state overall.

* In out-communting - going out to town to work - Storm Lake had a lower rate than any of the other cities in the region. Less than 16 percent had to work outside of town and 9 percent outside the county. That compared to almost 30 percent working outside their hometown for places like LeMars and Sioux City.

* Storm Lake has the capacity to draw much more business, according to the study, which finds that retail sales are at only 78 percent of capacity as of 2008. In other words, if leakage of shoppers to other cities could be stopped, retail income in the city could improve 22 percent. Storm Lake has not met or surpassed capacity since 2005. Spencer easily leads the area, well over capacity.

* How does Storm Lake retail sales compare to similar cities in the area? Spencer had $257 million in 2008, Carroll $199 million, Storm Lake $146 million, LeMars $130 million, Denison $88 million, Cherokee $66 million.

* Storm Lake clothes, building materials, specialty shop and wholesale sales dropped in 2008, while restaurants and bars, grocery stores, home furnishings and services saw higher sales. Storm Lakers spent over $21 million in grocery stores and almost $13 million on eating and drinking establishments.

* In the area, several communities recorded disasterous declines in retail sales in the period 2000-2008, with Ida Grove off nearly 25 percent; and Cherokee and Sac City each down 15 percent, while Storm Lake increased 6 percent.

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