Wilbur Smith Associates

November 2001

A comprehensive literature search was undertaken by Wilbur Smith Associates to identify empirical evidence on the economic effects of highway bypasses on small communities. This working paper summarizes the findings of four representative studies that undertook to measure the economic influence on small towns and cities of bypasses. Collectively, the studies evaluated over 100 communities located in Iowa, Minnesota, Wisconsin and Texas that were bypassed at various times over the past thirty years.

Personal interviews with business owners and city leaders of twenty bypassed Iowa cities were conducted to gauge the impact on these communities. The investigation discovered:

• Service stations, convenience stores, small cafes, and motels were most likely to experience a decrease in business. However, this decline was much smaller than expected.

• Commercial property values do not decline along the existing route.

• Few businesses will open on or move to streets near the bypass because traffic volumes are unable to support this venture. In one town, convenience stores were discovered to have opened along the old highway and all new fast food restaurants located on the old highway. Unexpectedly, one restaurant located on a bypass had gone out of business.

• Added income from construction workers usually reinvigorated the local downtown, allowing merchants time to adjust their sales to better serve their client base.

• Traffic congestion and accident rates decreased dramatically along the bypassed route through town.

• A poll of the residents of bypassed towns indicated that the vast majority of the residents were happy with the bypass.

Lastly, other economic factors such as local population, the location of a chain retail store, a downturn in the local economy, or nationwide structural changes in retailing were found to significantly influence local sales more so than highway bypasses.

Within the larger Iowa DOT study, a similar study conducted by Robley Winfrey was summarized. Winfrey investigated seventy-six bypassed communities and concluded that, although difficult to predict, a set of generalized conclusions regarding the effects of bypasses can be made:

• Of the 76 bypassed areas studied, sales records indicate that in 66 percent of the cases, either sales improved more or decreased less than both the surrounding areas and the state as a whole.

• Many bypassed business centers experienced improved business activity after being bypassed. This was attributed to local residents finding the area freer of congestion and parking improved with the new bypass in place.

• Travelers passing through the area make up a much smaller portion of an area’s total receipts than is commonly supposed. Establishments in small cities generally draw a high percentage of their business from the local population, typically within a radius of five miles.

• The effect of a bypass on a community is greatest when that community has a small population (less than 500). This is a consequence of small population center’s tendency to exhibit greater dependence upon traveler’s expenditures.

• An initial decline in total sales will be followed by a proportionally higher increase in sales as merchants make adjustments and adopt their practices to better serve local customers.

In addition to the preceding studies discussed, Dr. Ken Stone, Associate Professor of Economics at Iowa State University, has completed several studies on retail sales trends in Iowa communities. Dr. Stone concluded that communities larger than 2000 in population will not experience a loss of retail sales to competing urban centers as a result of a highway bypass if the distance separating the communities is more than 25 miles. Cities over 2000 in population will enjoy the benefits of a highway bypass, while the effect on cities between 500 and 2000 will depend on other local factors. Towns with a population less than 500 people will generally suffer economically because they must depend more heavily on through traffic.

Researchers at the University of Texas – Austin, conducted a study in 1993 that compared experiences of bypassed Texas cities with those of a select group of similar, unbypassed cities as a control. Economic models were employed to analyze general changes in retail sales, gasoline sales, restaurant sales, and service station receipts. The models incorporated both highway and non-highway related variables.

Their analysis showed a temporary decrease in business sales immediately following the opening of a bypass. As the owners adapted to the change, sales rebounded and were, in some cases, actually higher than before the bypass. The stability of the existing economic base was the main determinant for an areas long-term economic well being.

Individual case studies indicated that the local business community generally had a favorable view of the bypass. In fact, the businesses expressed awareness that highway construction projects create short-term employment impacts with the associated increase in expenditures. Additionally, they recognized the economic benefit to the community of reduced transportation costs and travel times.

The research concluded that the impact of bypasses on small cities was, in most cases, minor. Three characteristics were found to have the greater influence on the stability of a local economy:

• The continuing trend toward regional trade center concentration.

• Fluctuations in the local industrial and commercial base.

• The establishment of large discount chain stores within a market area.

The authors also concluded that the business and political leadership was important in helping adapt after the opening of a bypass and mitigating its negative influences.

The Wisconsin Department of Transportation, Division of Planning and Budget, conducted a report in 1988 with an objective to evaluate the experiences of local officials and business owners who had experienced the effects of a bypass on a Wisconsin community.

Exhibit 1 contains the results of a local business survey asking the effect a bypass had on the number of jobs in their city. The majority of businesses in all cities either reported no change or an increase in jobs.

In another related study, the experiences of eleven communities in Iowa and ten in Minnesota that had been bypassed since the late 1970's were examined. Each city was matched to three control cities with similar populations, traffic volumes, and with comparable distances to urban centers. A business owner survey was distributed designed to estimate the changes occurring since the opening of the bypass. The questions ranged from parking, noise, and traffic problems to the type of business owned and what, if any, impacts the bypass has had on their business. A summary of their responses revealed:

• The longer merchants had been in business, the more they favored the bypass.

• Overall, owners representing all business sectors were in favor of the bypass.

• If they could know then what they know now, three times as many owners would favor the bypass.

• Over half of the merchants believed their quality of life had improved since the opening of the bypass.

• Over half felt that the opening had no impact on the success or failure of local businesses. Rather, any decline was related to a general economic downturn.

• Merchants in four categories (food service, eating and drinking establishments, service stations, and motels) thought that they had lost customers since the opening of the bypass. Following an audit of actual receipts, only eating and drinking establishments had actually declined.

• The distance a city was from the bypass is important, as is that city’s distance from a larger urban center.

• The business community adopted and eventually more universal support for the bypass emerged.

The review of the forgoing studies suggests that in the near-term, traffic-sensitive businesses may be negatively impacted by a bypass. However, the majority of local retailers experience no noticeable affect from a highway bypass in the long-term. In fact, community resources and activism, fueled by anxiety over the bypass, are often used productively in minimizing the negative influences that are associated with bypasses. Successful strategies are often formed to spur downtown marketing, rehabilitation, and programs to combat the threat of outlying shopping centers and address the long-term function of the downtown. Some general conclusions include:

• When examined at the community level, a bypass had no noticeable economic effect and in some cases generated economic growth.

• Highway-oriented establishments such as service stations, motels, and restaurants generally have a larger short-term impact because of their higher dependence on "drive-through" traffic.

• There is no evidence that businesses targeting non-motorist, specialty or other shopping goods are affected. In fact when traffic, whose origins and destinations lie outside the community, is routed away from the business area, congestion and conflict are virtually eliminated. This can create a more pleasant shopping experience for local repeat shoppers, upon whom most businesses depend.

Generally cities with a population greater than 2000 experience little or no decline in business. Cities under 2000, and especially those under 500, are in danger of losing existing businesses since the local population is unable to support them. It also appears that:

• In general, the long-term growth potential outweighs the short-term financial problems.

• Sales from "through travelers" account for a much smaller portion of the areas total expenditures than is commonly supposed.

• Typical drive-by dependent businesses, such as service stations, convenience stores, small cafes, and motels, are more likely to experience a decrease in business.

• Any decline in business is typically much smaller than business owners expected. Generally, business owners from all types of sales were in favor of the bypass, after the bypass was completed.

Anderson, Connie J. & Otto, Prf. Daniel. The Perceptions of Business Owners and Managers of

the Impacts of Rural Highway Bypass. 1993. Iowa State University.

Anderson, Connie J. & Otto, Prf. Daniel. The Economic Impact of Rural Highway Bypasses.

1993. Iowa State University.

Anderson, S. et. al. Economic Impact of Highway Bypasses. 1993. University of Texas at

Austin.

Thompson, Evelyn. Highway Bypasses; Wisconsin Communities Share Their Experiences.

1988. Wisconsin Department of Transportation.

Welch, Thomas M. A Literature Review of Urban Bypass Studies. 1992. Office of Project

Planning, Iowa Department of Transportation.

Winfrey, Robley. Economic Analysis for Highways. Iowa State University.