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National Business Relocation Study

X. National Summary

In considering the collective responses of a survey of this type, the varying expectations and requirements of the different parties involved in a business relocation become obvious. A business owner being displaced approaches the move with significantly different motivations and desires than does the displacing agency. Additionally, it is the nature of anecdotal surveys that negative responses are more forthcoming than positive ones.

The ability of agency personnel to meet the expectations of a displaced business is restrained by the individual agents' training, as well as by the limitations imposed on benefit payments. Obviously, these may not meet the expectations of those being displaced.

Incorporating these considerations, this report attempts to summarize the comments of businesses balanced against the realities faced by acquiring agencies. In every project reviewed, businesses reported both positive and negative experiences and some businesses have actually benefited from the relocation process.

One of the most significant findings of this study is that, generally, displaced businesses perceive the acquiring agencies as not doing a "good job." Even with the understanding that the relocation personnel have to deliver the cleared land for a project on a given time schedule and concurrently provide assistance to the businesses displaced, the perception of businesses is that the agencies do not consistently address the businesses' interests and needs. The agencies' personnel interviewed for this report expressed a desire to provide assistance to the affected businesses, although they realize there is a limit to the assistance they can provide. Many of the business respondents mentioned the shortcomings of the field personnel. In fact, the single most repeated negative comment was that the relocation personnel were not helpful and need to be better trained in the program and in dealing with businesses.

The relocation personnel employed by agencies may have little or no practical or educational experience in resolving business relocation problems. While they may be aware of the fundamental elements of a successful operation from information provided by the business, the relocation agents may not be equipped to address all the concerns necessary for a successful reestablishment of the business. This may lead the business to believe that the agency is not equipped to assist in a successful relocation or its staff is inadequate to meet the business' needs, which may be entirely unique.

In most displacement situations, there is no perfect, available replacement site. Business owners must accept that reality and accept certain tradeoffs, which often result in substantial costs. For example, a pallet reconstruction firm in California could not afford the rents in the area from which it was displaced. To remain in business, it was forced to move to a more distant location. It had to start over again to develop customers, suppliers, employees and other business resources. There was no way to meet the business' initial expectation - a replacement site in the same area at the same rent. Even a long-term business rental subsidy would not address this expectation because it would have to end at some point in the future.

Despite their sizes, very small businesses face significant burdens when they are relocated. Since the owner may have few or no employees, the burden of planning the move and finding a suitable replacement usually falls on the owner who must maintain normal business activities during the process. This frustration was reflected in many of the interviews with small businesses and is likely a contributing factor to the rate of failure among relocated businesses. Due to the limited resources of most small businesses, it is possible that the added burden of displacement may simply end their viability.

Finally, the reestablishment benefit authorized by Congress in 1987, capped at the maximum amount of $10,000, was at the time of this study worth only about $6,600, based on the change in the consumer price index. This alone means that the effectiveness of the payment authorized by Congress has shrunk by one-third while the issues of displaced businesses remain as great as ever. The same logic applies to the fixed payment option; it too, has been impacted by inflation.

RECOMMENDATIONS

  1. Require each displacing entity to prepare a written business displacement analysis
    This would be a totally new approach to business displacement and relocation, and the goal of this service would be to document viable options that would provide practical ways to keep every displaced business in operation. For agencies that prepare a written relocation plan, this would be a supplement to that report. The analysis would require an extensive interview with the business to ascertain the type of business, its location requirements, number of employees, legal organization, contractual obligations and financial capacity. For tenant-businesses, the plan would also require agencies to identify and resolve realty-personalty issues for improvements, particularly those made by the business-tenant and catalogue the various tenant owned machinery and equipment. The analysis would set a maximum amount for search expenses, factored against the anticipated difficulties of locating a replacement property. The analysis would also consider the benefit of hiring an outside specialist to assist in business displacement problem resolution. The range of possible providers would include business brokers, commercial real estate brokers and leasing agents, business consultants, university business development centers or business school faculties. The Business Displacement Analysis would require a reasonable estimation of the value of the loss of favorable lease terms at the displacement site and a judgment on what a realistic period of time for the business to vacate the subject site might be. Finally, the analysis would oblige the displacing agency to determine the need for loan guarantees for the displaced businesses and if necessary, arrange for such in whole or part, for funds borrowed, limited to some maximum figure.

  2. Increase the amount of the Reestablishment Payment, while providing an incentive to prudently spend the available assistance
    An analysis of the information collected for this study, coupled with the results in the Rhode Island Pilot Program, clearly suggests the Reestablishment Payment should be substantially increased if the goal of such a payment is to meet the real and necessary costs incurred by businesses because of displacement and reestablishment. Since many businesses are able to complete their relocations within the present statutory parameters, an unrestricted increase in authorized benefits may in some cases be wasteful. To provide both flexibility and increased benefits, a cost sharing mechanism should be considered. Increasing the maximum benefit to $100,000 with a fifty percent cost sharing of any amount over $25,000 would address the reestablishment needs of most businesses that expressed dissatisfaction with the payment limits. In addition, creating a mechanism to assist displaced businesses with financing would allow those entities with greater reestablishment expenses to meet their immediate cash flow needs. Since the displacing agency would be responsible for arranging loan guarantees if needed for part of this financial requirement, the ability of the displaced businesses to pay this cost sharing would be augmented. Therefore, the following recommendations seem reasonable when measured against the empirical evidence collected in this study.

    • Raise the cap from $10,000 to $25,000 on one hundred percent of reimbursable reestablishment expenses;

    • Provide fifty percent reimbursement (a one-to-one match) on reestablishment expenses above $25,000 and up to $175,000. This formula would cap the matched portion of the benefits at $75,000; the business would be responsible for up to $75,000 of reestablishment expenses if it claimed the full federal reestablishment benefit. The maximum pay out by an agency would be $100,000;

    • Establish a pool of funds, or a system of loan guarantees, whereby the displacing agency could facilitate relocated business' ability to make the match.

  3. Increase the flexibility of the Reestablishment Payment
    Efficiencies in business reestablishment would be enhanced if regulations would remove all categories of payments and provide only a general guideline of eligible cost, with a list of specific ineligible payments. The present list of ineligible costs is reasonable, although some exception should be given to the construction prohibition. For example, an increased mortgage cost payment could be added to the list of eligible items. The added flexibility will permit states and other displacing entities to customize what they consider to be essential or to adopt a similar open interpretation. Additionally, the Business Displacement Analysis would identify likely categories of payment, including substantial rehabilitation, which are presently not permitted. For example, this could be construed to be an eligible payment if no other option existed for replacement.

  4. Increase the amount of the Fixed Payment
    Similar to the actual cost move, the fixed payment has been reduced in effectiveness due to normal inflation over the twelve years since the payment amount was set. Adjusting only for inflation, the payment would increase to $30,000.

  5. Increase the amount of the Search Expense and add flexibility
    The maximum amount of search expense reimbursement has been set at $1,000 since 1985. Adjusting this amount solely for inflation would raise this amount to approximately $1,600. Based on the average cost experienced in the Rhode Island Pilot Program, some higher amount may be warranted. Although, an amount near this number would provide adequate search expenses for many of the businesses displaced in various programs. It could be beneficial to increase the routine amount to $2,500 and allow it to be flexible in its use.

    The language of the regulation (or discussion in the appendix of the regulation) should also discuss that the searching payment is intended to cover the actual time and effort to locate a replacement business site and also include those reasonable costs to investigate the site. These investigational costs are those needed to qualify the site as a suitable business site. They might include the cost of time spent at zoning hearings, negotiating leases or sales or obtaining permits or licenses. These costs would exceed the base amount of search payment but could be provided for if flexibility were granted.

    The time period for eligible search consideration should also begin when the subject business is likely to begin a serious search. At present, eligibility is often assumed to begin only after a written offer has been made to acquire the subject property. In reality, a prudent business owner could not wait until this process (the acquisition process on a particular parcel of land) begins, as it may leave only a 90-day period before the business is required to move.

CHANGES NEEDED IN LEGISLATION OR REGULATIONS

To implement any of these suggested changes, authority for such a change must be located. If it is not available in the present law, then legislative change is necessary. However, many aspects of the relocation program are interpretive within the regulatory purview of FHWA. Listed below are suggested methods for implementing the recommended changes.

Change Regulatory Legislative
Increase reestablishment amount   x
Loan guarantees/insurance x  
Increase flexibility x  
Increase fixed payment   x
Require business displacement planning x  
Increase searching expense and criteria x  
Updated: 09/05/2014
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