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Office of Planning, Environment, & Realty (HEP)

National Business Relocation Study

II. Introduction

In accordance with Task Order DTFH61-99-T-08005, Project Management Institute, Inc. completed a study of the current relocation and reestablishment payments and procedures for non-residential displacees authorized in the Code of Federal Regulations (49 CFR Part 24 Sections 303 and 304). The study covered activities during a 24-month period of time.

The purpose of this study was to identify the adequacy, appropriateness, equity and efficiency of the Uniform Act advisory services and payments for business moves and related expenses that are typically reimbursed with federal funds under 49 CFR 24.303 and 49 CFR 24.304. The conclusions drawn in this study are based on 159 in-person business interviews and 19 additional telephone interviews of businesses. This research sample presumed to cover the range of business displacements, business relocation payments, the comparative successes in reestablishing displaced businesses and other circumstances relating directly or indirectly to activities and services evolving from application of the Uniform Act and other relevant (e.g., state) legislation or regulations. The research includes a review of relocation advisory services, expenses including actual cost moves, fixed payments, searching expenses, reestablishment expenses and loss of tangible personal property.

In addition, this report included an analysis of a pilot project conducted by the Federal Highway Administration and the state of Rhode Island, wherein some specific modifications to the existing regulations were applied to test if certain changes in the regulations that provided more options for displaced businesses would enhance the likelihood of businesses' viability after relocation.

A business was considered eligible for the study if its displacement occurred not more than two years preceding the study in each of the selected states. The state departments of transportation chosen for the study were California, Florida, Louisiana, New Jersey, North Carolina, Ohio and Wisconsin. Surveys were also completed in the city of Pittsburgh, where businesses have been displaced as a result of a redevelopment project by the Department of Housing and Urban Development. The Bay Area Rapid Transit (BART) in California was also chosen for the study.

To be instructive, the results of any survey analysis must be measured against some standard; with this study, the standard is a "reasonably successful business relocation," as defined by regular business practices.

For the purposes of this study, a successful business relocation was considered as one that incorporates several elements. First, a replacement location must be found that will accommodate the regular operation of the displaced business. If no appropriate replacement business site is available, then a successful business relocation at its most basic level, is not possible.

Furthermore, the concept of accommodation is integral to a successful business move, and here the type and nature of the business is controlling. A suitable replacement site may be one with obvious and accessible exposure to the business' existing clientele or it may be one where zoning restrictions to do not inhibit or restrict the relocated business' activity. It could also include issues such as the size of the replacement site or the size and capacities of the replacement site building and utilities.

The next issue that a business must consider once it has selected a replacement site is the practical feasibility of the location. This includes the cost to purchase or rent the location. It would also include matters such as tenant build-out costs or the cost to renovate or modify a structure to meet current code requirements.

Even if a replacement location is found that is both financially and operationally appropriate for a particular business, a successful relocation is still tentative. The actual move to the new location must be handled in such a manner as to not permanently damage the business. This entails planning the move to minimize "downtime" and assure a smooth, responsible transfer of the personal property. A successful relocation would also encourage a business to remedy past inefficiencies and modernize equipment and operations.

There are also many activities in a relocation that are necessary to particular businesses or industries, such as arranging for health or safety inspections; transferring licenses and notifying customers. These are critical to a successful business relocation and are specific to the business function.

From this short discussion of a successful business relocation, it becomes apparent that most of the necessary effort is the responsibility of the business, as determined by the business operators. An employee of a displacing agency can provide referrals to replacement sites but the responsibility of reviewing, evaluating and selecting the new location falls on the business. The business owner must also determine the range of costs the business can afford for building purchase, rent and modifications, as well as the amounts of other long-term expenses, like increased tax rates, utility rates or service rates (like deliveries). The business owner is also primarily responsible for planning the physical move.

Beyond funding specified in federal and state legislation, a displacing agency can at best provide only consulting and supportive services for a displaced business. These services typically include referrals to possible replacement locations and explanations of the reimbursable costs as provided in the Uniform Act. Agencies with more experienced employees can also assist the relocating business with elements of move planning and reestablishment procedures. Ideally, an experienced and well-trained agency representative can assist a business in fully obtaining all possible payments through his or her understanding of various approaches to and latitudes within the regulations.

It seems clear from the legislative record that Congress intended to promote successful relocations - moves that maintain viable businesses after displacement by a public project - and this intent is reflected in the philosophies and practices of most displacing agencies. However, the anecdotal and statistical evidence revealed by this study indicates that successful business relocation is not consistently realized. This non-achievement is linked to many factors but the controlling ones appear to be financial, attaching primarily to the amounts of reimbursement (reestablishment expenses) and categories of permissible payment (downtime, contractual penalties, loss of skilled employees, etc.).

It is useful to understand the history of a specific provision of law when attempting to ascertain the effectiveness of that provision. Both the moving cost and the reestablishment payment provisions reflected in the current law have a long history.

What ultimately became the Reestablishment Payment began in a 1964 Congressional report entitled "Study of Compensation and Assistance for Persons Affected by Real Property Acquisition in Federal and Federally Assisted Programs." The report looked at the hardships caused by displacement for both business and residential occupants, specifically addressing the unique difficulties businesses suffer in displacement. Attention was paid particularly to the high instance of business failure among displaced neighborhood enterprises and the disproportionate burden placed on small businesses by relocation. The 1964 Congressional report estimated an overall thirty one percent failure rate of displaced businesses.

Some of the issues identified in the report included the lack of adequate financing for reestablishing businesses, the absence of counseling services and the high cost of displacement as contributing factors for the high failure rate among businesses that had been required to move. Interestingly, many of these explanations for business failure remain at issue today, 40 years later.

The House Committee on Public Works and Transportation report that accompanied HR 3129 (The Surface Transportation and Uniform Relocation Assistance Act of 1986) acknowledged that businesses received "substantially fewer entitlements... than do residential tenants and homeowners." The committee report noted that businesses received only moving costs; no assistance with other costs incurred because of the move was available to the displaced businesses. The report proposed a new, additional payment, not to exceed $10,000, to address these other costs resulting from displacement. The committee report indicated that it is the intent of the new entitlement (the reestablishment payment) to address this shortcoming in the law. There is no additional discussion in this House Committee report of the $10,000 figure other than an expression that it is intended to assist with those additional costs of a business relocation above and beyond the actual moving cost.

The Congressional Record - Senate page 51560, February 3, 1987, states "... businesses and non-profit organizations enjoy substantially less protection under the act than do homeowners or residential tenants, with the result that displacement-related hardships often cause such entities to fail." The discussion continues, "[t] he committee intends that the new payments created by this provision (reestablishment payment) mitigate the incidence of such non-profit organization and small business failure." This clearly suggests that the Senate intended that displaced businesses should be provided with reasonable assistance to remain in business. Once again, no reasoning or formula is offered for the amount of such assistance, but the $10,000 figure is stated.

The Senate report also references a 1978 "Report to Congress" by the Comptroller General titled "Changes Needed In the Relocation Act to Achieve More Uniform Treatment of Persons Displaced by Federal Programs." The report concludes that:

The Comptroller General's report continues with various anecdotal examples of the inequities that occurred when businesses were displaced. The inequities centered on various costs incurred by the business that were not reimbursed by the displacing agency, but that were necessary if the business were to stay in operation. Specifically, the report identifies examples of such costs as (1) non-availability of similar replacement facilities; (2) a need for extensive upgrading; and (3) local code and zoning restrictions.

The Comptroller General also concluded that payments to assist a business in reestablishing itself would be beneficial to the general welfare of the economy because of the jobs saved. Such benefits also address the issues of fairness and minimize the hardship imposed on the relocated business. The report did not recommend a specific dollar amount of such assistance.

The Conference Report that accompanied the Surface Transportation and Uniform Relocation Assistance Act of 1987 explained that the approved legislation included a provision for the payment of reestablishment costs. The compromise language included farms and set the new benefit at $10,000. Once again, no explanation was provided for the benefit amount. Congress provided little guidance as to the exact type of costs it believed should be covered by this payment.

The Notice of Proposed Rulemaking, dated July 21, 1988, put forth by FHWA as lead agency, incorporated the new provision of reestablishment payments. The allowance was implemented in 49 CFR Part 24.306, with eleven specific types of permitted payments and one general "other" provision. The maximum payment was capped at a statutory limit of $10,000. The Final Rule adopted on March 2, 1989 was essentially identical. One further change occurred subsequently in a rule published in the Federal Register of April 30, 1993. This amendment deleted several restrictions on payment of reestablishment amounts. However, the overall $10,000 limitation was still applicable.

The Federal Highway Administration maintains statistical records on acquisition and relocation payments. These statistics are prepared annually by each state and submitted routinely to the FHWA. The data breaks expenditures into two major categories, acquisition and relocation. The relocation data is further detailed into payments received by residential displacees and those received by businesses. The business segment breakout also shows the number of claims and the total amount of these claims attributable to "Reestablishment Expenses." The accuracy of the data is dependent on the submitting entities and it is probable that errors do occur. For example, in 1999 the State of Ohio (one of the study volunteer states) reports no claims for reestablishment, although nine business actual cost moves occurred. Regardless, the data does offer another glimpse at how the concept is performing.

For purposes of this report, the years 1997, 1998, and 1999 were examined. The data is best shown as a summary:

Year Number of Payments Amount of Payment Average Payment
1997 536 $4,574,296 $8,534
1998 639 $4,768,308 $7,462
1999 635 $4,684,409 $7,377

It would appear that payments are declining as the number of claims rise. However this is probably too simplistic an assumption to draw from the data. It should be recalled that the data is substantially accurate albeit with some degree of question. However, the numbers do point out that even on average the payments tend to be near the top of the eligibility limits. Thus it is reasonable to assume that many payments exceed the limit but are on average brought down to the figures shown due to many small claims. Since no amount over $10,000 is shown on this form, the average will necessarily be less than the maximum. In fact, for the average to show the maximum, every claim would need to be at the maximum. The three years of the report seem to indicate that a typical business (the average) requires most of the available funding to complete its reestablishment.

The maximum payment any one business could receive is limited to $10,000. However, this is not the maximum of possible eligible costs actually incurred by the business. The states do not typically keep data on maximum costs incurred by the business since any such cost in excess of $10,000 is superfluous for their needs. The statistics involving these payments tend to be skewed since no amount greater than the maximum is considered in such calculations as the average payment. Therefore, the average payment under the reestablishment banner does not represent the average cost incurred by a business.

The Uniform Act authorizes advisory services to displaced businesses as well as payments. Conceptually, the idea of providing basic services is a good one. Provisions to provide advisory services were contained in the earliest formulations of the Uniform Act. In 1969, House Bill 14898 (91st Congress) contained Section 108 which included a mandate to provide advisory services "to assist the obtaining and becoming established in suitable locations...". Its companion piece of legislation in the Senate, S. 1, contained similar language. The testimony of the various hearings that preceded passage of the Public Law 91-646 likewise discussed these services but only as generalities, since it was doubtful that anyone knew really what the language would entail.

The Report of the Committee on Public Works, House of Representatives, to accompany S.1. summarizes advisory assistance by recognizing "that advisory assistance is of special importance in the relocation process...for...small businesses." The committee felt the requirement of advisory assistance would make the relocation program more humanitarian. The report continues in a vein that is probably not a generally accepted tenet of the current relocation program. The report lists several types of services that it considers included in the existing language. These include "budget, debt management, and related counseling services.... [that] will assist the displaced person [business] in adjusting to the relocation."

The November 2000, "Review of the Virginia Department of Transportation's Business Relocation Process" provides interesting insight into the advisory assistance situation. In various subjective questions it obtained feedback from previously displaced businesses, which indicated that advisory services were lacking, at least in some situations. These comments were:

  1. "Help businesses find a new location," excerpted from page 20;
  2. "Help the business move in finding a location similar to what they have," excerpted from page 20;
  3. "More assistance in finding a relocation site," excerpted from page 20.

Certainly if these businesses do not feel they receive assistance in the basics of locating a site, then it is doubtful that any greater types of advisory assistance are offered. However, this situation was not limited to Virginia. Many of the respondents from the volunteer states in this study reported similar situations. Comments from these businesses indicate a lack of understanding of the needs of the business. For example, a children's assistance group was referred to a potential replacement site; however it was adjacent to an adult bookstore. Others felt the displacing agency had no understanding of the complexity of their business or the time required to truly reestablish a functional operation.

The cost of providing these advisory services is reported annually to the FHWA. For example, the states report that they spent some $13.7 million for service cost in 1999. This cost was for services provided for some 2,609 businesses, farms and non-profit organizations. This is an average of about $5,200 per business. The figures for 1997 and 1998 are 3,358 non-residential displacees and a total expenditure for services of $15.1 million; and 3,273 displacements and $15 million, respectively. In summary, a great deal of money is expended for these services.

One interesting aspect of this issue of advisory services is the lack of import placed on it by state personnel. This is probably not as surprising as it might seem since one would not expect a given relocation employee to possess the expertise necessary to relocate and assist in reestablishing a variety of businesses. In a given week, the typical employee might be required to work with a farmer and a day later to assist a manufacturer in relocating equipment. It quickly becomes apparent that detailed advisory assistance conceived of in the various congressional committee reports is difficult to practically achieve.

However, it would also be unfair if it were not pointed out that many displaced businesses report receiving appropriate services. These often were in the form of assistance to locate a replacement site or assistance in overcoming specific hurdles to relocation.

The present regulations permit a business to elect to utilize professional services to plan the move (reference 24.303 (a) (8).), provided it is viewed as reasonable by the displacing agency. Given the number of business displacements, this payment remains a relatively seldom-used option. This payment is not reported separately from other statistics. However, an informal inquiry of states and the FHWA indicates that in a given year, less than a dozen businesses avail themselves of this payment. It is typically narrowly construed by many states and the regulation supports this narrow construction of the benefit. Thus, the apparent usefulness of the payment is limited. It may be of some value to reconsider this payment as a vehicle for a wider variety of assistance to displaced businesses.

In 1999, the Commonwealth of Virginia General Assembly asked the Virginia Department of Transportation (VDOT) to look into the business relocation process. The instant concern of the Assembly was the perceived-inadequate payments to service station operators leasing from major oil companies. The study was eventually expanded to include all businesses.

The process used by VDOT and its Virginia Transportation and Research Council was similar to that used in this national study, i.e. interviews and questionnaires to ascertain the issues, and discussions with those knowledgeable of the subject matter to arrive at a recommended answer. The Virginia study concentrated on two aspects of business relocation payments: the fixed payment in lieu of actual costs (fixed payment), and the reestablishment payments.

The fixed payment is currently limited to a maximum amount of $20,000 and is determined based on past net profits. It can be claimed by most displaced businesses in lieu of the actual cost of moving and is intended to cover both moving cost and reestablishment. It is typically used by smaller businesses without large amounts of personal property to move.

The reestablishment payment is used jointly with payments for actual moving costs to facilitate the move and relocation of the business. It is limited to a maximum payment of $10,000 and is used to cover such costs as code modifications and increased rent costs.

The Virginia study found the current federal limitations on these two payments inadequate and recommended raising the maximums. FHWA presently permits states to pay in excess of any payment, provided such excess is paid from state funds (although a recent change in FHWA operational procedures may permit states to use federal funds for these state-mandated payments). This was the election recommended by VDOT. The VDOT Research Council used several supports for this position:

Virginia also used various statistical approaches to analyze the available data. The adjustment ideally would indicate a payment level that would adequately compensate the displaced. Using the available sample data, the Research Council estimated an adequate amount for the fixed payment at $31,000; they estimated an adequate payment for reestablishment at $27,000. The Virginia Legislature ultimately adopted provisions setting the maximum fixed payment at $50,000 and the maximum reestablishment payment at $25,000.

The full text of the study can be found at

Updated: 10/20/2015
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