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FREQUENTLY
ASKED QUESTIONS ABOUT BUSINESS IMPROVEMENT DISTRICTS, In our experience in working in many, many business districts throughout the U.S., NEW CITY AMERICA believes that the following represents the most commonly asked questions by business and property owners as to why they should organize into some form of business community assessment district. Though the needs of business districts vary from place to place and from time to time, the answers to these questions should serve to clarify genuine concerns of those considering the establishment of such districts. We welcome your comments. - Marco Li Mandri Why should one affiliate with any organization of business or property owners? What is there to gain? What is the benefit?
Since the early 1970's, most business community stakeholders have not organized themselves. Decisions are made which impact the community or business overhead without any input from those most affected - the business or property owners. No one can represent the interests of a business community better than the business or property owners themselves. The lack of an effective, reliably funded business association can result in deteriorating infrastructure, imposition of unreasonable business taxes, lack of maintenance of streets, utility fees, disruption by panhandlers, vagrants, or the homeless, uncoordinated police response, lack of any marketing whatsoever and a growing sense of disorder. The only effective counter to this growing chaos is through a well organized business community. A well-funded, broad-based business association can force cities and governments to do what they once did - that is, work in partnership with the growth of commercial and business activity.
Business owners and managers or property owners have three basic choices when it comes to responding to the needs of their business community: In essence, they could do the following: 1. Do what most business communities do, which is nothing, and face the onslaught of deteriorating conditions; 2. Create a voluntary business association which is undercapitalized and usually crisis- driven and consistently acts in a defensive manner. 3. Take advantage of state legislation or local enabling legislation and petition their municipal government to establish a business community assessment district, based upon a reasonable and legitimate show of support from the affected property owners. Historically, Chambers, merchant's associations and downtown business associations have been voluntarily based. These volunteer organizations, in many places, are in decline due to an unreliable cash flow and a constant need to raise money and recruit members. Many of these organizations are able to maintain themselves due to generous annual grants by local governments or staff support from Redevelopment Agencies. Business or property owners are usually too busy operating or managing their own businesses or properties to dedicate the time necessary to run and staff a volunteer organization. The days of continual public financial support for such organizations is dwindling quickly. Business associations, in many ways, are like businesses. If either are undercapitalized, do not raise enough revenue to cover costs, or are not competently managed, they become insolvent. Over the past three decades, over 1500 business communities
have organized themselves and established assessment districts, usually
known as Business Improvement Districts (BID). The BID model of organization
resolves the major problems of fledgling business groups: it resolves
their cash flow problems and incorporates all members of a business community
into a corporate entity representing the interests of that community. Thus, whether it be a Business Improvement District, a Special Assessment District, a Maintenance Assessment District, or whatever, a reliable, predictable revenue flow exists to fund the special benefit services and specific needs of the business community. The assessment district capitalizes the vision of the business community to improve itself whether those improvements include security, maintenance, beautification, marketing, business attraction and retention, etc. In many ways, BlDs are becoming equivalent to the Chambers and Merchant's Associations of the 21st Century. Their primary function is to fund those specific services which cities historically have not or cannot provide.
Why was this BID Legislation originally created in the 1960's? BlDs in California can be traced back to legislation in
1965 when Assembly Bill 103, the "Parking Business Improvement Area
Law" was approved. The law was rewritten in 1978, as AB 1693 and
again in 1989, as SB1424, first to convert BlDs from a "tax district"
to a "benefit assessment district" and in 1989 to reinforce
the benefit assessment relationship to the business communities they serve. In late 1994, State Assembly Bill 3754 was enacted that allowed property owners within a commercial zone to establish their own BID. This new legislation in no way supersedes or alters SB1424, which is an assessment district of business license holders. This legislation has also gone through a series of legislature updates. The original legislation, (SB1424), was first enacted
to allow business communities the right to assess themselves in order
to counter the effect shopping malls were having on "Main Street".
Though malls lacked the charm and intimacy of historic commercial districts,
their well capitalized marketing budgets, major anchors and professional
management teams left the unorganized, undercapitalized small business
districts at a tremendous disadvantage. As community dollars "leaked"
away from neighborhood commercial corridors to the new malls, a slow downward
spiral began in these formerly dynamic shopping areas. AB 103, the original
BID law, was essentially a legal defense mechanism to allow business communities
to fight back. In what ways do BlDs transform business communities today? In our experience, BlDs or business community assessment districts provide funding for four fundamental services:
Public Rights-of-Way and Sidewalk Operations: The primary purpose of the business community assessment district is normally to fund services which confer a special benefit to property owners. Such special benefits usually take the form of enhanced "clean and safe" services which seek to insure the cleanliness and security of the business district. People will patronize a business district that appears to be organized and controlled - key to this is a systematic approach to sidewalk cleaning and removal of undesirable people from the business district. Marketing and Building Community Identity: Another important component of a business community assessment district is to foster joint marketing and promotion, develop business community identity, expose that business community to target audiences and attract that audience resulting in increased foot traffic and sales. These district funded programs revitalize a business community by attracting new customer dollars and increasing sales to its members through strengthening or redefining the image or concept of that business district. Marketing tools used in this effort include business directories, advertising, web pages, street fairs, farmer's markets, dining out evenings, holiday celebrations, banner programs, etc.
How much should a district generate in annual assessment revenues?
Some BlDs generate profits from revenue generating events such as street fairs, farmer's markets or special events. Ideally, a BID will generate at least $120,000 in annual revenues and use those funds to attract other private grants from major corporations to improve the BID area. The BID management corporation can also write grant proposals for block grants, urban forestry programs and Transient Occupancy Tax, (Hotel/Bed) funds in order to increase the number of improvements or programs within the BID area. Thus, the successful district will be able to "leverage" the assessment revenues and generate much greater budgets and projects. What formula is used to determine assessments? A few standard formulas are used to create an assessment
methodology. Most important in determining this formulation is whether
the assessment is 1 ) reasonable, 2) affordable to the majority of potential
BID members and sufficient to cover projected BID needs, 3) easily explained
to stakeholders, 4) supports the relationship between assessments paid
and services received.. What factors are used to determine property based assessments?
a. Lot size; b. Building square footage; c. Linear frontage on a main commercial corridor. d. The use of the property and the specific zoning
restrictions in place;
In working with countless BlDs, whether existing or in the
initial stages of formation, NEW CITY AMERICA has come up with this multi-step
procedure. 1. An existing Business Association or one in formation, will call upon a consultant firm such as NEW CITY AMERICA to discuss the possibilities, logistics, time line and funds needed to establish a business community assessment district in their district. 2. If the group decides that it wants to pursue an assessment district, the organization of property owners determines how they will find the investigation and formation effort. This funding can be done by organizations, individuals advancing funds or sometimes public grants. 3. A Consultant is hired by the funding agency or organization and works with the Business Association or property owners. The first step in the process is to immediately expand and strengthen the lead group to include various sectors of the district area. This expansion is accomplished through a mail survey, focus group meetings, establishment of a BID newsletter and a consistent BID Steering Committee meetings. To initiate work on a property based district, it is a rule of thumb that usually at least 25% of the property owners within the proposed district support the concept of an assessment district for clean and safe programs, maintenance or marketing purposes from the outset of the effort. 4. The Consultant studies the area, works with the steering committee and accumulates data for developing a working document/business plan for the district. The business plan will include a service plan boundaries, assessment methodology, projected budgets and an overview of the BID. The business plan will be reviewed, discussed and once finalized, approved as a working document for the BID effort. The steering committee approves the business plan after thorough debate and review. For a property based district, a Management District Plan is required which will spell out the special benefit services to be funded with BID revenues, various zones of benefit if any, an annual budget for the life of the district, the assessment methodology, length of the district, boundaries, major issues facing the district, a baseline service agreement, disestablishment procedures, etc. 5. Next, a series of newsletters will be distributed and informational meetings will be set up to inform the general business community of the purpose and benefit of establishment of the district in the area. 6. With the help of the Consultant, the BID Steering Committee begins a "petition drive" in which property owners demonstrate a "show of support" to the relevant governmental body (City Council or Board of Supervisors). The show of support petition allows the steering committee to take the lead in explaining the BID benefits to the general community. In the state of California property owner's BID, at least 50% of those who will pay into the assessment district must petition the governmental body to call a public hearing on the establishment of the district, (AB3754, chapter 2, section 36621). Some charter cities in California have adopted local enabling ordinances which allow for a 30% weighted petition drive to trigger a Prop 218 mail ballot procedure. Call NEW CITY AMERICA for specific details on these enabling ordinances. In Arizona and Illinois, no petition is required.
7. The demonstrated show of support is submitted to the City Council through the relevant City department. 8. The City Council accepts the petition- based upon the demonstrated show of support for a BID and calls for a public hearing to discuss the issue. A minimum forty-five day period is mandated and all potentially assessed members of a BID are notified via first class mail by the City. The City informs property owners of the proposed assessment and invites them to advocate support or opposition at the public hearing. The City Clerk runs a public notice on the proposed establishment of the district. 9. The public hearing is held. The law states that if 50% plus one (a simple majority) of those scheduled to pay into the assessment district formally oppose establishment of the BID or PBID, the district cannot be established. Article XIII of the California State Constitution mandates that any property based assessment district is subject to a mail ballot procedure or an assessment ballot proceeding of the property owners. The district is formed based upon the vote of the weighted majority of those property owners who return their ballots during a public hearing process. Assuming the City Council accepts the mail ballot results and votes to establish the district by passage of an ordinance after hearing public testimony, a second reading is done within 30 days after the public hearing. The district is then established. 10. Some cities may advance funds equaling a certain percentage of the annual assessment revenue in order to initiate the special benefit services of the district. This advance can be repaid as soon as revenues are generated over a predetermined period of time.
Who runs the BID once it is established? BID laws usually allow a City Council or governmental agency to designate operation of a BID to a nonprofit management corporation consisting of the stakeholders paying into the district. In our experience, without exception, the business group that led the BID effort is designated as the management corporation. If not done so before hand, the stakeholder group incorporates itself as a nonprofit corporation in order to facilitate work of the BID. All assessed members of the BID thus become members of the corporation and are eligible for election to the Board of Directors. This nonprofit corporation will enter into a contract with a City or relevant agency to allocate funds and operate the BID on behalf of the City. Since the City or County is the collection agency, it retains fiduciary responsibility for the BID funds, thus a contract between the City and the new BID management corporations entered into on a regular basis.
In our experience, it normally takes anywhere from 6 - 24 months to establish either district. New City America has formed districts in as little as 5 months (Chinatown, L.A.) and as long as 4 years (Highland Park, L.A.) The length of time depends upon the following factors: • The size and concentration of the district to be
organized; Assessments collected under a property BID are collected by the County along with the semiannual property tax bills. The County then transfers the funds to the City who transfers them to the contracted nonprofit BID management corporation. What
should you look for in a BID Consultant?
The consultant company should possess the following qualifications or experience: 1. The company should have experience working on both sides
of a BID - that is, as a member and elected officer of a BID, as well
as, a consultant to a BID. Dual exposure to a BID makes the consultant
cognizant of any questions that may arise by business or property owners.
New City America staff both forms and administers BIDs. 2. The company must have the desire and ability to work as a "hands-on" consultant. In other words, the consultant's work should not be to merely advise a group on how to build a BID, but rather actually work to build it. This includes trouble shooting, conflict resolution, neutralizing opposition and dealing with some of the more undesirable aspects of building a BID. 3. The company must have a proven track record of actually creating business community assessment districts, advising BlDs, writing business plans, management district plans, newsletters, working with City governments, etc. Letters of recommendation should be available which explain the candidate's qualifications and successes. A list of company-created districts should be provided. People who simply "love the district" should not be retained to establish the BID. In hearing all cases professional help is necessary to successfully complete the formation process.
First, call the office of NEW CITY AMERICA and request that a presentation be made to your Business Association or property owner group. It is important that the maximum amount of people attend this meeting, including City officials, so any and all questions regarding a business community assessment district can be asked and answered in an open forum.
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