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GENERAL QUESTIONS AND ANSWERS
REGARDING THE STATE OF CALIFORNIA PROPERTY BUSINESS IMPROVEMENT DISTRICT
LEGISLATION The California Property Business Improvement
District Legislation that was adopted in 1994, and has been amended
twice since its passage, is part of the California Streets and Highway
Code, Section 36600. Since its adoption, PBIDs have been embraced as
critical tools to expedite revitalization of commercial areas and have
been successfully adopted throughout the State of California. This paper
represents a brief outline on what services can be funded by, the formation
process and limits to the State of California PBID law. Similar districts are sometimes called Business
Improvement Districts, Maintenance Districts, Community Benefit District,
or Special Assessment Districts. In State of California, the PBID can
be enacted in any city, whether general law or charter. However many
cities, including San Diego, Los Angeles, San Francisco, Oakland, Berkeley
and Alameda, have adopted their own enabling legislation based upon
their Charter City powers. To respond to those special needs, including sidewalk sweeping, steam cleaning, rapid removal of bulky items and graffiti, responding to illegal encampments, additional security, installation of order, states and localities have adopted special enabling legislation which allows motivated property owners to pay assessments to fund special benefit services. These special benefit assessments are probably the most efficient and effective funds to be paid since they must stay in the district, by law, and are managed by a locally based non-profit corporation made up of those being assessed. At a time of huge local, state and national budget
deficits, it is expected that general services will, in fact, be reduced.
These assessments can provide the services each and every business district
and Downtown stakeholder wants, but will not be funded by the City.
By law, (Article XIII(d) of the state constitution), property assessment districts can only fund special, not general benefits. General benefits are those allocated to all parcels in the City and funded out of public or general fund revenues. Cities throughout the state normally adopt “baseline services agreements”, that require the City not to withdraw services once the special benefits district has been formed. Experience has shown that once the assessment district
has been formed, the private property owners in the district can normally
leverage a greater amount
of general benefit City services than before the establishment of the
district. This is due to the fact that those property owners are now organized
and can request things such as trees and the PBID assessment revenues
can maintain additional trash cans, with the understanding that these
capital improvements are funded by the City. A PBID Steering Committee will be formed among various interested parties, including the “weighted property owners” of the potential district. The PBID Steering Committee will meet and determine initial study boundaries and then conduct a study analyzing the level of support for formation of a PBID/Special Benefits district in the target area. Experience has demonstrated that if at least 20 – 25% of the weighted property owners express support for the concept of the PBID, the Steering Committee will then enter into the formation stage of the PBID. The formation stage includes the following:
How long does this process take?
Yes, however it is best to coordinate the formation
process so the public hearing is completed by the end of July each year.
This is suggested so there is not such a long delay in approving the district
and receiving the revenues from the first property tax bills in December.
The sponsoring organization may also work with the local governing body
to allow the new PBID Management Corporation, even though the PBID is
formed out of cycle, to approach a local financial institution to provide
for a line of credit. This line of credit, secured by the PBID assessments,
will allow the district to begin services prior to the tax collection
cycle. As provided by the Legislation, the PBID assessments
will appear as a separate line item on the annual property tax bills prepared
by the County. Most property tax bills are distributed in the Fall and
payment is expected by lump sum or in two installments. The County normally
distributes the assessments collected from the PBID, to the City who will
in turn then forward them to the designated Management Corporation, pursuant
to the authorization of the plan. Existing laws for enforcement and appeal
of property taxes apply to the PBID assessments. Though there is no legal requirement for assessment revenue generation, practice tells us that a minimum of $150,000 in a business district and $75,000 in a neighborhood should be generated in order to make an impact. The idea of the district is to have the special services make an impact on the problems that the district may face. It is important that the district has adequate revenues to fund the special benefit services that gave rise to the concept of an enhanced services district in the first place. Once established, must every parcel in the district pay? Unless specifically mentioned in the plan, every single
parcel owner must pay into the district. This includes local, county,
state and federal properties. In addition, parcels owned by tax-exempt
designated organizations may be exempt from paying property taxes but
will not necessarily be exempted from the assessment district. The only
way to be exempted is to demonstrate by clear and convincing evidence,
that no benefit will be received from the special benefit services funded
by the district. The City, as a property owner, may sign petitions, vote
in favor and pay into the respective PBID. In State of California, the PBID Legislation allows for a maximum life of 5 years. Upon renewal, a district may be established for a maximum of 10 years. The district can be formed for any amount of time, not to exceed the maximum term. Once the district is completed, the provisions for establishment are repeated in order to continue to fund special benefit services. How could a district be disestablished if it is not functioning as envisioned? Legislation provides for the disestablishment of the PBID pursuant to an annual review process. Each year that the district is in existence, there will be a 30-day period during which the property owners will have the opportunity to request disestablishment of the district. Within that 30 day period, if the owners of real property who pay 50% or more of the assessments levied submit a written petition, the PBID district disestablishment procedure may be initiated. The local governing body will hold a public hearing on disestablishing the PBID prior to actually doing so. If there is debt against the district, the district cannot be disestablished. However, due to the short term nature of PBID, they rarely if ever incur long term debts or obligations. Who controls the funds once the district is established? A non-profit corporation or “owners association” is usually designated or established once the district has been created. The non-profit corporation Board majority is normally comprised of the property owners paying into the district. The corporation could be an existing corporation, but usually a new one is formed based upon the boundaries of the new district. It could be a mutual benefit or public benefit corporation. The non-profit PBID management corporation would then enter into a contract with the City, office, to administer the district on behalf of the stakeholders. Bylaws are normally written to ensure that the property owners can be freely nominated and/or elected to the Board. By law, the assessments generated within the district must be allocated to fund special services within the district. The City cannot offload its current baseline level of services with the assessments since the district can only fund “special benefits”. Once established, can the City increase the assessments? By law, the only increases in the annual assessment methodology must be pre-determined and placed in the PBID Management District Plan for the district. The City cannot arbitrarily increase the assessments because these are not funds created by or controlled by the City. The assessment may be increased only through a pre-designated CPI factor, or changes in land use such as parking lots being converted to commercial buildings or condos. How many districts similar to the PBID exist in the Bay Area and State? Business community assessment districts in which additional
fees tied to business licenses have been around for the last 35 years
in the state. Property based districts are relatively new to the state,
with statewide legislation adopted in 1994 enabling their establishment.
This is clearly the national trend. These districts are
providing the revenues to fill the gaps left by inadequate or un-funded
Downtown/business district services.
Districts that are under investigation and/or formation stage by New City America include:
Written by: 2130 Columbia Street Updated January 28, 2006 |
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