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last modified: Saturday, December 10, 2005 6:15 PM

BID Alternatives: Economic Development becoming Community Development

Shayna H. Hirshfield

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Business Improvement Districts, or BIDs, have been a prominent economic development tool since the 1960s. By enabling local business districts to collect and pool localized taxes, communities are able to implement a variety of programs that promote and enhance their commercial viability and economic growth potential. This article discusses the need for those considering the implementation of a BID to consider the residential and social aspects of their placement and planning. Non-traditional BIDs that focus on holistic, or cross-sectoral planning, are described.

BID Overview

Rules for forming BIDs vary between states, but all states have enabling legislation to allow for their creation. BIDs are employed in diverse settings for a variety of reasons. Local merchants and property owners agree to assess additional taxes on themselves that will be used for local planning and services as defined by a nonprofit governing board. These taxes are legally binding and generally defined according to property value or characteristics, such as size and location. The governing boards have wide latitude to create or terminate programs, determine priorities, and allocate funds. For a more detailed overview of BIDs and their enabling legislation, please see the article by Amanda Goski.

The need to focus on the Whole Community

Since BIDs are, by definition, business-initiated, it is important that a mechanism exists by which business owners communicate with residents and other community stakeholders (ie schools, churches, social services, etc) in setting priories and developing a plan. When community-wide participation stretches beyond the immediate needs of local business, BIDs can “give back” to the entire neighborhood. The districts thereby support every aspect of the environment in which economic development is to occur. By considering the needs of schools, law enforcement, health care, etc, local entrepreneurs can be more certain that the business sector is responsive to neighborhood needs, and that different sectors in the community are mutually supportive.

Whose responsibility?

Many of the activities engaged in by BID authorities – sidewalk maintenance, graffiti removal, security patrolling – are dubiously the responsibility of the municipality. This raises the question of what signal the BID's creation sends to municipal administrators. In severely distressed urban centers, the catch-22 is particularly acute: If a BID is created, will the local government abdicate responsibility for those activities, knowing that they will be taken care of through the BID? Alternatively, however, if the BID is not created, will the city increase services when businesses and residents ask, even in the face of fiscal decline and competing needs?

Writing for the Manhattan Institute for Policy Research, Heather Mac Donald (1996) touches on an important issue of civil service rules. She suggests that BIDs are efficient in part because they accomplish what are traditionally municipal government responsibilities (e.g. safety patrolling and sidewalk maintenance) without being hindered by messy bureaucratic red tape. Because the BID imposes a local tax that is funneled directly to services within the district, local administrators can be assured that there will be no leakage of the benefits accruing from district activities. Activities are decided by local leaders, targeted to local immediate needs, and strategically designed to directly boost economic development.

Nonetheless, Mac Donald, a fierce proponent of BIDs, acknowledges arguments that “the BID assessment is a second tax for services a city is already supposed to provide,” and she does not attempt to refute the claim. The tension is inherent in BIDs. Does the creation of a BID let a city “off the hook” for having to provide services in struggling areas? Will the city then turn its back on the neighborhood or district, assuming that all services will be provided “in house?”

The counterfactual – whether or not services would have increased or become better targeted in the absence of the BID – cannot be known. There exists a possibility that, had services aimed at furthering economic development remained part of a city-wide strategy, preferable economies of scale would have arisen, and development would have been region-wide rather than district-specific. This concern is about BIDs effectively segregating themselves from the rest of the city. It is an extension of the notion of BIDs creating artificial divisions of responsibility within the municipality. The creation if a BID obviates the classic process of growth (or redevelopment) focusing on the downtown and radiating out. By creating a special district that ignores any downtown connection, a number of worrisome effects can result. These may include gentrification, uneven planning across the city, and co-opting tourist dollars and human capital from outside the BID.

For further discussion, please see Beyond Public and Private: Business Improvement Districts don't fit our ordinary categories by Jesse Walker, November 2003.

The Question of Accountability

BIDs have also been challenged on the basis of their perceived lack of accountability, most notably in Kessler v. Grand Central (1998). In Kessler , two main criticisms of BIDs were advanced. First, the “One person – One vote” principal was presented in an effort to demonstrate a lack of democratic process in the districts' creation. Generally, only property owners have voting powers on the creation and ongoing governance of a BID. Thus, opponents argue, tenant residents; people who use the area either for shopping, accessing services, or recreation; employees, and many others are disenfranchised from the new governance structure. Since BID authorities make many policy decisions which affect all district dwellers – not only business owners but also residents, service providers, etc – these other groups may be forced to accept a policy regime which they not only had no say in implementing, but which may in fact run counter to their interests.

Second, in Kessler as well as other cases, BIDs are faulted for being “a whole new subdivision of government that is not accountable to elective officials” (New York Times, Nov. 20, 1994, quoted in Kessler v Grand Central, 1998, Dissent). Many have characterized the BID phenomenon as the creation of a new “micro” level of government (for examples, please see Beyond Public and Private).

Inasmuch as BIDs are an effective means of privatizing what are traditionally public services and planning processes, skeptics may be correct in their concern about districts' accountability to less enfranchised groups.

A New Orientation

New City America is a national US firm dedicated to facilitating urban business community assessment districts (most commonly BIDs). In their words, a BID creates “a reliable, predictable revenue flow [which] exists to fund the special benefit services and specific needs of the business community” ( New city America , 2005). This revenue flow can be expanded, however, to benefit not only be business community, but the entire community that supports and gives rise to the business district.

Improving a local business district or neighborhood downtown can be a positive catalyst and rallying point for the whole community. University City District (UCD) in West Philadelphia began with a BID-like process except for one difference: very few business owners were present. The 2.2 square miles UCD is referred to as a “special services district” rather than a BID. Half of the UCD's mission is to “promote, plan, and advocate for University City 's diverse, urban community.”

Today, UCD's annual budget is $5.7 million. It should be noted, however, that the UCD is funded by voluntary contributions, rather than local property tax assessments. Lewis Wendell is the newest Executive Director of the UCD, appointed in March 2005.

Additional reading can be found here.

San Francisco, California, began with the BID idea but instead created the Community Benefit Districts (CBD) Ordinance in a unanimous decision by the San Francisco Board of Supervisors that was signed into law by Mayor Gavin Newsome in March 2004. Since then, five new CBDs have been formed across the city, and four more are being considered. The ordinance maintains an emphasis on business improvement and property owners, but specific attention is paid to the well-being of non-business interests. As an example, 20% of the seats on the non-profit CBD governing board must be reserved for non-property owners, such as business tenants and community members. Mayor Newsome described CBDs as “a proven, grassroots economic development tool for neighborhood revitalization and beautification." Communities work with the Mayor's Office of Economic and Workforce Development to establish CBDs through a multi-step process. Assessed revenues can be used to fund a variety of business and community development activities such as marketing and promotion, safety programs, graffiti removal, business attraction and retention, and community events.

Please click here for further reading on San Francisco's Nob Hill CBD.

Lawrence Houstoun (1998), a national expert on BIDs, anticipates that BIDs in the future will be smaller, with increasing focus on “partnerships with residents, more concern for public open space, and more programs that serve residential properties where property values are high. These efforts might better be called ‘civic improvement districts'” (p. 15). The potential for this tool to be used both for economic revitalization in depressed urban centers, and well as for marketing and “beautification” efforts in relatively more affluent areas, is clear.