Business Improvement Districts 2 (File No. 021934)
(OLA #: 032-02)
LEGISLATIVE ANALYST REPORT
To: Members of the Board of Supervisors
From: Adam Van de Water, Office of the Legislative Analyst
Date: February 5, 2003 (revised July 21, 2005)
RE: Business Improvement Districts (File # 021934)
Summary and Scope of Work
Supervisor Newsom, through the Board, requested that the Office of the Legislative Analyst (OLA) 1) identify the purpose and history of any existing Business Improvement Districts (BIDs) in the City and County of San Francisco; 2) identify and describe the goals and major accomplishments of successful BIDs in other jurisdictions nationwide (preferably major metropolitan areas); and 3) survey these jurisdictions for best practices and analyze the feasibility of adopting those practices in San Francisco.
Business Improvement Districts (BIDs) have grown tremendously in the past decade thanks to new state laws authorizing their formation and an increasing recognition from the business community that collaborative arrangements such as BIDs are in their own long-term commercial self-interest.
BIDs are formed by a majority of property owners within a district, with approval from the Board of Supervisors and in accordance with state law. BIDs are private-public partnerships wherein property or business owners elect to assess themselves in exchange for the authority to spend the difference on agreed upon improvements and activities contained in its management plan. This typically takes the form of capital improvements (new trees, benches, or banners), increased maintenance (additional graffiti removal, litter collection or street sweeping), increased security (either through direct collaboration with the police department or through privately financed ‘ambassadors’), and/or additional marketing or promotional events.
San Francisco currently only has one BID – the 10 blocks surrounding Union Square. However, the Mayor’s Office of Economic Development and the Small Business Commission are currently seeking a consultant to produce Business Community Assessment materials and conduct research that would facilitate other BIDs to form in San Francisco.
BIDs in New York, Denver, Philadelphia, and elsewhere have demonstrated innovative ways of addressing the problems of public accountability, homelessness, pedestrian accessibility, and high vacancy rates.
This paper reviews the experiences of these BIDs and concludes that, given the proper conditions, they can be positive local forces of economic development.
Business Improvement Districts (BIDs) are designated areas where a majority of business or property owners elect to pay additional property or business assessments in exchange for services not currently provided by the city. In the words of a 1996 London School of Economics paper,
The motivation for property owners to establish a BID and thereby impose a compulsory levy on themselves is that the expected commercial return will exceed their personal contribution…In promoting their commercial self-interest, property owners will be prepared to invest in their surroundings to the extent that it benefits their property. In practice this means that property owners will only be willing to join a collective scheme – such as a BID – if there is agreement on which aspects of local environmental decline need to be tackled and how this should be approached.1
The city collects all assessments from businesses or property owners and typically returns them to the BID’s owner’s association to spend in accordance with a management plan approved by the Board of Supervisors. According to a June 1995 survey of 23 BIDs nationwide by the Pittsburgh Downtown Partnership, the average total budget for a BID was $2 million, of which 84 percent was obtained through assessing property owners.2 While the services provided depend on the needs of the area, typical BID services include maintenance, security, signage, parking and transportation management, social services, special event coordination, tree planting or other capital improvements, marketing and promotion, long-range visioning, and business attraction and retention.
According to the Urban Land Institute, the first known BID – Bloor West Village in Ontario, Canada – appeared in 1965 and the first U.S. BID appeared in New Orleans in 1975. BIDs have experienced a surge in popularity since that time, particularly in the 1990s, and there are now an estimated 1,500 nationwide.3
In California, BIDs and similar improvement areas are governed by two state laws: the Parking and Business Improvement Area Law of 1989 (which allows assessments to be levied on businesses within a district) and the Property and Business Improvement District Law of 1994 (which allows assessments to be levied placed on owners of real property within a district).4 These laws set the general procedures for establishment, assessment, and public review of BIDs. Proposition 218, approved by the California voters on November 6, 1996, which became part of the California Constitution (Articles XIIIC and XIIID) adds additional requirements for establishing property-based assessment districts.
The extent of the city’s financial involvement in the creation of a BID is somewhat in question. While no direct city funds are required to establish a BID, sections 36624 and 36625 of the Property and Business Improvement District Law of 1994 require, "a finding that the property within the business and improvement area will be benefited by the improvements and activities funded by the assessments proposed to be levied." In addition, Proposition 218 mandates that property owners may only be assessed for "proportional special benefit" conferred on the owner’s property. BID sponsors must complete a detailed engineer’s report that determines the extent of this special benefit. If this report finds a difference between benefits specific to property in the district and general benefits to the city as a whole, the funding for this difference must come from a source other than the assessments. Typically, though not necessarily, the city pays this benefit.
For a description of the specific legislative steps required for the Board of Supervisors to create a new BID under the 1994 law, please see Appendix A: The Formation of BIDs in San Francisco.
San Francisco’s Only BID: Union Square
Motivated by "private sector control and accountability", an "equitable distribution of costs and benefits" and the need for "a cleaner, safer and more vibrant atmosphere [that] would directly increase sales and property values,"5 80 percent of property owners signed the initial petition to the Board of Supervisors to establish the Union Square BID.
In January 1999,6 the Board of Supervisors approved the property owners’ petition to form the Union Square BID. Since it became operational in July 1999, the Union Square BID has collected an average of $790,000 per year from 65 property owners paying $65 per linear foot of sidewalk frontage for 91 properties in the approximately 10 block district. Adding the $200,000 annual contribution from the Department of Public Works for steam cleaning (in addition to the city’s baseline services for street maintenance) as well as interest and other grant income, the Union Square BID operates on an annual budget of just over $1 million. Per Section 36622 of the California Streets and Highways Code, the Union Square BID may only levy assessments for a maximum of five years. At the end of this 5-year time period (this will occur on June 30, 2004 for the Union Square BID) the BID must repeat the petition process in order to reauthorize the district.
The BID owner’s association contracts with the not-for-profit Union Square BID, Inc. and the San Francisco Police Department (SFPD) to provide:
- Public Safety – 11 customer service ‘Ambassadors’ and one SFPD 10B Officer work to assist visitors with directions, transportation information, and emergency responses; reduce aggressive panhandling, illegal vending, street gambling, and drinking in public; assist with medical needs, and intoxicated or service resistant individuals; and deter crime as the "eyes and ears" for local law enforcement 12 to 13 hours per day, 5 days per week. According to its original management plan from October 1998, the Union Square BID allocates approximately 52% of its assessment revenues to public safety.
- Maintenance – 15 "Take Away Graffiti and Grime" (TAGG) Team members sweep and steam clean the sidewalks, remove graffiti and pickup litter 13 hours per day, 5 days per week. According to the management plan, the Union Square BID allocates approximately 29% of its assessment revenues and 100% of the city’s steam cleaning grant funds to maintenance.
The BID dedicates the remaining 19% of its assessment budget to management, operations, and office supplies.
Current Efforts to Create Additional BIDs in San Francisco
The Mayor’s Office of Economic Development (MOED) issued a "Request for Qualifications for Consulting Services for Business District Revitalization" October 14, 2002. This RFQ intended to assess if BIDs could be more broadly used in San Francisco, and sought consulting services (in an amount not to exceed $10,000) to undertake several tasks including:
- Review of City policies regarding business district revitalization including, but not limited to Business Community Assessment District formation and administration.
- Review of state legislation and its applicability to the City/County of San Francisco.
- Recommend ways an interested neighborhood or community business district can work with the City on developing a successful revitalization strategy.
- Develop a Business Community Assessment kit to be distributed to motivated business and neighborhood groups, which would clarify the City's commitment and available resources to support these efforts.
- Recommend new enabling legislation for the City to facilitate business district and neighborhood revitalization efforts.
The Small Business Commission has allocated up to $70,000 in implementation funds to support the formation of BIDs, and is working in partnership with MOED on the project. As of the submission deadline November 12, 2002, MOED had received three responses to the RFQ. According to MOED Director Leamon Abrams no contractor had been selected as of the week of January 13, 2003.
New York’s Experience: A Qualified Success
The New York metropolitan area has largely turned to BIDs as a means of revitalizing its downtown centers. According to the Center for Urban Research and Policy at Columbia University (CURP), in 1997 there were 40 BIDs in New York City with a total annual assessment of over $46.1 million.7 This budget supports a range of services including security, sanitation services, homeless outreach, capital improvements, community relations, and other tourism services.
For example, in the first seven years of its existence and with its over $6 million annual budget, the Times Square BID has,
- hired 45 public safety officers connected by radio to the New York Police Department to patrol the streets 14 hours per day, seven days per week,
- upgraded street lighting to highlight historic buildings and improve safety,
- hired 50 sanitation workers to sweep, scrub and paint 16 hours per day, seven days per week,
- raised $2.5 million over three years from federal and state agencies for a pilot project to address the needs of "service resistant homeless",8
- developed a master plan for traffic islands in Times Square and funded studies to ease pedestrian congestion on the sidewalks,
- developed a comprehensive Times Square Visitors Center and hired 10 counselors speaking nine different languages to staff it, and
- coordinated and produced the annual New Year’s Eve celebration which annually draws over half a million people.
In a professional survey of members conducted by the Times Square BID prior to reauthorization, 93 percent of all respondents expressed support for contract renewal and more than 86 percent saw overall improvement in Times Square as a place in which to work.
Despite these impressive achievements, CURP researchers concluded that New York BIDs, taken as a whole, have achieved varying levels of success. While they concluded that, "under the proper organizational and environmental conditions, BIDs can be effective agents of economic development"9 they also found that, "their democratic deficits pose significant problems for citizens and city government."10 Of particular concern was:
- a potential lack of democratic accountability and the degree to which BIDs represent the entire community rather than simply property owners;
- possible inequality between the public and private partners as, once created, BIDs can utilize the city’s tax collecting powers without requiring public accountability measures; and
- possible "balkanization" in New York City between BID and non-BID areas leading to an overall weakening in economic vitality and the delivery of basic public services citywide.
The researchers therefore warn, "it is essential that in formulating, constructing and utilizing BIDs as tools of urban revitalization, we ensure that these broader democratic issues are addressed. The construction of a comprehensive framework for the oversight and evaluation of a BID is critical to ensure representation, accountability, and equity."
With 120 blocks of commercial property in its boundaries, the Downtown Denver BID is one of the largest assessment districts in North America.11 In 1992, owners of 61 percent of the land area voted to replace the existing Mall Management District with the new BID citing increased flexibility under new Colorado law for BID operations, financing and governance.12 Today seven members of the Board of Directors (representing large and small property owners, upper and lower downtown, retail, office space, and vacant lots) work with six "ex officio liaisons" (Denver’s Public Works Manager, the Chief of Police, the sergeant in charge of the Denver Police Department’s downtown unit, a Denver City Council member, the operations manager of the free mall shuttle provided by the Regional Transportation District, and a representative of the Downtown Denver Residents Organization) to manage the annual budget of just over $2 million.
In addition to the standard services of maintenance, capital repairs, security, marketing and economic development, the Denver BID provides research information to its members on everything from commuter behavior and pedestrian activities to retail development strategies and office market analyses.
As one of the older management districts in the country, the Denver BID has experienced a number of successes, including:
- helping to develop the internationally renowned architect I.M.Pei-designed 16-block pedestrian and transit mall which in 2002 shuttled 52,000 riders and ranked number one as a tourist attraction in a survey conducted by the Denver Metro Convention & Visitors Bureau;
- working to open the 350,000-square foot Denver Pavilions retail and entertainment center in 1998 on two blocks facing the mall;
- providing support for the $25 million renovation of a second two-block retail center to be completed later this year;
- allocating approximately $1 million per year for the maintenance and capital improvement of the 16th Street pedestrian mall; and
- increasing funding for the Denver Police Department’s Downtown Motorcycle Unit, Mounted Patrol Unit, and Neighborhood Patrol Officers by providing them with additional pagers, motorcycles, cars, and other equipment.
Successful BIDs depend on the active involvement of its member businesses and property owners. In a booklet issued after establishing 40 BIDs, the New York City Department of Business Services stated,
No BID effort will succeed without the active support of a local sponsoring organization which is willing to undertake the work. This group must have extensive knowledge of the community and be skilled at organizing and gaining the support of property owners and merchants. It should have a history of involvement with the community, a reputation for seeking positive change within the community, and a vested interest in the long-term economic stability of the area.13
Ways of encouraging the development of such an organization include holding periodic meetings, distributing mailings, utilizing local media, and hiring a private consultant with experience in BID development.
There are several ways that BIDs can increase public accountability. State law 14 requires that the BID’s owners association annually submit and get approval from the local elected body (in this case the Board of Supervisors) of an operating report and that at the end of five years and every 10 years thereafter they repeat the approval process outlined in Appendix A. Also, per state and local law, all BID owner’s associations in San Francisco – though not necessarily the BID in its entirety – must comply with the requirements of the Ralph M. Brown Act and the California Public Records Act as they relate to all district activity documents and when matters within the subject matter of the district are heard, discussed, or deliberated.15 Finally, upon any finding of fund misappropriation, malfeasance, or legal violations, the Board may, after holding a hearing on the issue, adopt a resolution to disestablish the BID.
In addition, some BIDs have taken it upon themselves to improve their relationship with local government entities and the community. Recognizing that "BIDs are inherently undemocratic",16 former Times Square BID Director Gretchen Dykstra and her staff kept a mailing list of over 13,000 property owners, commercial tenants, retail establishments, registered voters, government officials, community board members, and a wide array of interested parties. This list became the basis for publishing its quarterly newsletter, announcing board nominations, and informing stakeholders of the annual public meeting and special events. Other BIDs – such as Denver, New Brunswick, NJ, and Lincoln Road in Miami Beach – have placed local elected officials or departmental representatives directly on the Board of Advisors or owner’s association.
One area where BIDs may come into conflict with city goals is the area of homelessness. BID directors are continually looking for innovative ways to reduce homelessness within their districts and critics have voiced opposition to privately financed ‘ambassadors’ forcing homeless persons and panhandlers into other neighborhoods.
One of the more innovative and successful examples in this regard comes from Manhattan. The Times Square BID was the largest private contributor to the innovative $1.2 million Midtown Community Court, which arraigns approximately 15,000 misdemeanor and violation offenses each year (see OLA report: "The Community Courts Model and Feasibility of Implementation in San Francisco" on-line at http://www.sfgov.org/bdsupvrs/ leganalyst/reports/commcourts.htm for more details). As a result of the Midtown Community Court, arrest-to-arraignment time is down 38%, more offenders receive community service (up 138%) and/or drug treatment sentences than before, crime has been reduced, and 75% of defendants now complete their community service sentences: a 50% increase in compliance.17
The Center City BID in Philadelphia made several changes to the look and feel of its downtown streets to encourage safety and attract visitors. The BID lobbied the city to change regulations that would allow see-through security gates to replace the solid steel gates common in most downtowns, contributing to a less austere storefront after hours. The BID also used its assessment revenues to issue a $21 million bond issue and secure a $5 million match from the city to make capital improvements. The BID used this bond money to replace overhead streetlights illuminating the street with pedestrian scale fixtures that bring the light to the sidewalk and eliminate dark spots, install pedestrian maps and directional signs, plant trees and erect new banner poles, and rebuild deteriorating curbs and sidewalks.
However, it should be noted that because Central City’s capital improvement bonds were issued based on the BID property tax assessment, the debt limit counts against the city’s overall debt obligation, which, depending on the size of the bond issuance, could reduce the city’s ability to make future investments.
The Center City BID in Philadelphia lobbied the city to accelerate and simplify the process of rehabilitating older commercial buildings with vacancy rates in some areas as high as 30 or 40 percent. The BID promoted low-interest financing and transfers of development rights and, in June 1997 won expansion of real estate tax abatement from the city to help expedite the conversion of these buildings to include modern amenities and comply with municipal building codes.
Empirical research from around the country supports the finding that carefully designed Business Improvement Districts can have positive economic development effects within their boundaries. Motivated by their own commercial self-interest, property owners in established BIDs have invested in capital improvements, reduced crime, litter and graffiti, and improved their properties’ public access and resale values.
Evidence suggests that the successes experienced in Union Square, Times Square, Downtown Denver and City Center Philadelphia could be replicated in certain neighborhoods in San Francisco. These neighborhoods could include Chinatown, North Beach, Northeast Mission (all three of which have contacted the Mayor’s Office of Economic Development requesting info on the formation of a BID), Fisherman’s Wharf, the Castro, and South of Market Street near Pacific Bell Park.
However, several conditions must be met to ensure successful BID formation. These include, but are not necessarily limited to:
- The property owners and leasing businesses must be fully committed to the costs and benefits of establishing the BID and the owner’s association must make concerted efforts to involve all stakeholders in the major decision-making processes throughout the life of the BID.
- The Board of Supervisors must use diligence in approving the initial management plan of any proposed BID and ensure that the proposed improvements and activities are consistent with the broader city goals of homelessness policy, police enforcement of panhandling and unlicensed vending, capital improvements, and street sweeping and repair.
- The Board of Supervisors must carefully consider the costs to the city of establishing a BID including potential support for up-front consulting costs and any potential general benefit expenditures that the city may be asked to provide.
Appendix A: The Formation of BIDs in San Francisco
From the initial drafting of the management plan and petition to the operational beginning of a BID, the national average time spent on the organizational process is approximately a year and a half.18 In addition to the public steps outlined below, BID organizers must design the management plan in accordance with Section 36622, establish an assessment formula, create the district boundaries and circulate a petition and a copy of the management plan to district businesses or property owners seeking their support. This is typically undertaken by a hired consultant and must occur prior to the Board’s passage of a resolution of intention to establish the BID.
Approximately 60 to 80 percent of all BIDs nationwide are property- rather than business-based.19 Thus, the applicable law is usually the "Property and Business Improvement District Law of 1994" contained in the California Streets and Highways Code Sections 36600 et seq. To establish a new BID under this law, the Board of Supervisors must:20
- Receive signed copies of the petition circulated as above from property owners who will pay more than 50 percent of the assessments proposed to be levied;
- Adopt a resolution of intention to establish the BID. This must include (a) a brief description of the proposed activities and improvements, the amount of the proposed assessment, and a description of the exterior boundaries of the district, and (b) a time and place for a public hearing on the establishment of the BID within 90 days of the resolution’s adoption.
- Notice its intention to establish the BID in accordance with Section 53753 of the Government Code;
- Hold a public hearing on the establishment of the BID within 90 days of the resolution’s adoption; and
- Adopt a proposed resolution of adoption (if the Board makes substantial changes to the originally proposed assessment) or a resolution establishing the district (if the Board does not make substantial changes). This resolution must contain all of the information included in paragraphs (1) to (8) of Section 36625 (including descriptions of the proposed activities, assessment type, and boundaries as well as a copy of the engineer’s report).
Once established, the Board:
- May create separate benefit zones within the BID with separate assessment rates;
- May classify properties for purposes of determining the benefit to the owners of the proposed improvements and activities;21
- May execute baseline service contracts that would establish levels of city services that would continue after a BID is formed;
- Upon written request of the owners’ association, may modify the management district plan after (a) adopting the required resolution of intention stating the proposed modification, (b) conducting one public hearing on the proposed modification, and (c) adopting a resolution determining to make the modification;
- May approve or modify the BID’s annual report 22 and adopt a resolution of intention to levy an annual assessment for that fiscal year; and,
- Upon either Board findings of fund misappropriation, malfeasance, or legal violations or upon written petition from property owners paying more than 50 percent of assessments, may adopt a resolution of intention to disestablish the area, and after holding a hearing on the disestablishment, may adopt a resolution to disestablish the BID.
The owner’s association, in return, must:
- File a report for each fiscal year of operation after the first year to be filed with the Clerk of the Board which includes, (a) any proposed boundary changes, (b) the improvements and activities to be provided for that year as well as their costs, (c) the method and basis of levying the assessment, (d) the amount of any surplus or deficit revenues to be carried over from the prior year, and (e) the amount of any contributions to be made from sources other than assessments.
- In order to renew the BID after its first five years, follow the procedures for establishment of a BID outlined above.
6 Resolution declaring intention to establish the BID was passed 12/8/98 (File #98-1844), the resolution establishing the 13-member Board of Advisors was passed 12/24/98 (File #98-1927), the public hearing was held 1/25/99 (File #99-0118), an the resolution establishing the assessment district was recorded in the Clerk’s Office 2/8/99 (File # 98-2135).
7 Edward T. Rogowsky and Jill Simone Gross, "To Bid or Not to Bid? Economic Development in New York City" (1997) online at http://sipa.columbia.edu/CURP/resources/metro/v01n0402.html called the spread of BIDs in New York "almost epidemic."
8 See http://www.timessquarebid.org/the_bid/6_years/index.htm. "The Times Square Consortium for the Homeless (TSC) …provides therapy on the streets to mentally ill/substance abusing homeless people by an interdisciplinary team of clinical social workers, nurses and drug counselors. Project Renewal and Samaritan Village are the lead agencies with St. Luke's hosting a small respite center and the BID continuing its role as facilitator of TSC."
12 Houstoun, p. 151. The MMD was limited by city ordinance to providing services only along the 16th Street pedestrian mall, to assessing only land area, to having a maximum of five board members, and having the Director of the Denver Public Works Department act as chairman of the board.
14 California Streets and Highways Code Section 36650.
15 Chapter 9 (commencing with Section 54950) of Part 1 of Division 2 of Title 5 of the Government Code, and Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code, respectively.
19 Houstoun and phone interview with Union Square BID Director Leigh Ann Baughman.
22 See file #021450 approved 1/13/03 for the most recent approval.