Editorial · January 9, 2015
Business Improvement Districts: How They Work
Business improvement districts are commercial areas where property owners pay an extra yearly fee for shared services. The fee is called an assessment, and it pays for things like sidewalk cleaning, public safety officers, events and marketing. A district is meant to add to what the city already does, not to replace it. If you rent a shop in one, your lease may let your landlord pass the fee on to you.
What a business improvement district is
New York City's 2003 guide calls a district a public and private partnership. Property and business owners agree to contribute together to upkeep, development and promotion of their commercial area. The guide compares this to a shopping mall, where tenants pay a common area maintenance fee for shared upkeep and advertising. A district works much the same way, but multiple property owners agree to the extra fee.
State law makes these districts possible. The International Downtown Association site carries a piece by Lawrence O. Houstoun Jr. He lists "created by local governments and authorized by state law" as a trait these districts share. Ohio State University Extension says most states passed such laws in the 1990s. Names vary. Ohio says special improvement district, and the same kind of district is also called a special services area or a community improvement district.
Who pays and how the bill is set
Property owners pay. New York City's guide calls the fee a special assessment paid by the benefited property owners. The guide says New York City bills and collects the fee, then passes the money to the district. In Ohio, the charge comes on top of regular property taxes.
New York's guide says a voluntary merchants group depends on donations. In a district, it says, the law requires owners to pay, and the funding is steady.
The assessment formula varies by district. New York's guide says a formula can use one or more of three measures: front footage (length along the sidewalk), building square footage and tax-assessed value. It says the goal is a bill roughly in proportion to the benefit a property gets. Not every property pays the same. For example, the guide says occupied commercial or industrial property pays the commercial rate, while residential and vacant property generally pay less. It adds that government-occupied property pays nothing.
What the money buys
New York's guide lists many extras a district may fund. Maintenance covers street and sidewalk cleaning and graffiti removal. Public safety and hospitality means unarmed officers who often help visitors with directions. Marketing includes special events, holiday decorations and promotional materials. Capital work covers things like better streetlights, trash cans and signs.
Houstoun cites a Downtown Research and Development Center survey of 40 districts. Maintenance, mainly sidewalk cleaning, was the service reported most often, and marketing and promotion came second. He says early districts stressed "safe and clean" services. Newer ones tend to be more suburban and more focused on retail. He adds that urban districts often say their uniformed crews deter crime or reassure visitors. He says no research supports that belief.
Services vary, and Houstoun says there is no standard district. His examples include free Saturday parking in Ardmore, Pennsylvania, and seminars for owners and tenants in Roxborough, Philadelphia.
How a district gets started
Steps differ by place. In New York City, the guide has a steering committee write the district plan. A majority of its members should be property owners. The plan lists the services, the budget and the assessment formula. The committee then holds public meetings and collects signed support ballots from owners. Later, the plan goes to the City Planning Commission, community and borough boards, and the City Council for hearings. After the first Council committee hearing, owners get 30 days to file objections with the City Clerk. The Council then votes, and the Mayor signs. The guide says all the legal steps can take nine to twelve months.
Texas calls a similar district a public improvement district and puts a petition test in its law. Together, the signers must own more than half the appraised value of the taxable property to be assessed. They must also be more than half of the owners, or together own more than half of the land area. The city or county gives notice in a newspaper and by mail to owners, then holds a hearing. A majority of its governing body must vote yes.
Ohio's basic test is a petition from owners of at least 60 percent of the front footage, or at least 75 percent of the land area. Owners who did not sign still pay. Government and church property is left out unless a church or local government asks in writing to join.
What shop owners can expect
If you own your building inside a district, expect a yearly bill. If you rent, the bill goes to your landlord. New York's guide says many leases have a clause that lets owners pass the assessment on to tenants. Our editors suggest you read your lease for a line on special assessments and ask your landlord what the district charges.
You may also get a say. In New York City, the guide says each district's board has classes that include commercial property owners, commercial tenants, residents and public officials. District members vote for directors in their own class, and property owners must hold most of the seats.
Ohio caps a first plan's assessment at ten years after approval, or thirty for energy projects. In Texas, an owner petition to dissolve a district, using the same signature test as one to start it, can lead to a hearing.
Districts differ, so ask what yours does. Our editors suggest asking for the district plan, the yearly budget, the board list and the length of the assessment.