19. BIDs: Encompassing Residential as Well as Commercial Properties

In the past decade, many business improvement districts have modified their constituencies, their service priorities, their revenue bases, and, in some cases, their governance to produce programs that benefit residents and residential properties rather than just commercial properties and owners. This reflects the rise of commercial centers as a magnet for households that are embracing the stimulation and amenities provided by pedestrian-friendly downtown areas.

As developers have responded to the housing demands in commercial centers, the characteristics of many of these commercial centers in both suburbs and cities have changed considerably. Business improvement district (BID) services, long focused on attracting shoppers and visitors and impltNing the environment for office employees, have also proven attractive to those seeking more urban living locations.

BIDs provide services and physical improvements-such as professional place marketing. clean sidewalks, and attractive settings-through olganizations planned and run by owners of properties and businesses in a legally defined area and financed by a compulsory charge. The legal foundations of BIDs with respect to services and charges to residential properties come in three forms in state authorizing legislation.

In one form, residential properties are specifically included in benefit district laws. The Pennsylvania Neighborhood Improvement District (NID) management statute. for example, authorizes residential and mixed-use districts, treating them virtually the same as commercial improvement districts. This flexible and easily applied statute also allows residential properties to be excluded from commercial BID charges and allows BIDs to set differing assessment rates where there are dear differences in benefits. An example is to discount residential charges to reflect BID services such as retail or office marketing that are not applicable to rowhouses or apartments. In this way, the charge applicable to commercial properties might be reduced by 25 pertent for residential properties because residents do not benefit equally from otherwise uniform assessments.

In the second form, improvement district laws simply refer to “properties.” not indicating any legal difference between commercial and residential The Virginia law authorizing special services is one of many that existed before special BID laws were enacted. Municipalities are authorized to “levy and collect a special tax upon any property” within a designated serviced district Application of this law to produce BiDs came as a statutory afterthought, decades after the original enactment.

A third form is home rule powers, localities may have broader options under this system of state-delegated powers. Where two existing state BID laws were not locally acceptable-for example, in Jacksonville, Florida-the district was formed under this broader legal delegation.

Some state BID laws specifically prohibit District charges on residential properties and do not intend for services to be provided for residential properties. The Colorado statute when enacted excluded “taxable real or personal property for property tax purposes as either residential or agricultural” from BID charges.

Even when the possibility to assess residential properties existed in state law, with few exceptions, the practice of excluding residential properties predominated during the early decades of BID organization. The temptation to swell the BID budgets by including residential assessment revenue was usually set aside when BID planners considered the potential conflicts between residential and commercial improvement priorities. There was also concern that residential property owners would oppose creation of BIDs. Not considered then a major source of added revenues. residents were viewed principally as political nuisances.

The Pennsylvania NID law has been popular; all new districts have applied its provisions, largely because it authorizes nonprofit corporations-rather than government authorities-as its governance structure. Although it permits creation of purely residential BIDs. only a few such have been tried and none has completed preordinance planning.

The following examples show how new investors and BIDs have arrived at a productive, cooperative relationship, with BIDs taking care of community needs bevond residential front doors, including providing brighter sidewalk lighting, public art and entertainment, and enjoyable settings with trees, shrubs, and flowers.

Philadelphia’s Center City District

Most districts that serve residents were not planned to do so. One of the longest-standing BIDs is Philadelphia’s Center City District (CCD), now more than 15 years old and with annual revenues topping $17 million. CCD was launched providing only supplementary security personnel and sidewalk cleaning. then adopted various marketing programs as the first two elements became known successes.

The service area was geographically defined to include the properties guaranteed to produce the highest returns in commercial property assessments, excluding to the extent possible owner-occupied residential properties in part because they would add relatively little revenue. though rental multifamily apartment properties were included. It was also a requirement of the state BID law at the time that any residential properties within the service area, such as condominiums, would be required to pay an assessment based on the same rate as commercial properties. Some artful gerrymandering resulted. To reduce anticipated opposition to the BID from condominium owners and owner-occupied. single-family residential properties, the district offered owners who applied for it what amounted to an exemption from the compulsory charge. Investment properties were charged the full rate. This proved successful at reducing the anticipated residential resistance.

More than a decade ago CCD proposed a tax-abatement measure to promote residential development, an approach tested successfully by the Downtown New York BID. As a result, apartment towers have been constructed and obsolete office buildings and warehouses converted to condos and apartments.: Where it once seemed unlikely that anyone would pay a half million dollars even for a handsome historic home, today duplexes in multifamily buildings sell for more than $5 million. Gradually, residential owners came to appreciate the low-cost BID services and fewer applied for the exemption.

Since the tax incentive was enacted, more than 10,000 housing units have been constructed in Philadelphia’s Center City District and in neighborhoods within walking distance of the district. In response. ceo ended the optional opt out policy for condos sold after September 2005. When the original BID was approved, about 2,500 assessed properties paid the compulsory charge. Within the same service area, the number of assessed properties, almost all residential has doubled, and the district works hard to ensure that the resident owners understand that their payments help support the district services. The improvements of greatest importance to residents, according to a 2006 survey, were to raise the quality of sidewalks, enforce traffic and bicycle laws, and improve pedestrian lighting. As a result, these residents now have brighter sidewalks as they walk to the opera, restaurants, theaters. and other nearby amenities.

As part of the CCD services, new condo owners receive welcome packages, the district promotes schools for resident children, and education programs for residents address personal safety and building security. Other additions to the regular CCD services tailored to residents include periodic focus groups to determine other areas needing improvement, a resident-oriented magazine, and a staff member to help residents-an idea borrowed from the Seattle BID.

Next year’s budget, which totals $18 million, will indude an estimated $2 million in assessments derived from residential properties, including the previously assessed rental apartment buildings. The US. housing slump so far has had little impact on Center City residential projects; the value added by location continues to produce new units, many starting at $600,000.

University City District, Philadelphia

University City District (UCD) was formed in the wake of a notorious murder of a professor a decade ago on a sidewalk between the University of Pennsylvania and nearby neighborhoods. The district has functioned for eight yeaJS under a different form of compulsory charge while the board seeks authorization under the NID law. Its service pattern, however, is comparable to that of other large BIDs. Major differences include the following:

  • Three categories of beneficiaries are served-tax-exempt properties (e.g., the University of Pennsylvania, Drexel University, Amtrak, Presbyterian Hospital) commercial (mainly small properties, including many restaurants); and residential properties of various sizes, including rental and owner-occupied properties. UCD will be categorized as a mixed-use district under the Pennsylvania law.
  • About three-quarters of the properties served are residential, consistent with the estimated division of services measwed by dollars spent
  • Residential blocks include six entire neighborhoods to which about 60 percent of the sidewalk and pubUc space cleaning budget is devoted. Because of the size of the service area, uniformed supplementary security is deployed mainly on bicycles.
  • Marketing includes information about entertainment, museums, dining, and shopping. originally organized to attract visitors, but of-increasing appeal to the growing residential population. A print newsletter is sent to 3,000 households and a biweekly electronic newsletter to 2,500. One popular brand slogan was “University Oty District, Left of Center,” intended to distinguish the area from Center City.
  • UCD’s public events primarily serve the residential population, though they also appeal to the 30,000 people who work in the district UCD paid for the redesign of a nine-acre (3.6-ha) park at the edge of the residential neighborhoods, maintains the property, and is responsible for programs that draw large crowds of people, about 85 percent of whom are estimated to be district residents. Real estate experts credit UCD for some of the increase in residential property values that followed the BID services. Several large residential projects have opened since UCD’s founding.
  • The BID is currently investing $1.2 million in pedestrian lighting along several commercial streets and at a municipal parking lot, both predominantly used by residents from adjoining neighborhoods. This is in addition to $2.5 million invested in comparable improvements throughout the district two years earlier.

Charles Village. Baltimore. Maryland

The Charles Village Community Benefit District, a 10o-block area in Baltimore, embraces four neighborhoods-Abel, Better Greenmount Alliance, Charles Village, and South Charles Village-and bills itself as “America’s first community benefit district” More than 15 years old, the district was launched in the wake of two neighborhood murders. The district is considered the pioneer use of the benefit district concept in a predominantly residential area.

From the beginning, a substantial share of the annual budget has been devoted to residential security. The Baltimore Sun observed that after the first year, robberies were down 21 percent, commercial burglaries down 20 percent, and auto thefts down 24 percent. The BID Safety Advisory Council initially managed nine full-time guards on the streets, providing 3,000 escorts, assisting in 27 arrests and inducing added pedestrian traffic. Five drug busts resulted from BID tip sheets, cooperation with police improved, and the BID worked with the city to upgrade lighting and trim trees to illuminate sidewalks.

Other early successes included sponsoring town meetings on redevelopment, attracting new restaurateurs, and cleaning 150 city blocks with five sweepers daily. The crew cleans and weeds streets and sidewalks, mulches tree wells, and cleans hot spots needing extra attention. In the first year alone, the crew responded to 800 sanitation complaints. The BID targeted graffiti for removal, conducted two rat-elimination programs, and convinced the city to increase its street sweeping. The district raised funds for an after-school tutoring program and launched two newsletters, one targeted to block captains. Popular social affairs include an annual dinner party and community gardens.

The district operates under an open public meeting requirement with a board dominated by elected residents, though some nonprofit and govemment members also serve, as do representatives of nearby Johns Hopkins University. The resident population numbers about 14,000, and there are ]00 businesses. The BID functions with a budget of about $500,000.

Small Mixed-Use Districts in and near Philadelphia

A classic railroad suburb, Ardmore, outside Philadelphia, has a 15-year-old BID that has struggled to restore the area’s earlier prominence as a regional retail center and compete with the now well-established shopping malls. Despite area sidewalks having almost no pedestrians, a Philadelphia developer won a competition to develop 200 residential condos in the heart of the old shopping district as part of a mixed-use project with a substantial amount of added parking. The BID played an active role in shaping the redevelopment plan and has residents on its board.

East Falls is a section of Philadelphia that only recently has been recognized for its potential. One project of detached and attached homes, plus a retail center, was publicly sponsored. A second project, entirely privately developed, has produced an attractive compact four-story complex with 100 new units. A third is a mixed-use collection of old mill buildings, also with residential units; the redeveloper was among the leaders in proposing the BID and serves as its cochair. Other residents served on the BID planning organization and will be responsible for district governance, which will upgrade security via closed-circuit TV and lighting with a modest budget.

U.K./South Africa/Germany

Better Bankside is a mixed-use community on the south side of London’s River Thames. The BID has served residents as well as visitors with improved lighting, expanded outdoor dining, and entertainment confirming the adage that a good place to visit is a good place to live. Two residents sit on the BID board, and residents were involved in BID planning and approval. The district houses the residents and tenants association in its office and provides-some core funding for the group. The BID avoids taking positions on planning issues in the interest of harmony. There is no levy on apartments, though a residential developer is a voluntary contributor, giving about $30,000 per year.

Simon Quin, executive of the U.K’s Association for Town Centre Management (ATCM), says the BID financing structu~a tax on business means that residents are not charged for services, but notes that a goOO many U.K. BIDs include residential properties in their service areas. ATCM’s Jacquie Reilly reports that UK BIDs typically have tight boundaries excluding residential properties, except for flats above stores. She notes, however, that the Ealing (London) BID has a community representative on its board. Residents do not vote in authorizing referendums.

South Africa has many city improvement districts, and there is a growing interest in forming them in residential and mixed-use areas. Mixed-use areas, which are often 20 to 40 percent residential properties, are found in Johannesburg, Pretoria, and Cape Town, among other centers. “[R]apid urbanization in the aftermath of apartheid has taken its toll” consultant Anne Steffrey writes, “Without BID supplementary services, a once-sought-after area can become a less desirable place to live, work, and play; property values decrease; unwanted developments proliferate; and ordinary life becomes chaotic for stakeholders and users… More and more we are finding our local authorities have neither the budget nor the staff to address these issues adequately.”

In the first years after BIDs were introduced 20 years ago in Johannesburg, the decrease in muggings there led to the adoption of districts throughout the country. One 100 percent residential BID was formed there, and an 80 percent residential one was created in Cape Town. Recently, there has been a big drive in suburban areas-to set up 100 percent residential BIDs, Steffny reports, leading to discussions as to the whether the minimum vote for approval of creation of a BID should be raised, perhaps to- two-thirds.

In the north of Germany where there is a growing collection of commercial-based BIDs, work is underway on a legal formula permitting residential ones. One prospect is a 1970s neighborhood in Hamburg dominated by apartment towers, according to Mario Bloem, a Hamburg-based consultant.

BIDs provide benefits to residents, whether or not they are paying a compulsory charge, by providing them with a reassuring and attractive environment and helping them enjoy the urban setting through information on entertainment and culture, or even the availability of local schools for their children. The sustained growth of residential population in and adjacent to urban centers and the experience of the existing resident-serving districts should help to stimulate similar programs elsewhere.

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