8. BID’s Growing Pains

Having shown they can enhance property values and measurably improve the quality of life in older commercial centers, business improvement districts (BIDs) are begiruting to exhibit growing pains. Typically providing marketing, cleaning, and security services that supplement those provided by city governments, BIDs are managed by commercial interests and are financed principally by assessments on real property. Under the assessment concept, only those who benefit, pay, and only those who pay, benefit. Charges for BIDs are low because all business in the districts pay their fair share.

As a tool for commercial area revitalization, BIDs are popular with public officials because they bring private money into play. Perhaps equally important, they bring private sector thinking into the decision process, benefiting areas where business activities predominate. Some degree of devolution is involved. The BID must be able to assume authority and responsibility, and the local government must be willing to yield some control to an agent whose decision makers are not elected by registered voters.

If, however, the business or property owners who pay the BID charges do not like the way funds are being spent or decide the BID’s chief staff person is incompetent or corrupt, they may not have a clear method for making their case and seeking corrective action. For example, regular BID elections at which ratepayers can vote for decision making seats on the board of directors are not always the norm. As BIDs become older and more prevalent. a number of governance and management issues have surrnced that could be avoided in the future with more careful planning or mid-course corrections.

The oldest BIDs in the United States and Canada have a quarter century of experience behind them. Some of the best known Times Square, the Denver Partnership, the Winnipeg Business Improvement Zone, Philadelphia’s Center City District, and the Downtown Baltimore Partnership—-have passed the five-year point and have been reauthorized. There are about 1,000 BIDs in the United States and Canada, where similar commercial challenges and fiscal arrangements have produced a common phenomenon. That number could easily double in the next 20 years.

Business improvement districts operate in city centers. small towns, and older suburbs; in neighborhoods of large cities; and in large urban areas dominated by nonprofit institutions or manufacturing businesses-all places requiring common services for properties in diverse ownership. BIDs have become so much a part of economic revitalization that their absence in a large business district is increasingly rare.

Enthusiasm for institutional innovation, however, may tend to make some people initially overlook features, such as public accountability, that over tinne may prove troublesome. Indeed, BIDs have several elements that should be approached carefully to assure that their benefits are not lost through hasty planning. Moreover, local authority for BIDs typically is extended for periods of five years, providing a regular opportunity to evaluate BIDs and how they can be improved. There are six potential trouble spots that should be considered in the planning or reauthorization process of a BID: copycat planning, fear of failure, success, political interference, governance, and board functioning.

Copycat Planning

When planning their own BIDs, business leaders may be attracted by one or two elements of an existing BID in another location but they do not take tin1e to analyze whether these out-of-town solutions would apply sufficiently to local conditions to warrant imitating them. Sidewalk cleaning by uniformed personnel is a frequent example. As former Times Square BID director Gretchen Dykstra points out, excessive trash is associated in the public’s mind with disorder. It also can contribute to a fear of urban places. she continues, and encourage potential consumers to stay away.

However, few downtowns have excessive amounts of sidewalk litter at a scale warranting the annual spending of hundreds of thousands of dollars to hire and maintain crews of sweepers and expensive cleaning machines. The Times Square BID spends more than $1.5 million on sanitation services because daytime peak pedestrian counts there reach 6,000 people per hour as well as 1,500 people per hour in the middle of the night. Philadelphia’s top pedestrian counts reach about 3,000 per hour, stilJ enough to warrant round-the-clock sidewalk and curb sweeping. Most cities, however, barely record 500 pedestrians in their peak hours, with almost no daytime pedestrian traffic other than at lunch and during brief commuting periods. As a result, fewer people means fewer food wrappers and cigarette butts. In most locations, an occasional sweep, at a fraction of the cost, would do the job. Nevertheless, some BID planners commit to cleaning the sidewalks and streets far beyond what is required to show that they are doing something, as a kind of wal1ting BID advertisement.

Although BID charges may represent a small cost to area businesses-rarely more than SO.\ 0 to $0.\2 per square foot-the BID’s financial resources are not unlimited. Funds misdirected to relatively minor problems with expensive price tags, like sidewalk litter, can divert funds from more productive investments such as filling stores and offices and attracting customers. BID planners should focus specifically on the needs of their local business areas instead of copying all the services that are offered elsewhere.

Fear of Failure

Most business leaders engaged in a cooperative civic endeavor like a BID planning process turn out to be business followers. The strength of personality of one or two individuals and their attendant optimism and commitment to the BID concept will usually determine the outcome of the BID plan. On the other hand, if those who dominate the planning effort lack enthusiasm, the process can consist of cautious proposals calculated to create the fewest waves, rather than proposals and steps that would make an economic difference to downtowns. [f state laws require a high proportion of property owners to sign affirming petitions in order for BIDs to be approved, this tendency may be exaggerated.

In the blocks where BID support is widespread or can easily be mobilized, effort to gain support will be relatively less needed. The solid support present in an office/hotel subarea, for example, may be missing in adjacent blocks struggling to emerge as a restaurant, entertainment, and specialty retail destination. These two sectors of downtown usually depend on each other. Planning groups led by bullish business leaders may first mount a campaign to sell the BID concept to owners of smaller buildings in the areas, and generally they will succeed. Major property owners typically are more than happy to pay their share of the marketing, safety, and cleaning in an area where their employees and guests eat and shop. As a result, the downtown may emerge with a unified, positive image. In contrast, if business leaders are fearful about making a large effort, the BID may be smaller, less controversial, and less useful.

Another indication of excessive caution in BID planning involves the rate of assessment on commercial properties. In most BID planning sessions, owners quickly calculate the effect of potential assessments on rents and agree on a BID assessment formula that equates to about ten to 20 cents per square foot of commercial space. When BID planning is dominated by fears that the BID will be rejected, however, the tendency is to lowball the assessment without regard for the larger issue of what it will take to produce a substantial economic benefit to the downtown area. This can be a hard mistake to correct since many state laws make it difficult to increase revenues in less than the five-year reauthorization period. Plus, once a rate has been set, it often is difficult politically to raise it, although Baltimore and a few other cities have done so. Such an example of excessive caution in BID planning can place the emphasis on the wrong issue: BIDs rise or fall on the basis of perceived benefits, rather than on marginal costs. Because BID charges constitute a small business cost, selling outcomes is far more important than selling a low assessment rate.

In the crafting of a BID plan, there may be times to trim sails and to cut out potential service areas when there is strong opposition to the proposed district, but these measures should be the last resort. Most BID opposition is based on lack of information and on a suspicion that it is a scheme being promoted by people without an interest in the opposition’s point of view. It is important to involve the interests of all business and property owners, to get input from all quarters of the proposed district, to communicate continually with all locations and economic interests, and to arrange early face-to-face, business-to-business contacts with prospective opponents. These steps can produce a service area that will make sense to the long-term vitality of the district as well as a rate of assessment that will support necessary services.

Measuring Success

Five measurements sometimes applied to test a BID’s success include: reductions in office vacancies and crime rates, and increases in sales tax revenues, hotel occupancies, and pedestrian traffic. While these are good tests of downtown’s overall progress, the BID’s contribution to the first four will be minor and indirect. Former Times Square BID director Dykstra points out, BID uniformed personnel are not crime fighters; crime is the police department’s job. While radio-equipped BID uniformed personnel can shorten police response times, for the most part their role is to provide reassurance, information, and assistance, not to solve crimes. The improved economy will reduce commercial vacancy rates, and crime rates have dropped in almost all cities. On the other hand, given the presence of security/hospitality personnel, the cleaner environment, and various marketing initiatives, BIDs can take some credit for higher pedestrian counts.

Measuring outcomes in BID service areas usually is best done by professional surveys of downtown users~mployees, regional consumers, visitors, and employers. Buffalo Place in Buffalo, New York, for example, regularly invests in regional telephone surveys to test changing attitudes toward the downtown area as a place to shop, to work, to be entertained, and to dine, and has redirected its resources to overcome any reported deficiencies. Philadelphia’s University City District studied its markets and constituent groups in the first year, seeking perspectives on early changes to guide future priorities. While professional telephone surveys can cost upward of $20,000, there are less expensive techniques, such as surveys of office workers at their work site. Such measurements of success and promises of remediation should be confined to conditions over which BIDs have significant influence.

Political Interference

City councils approve and reauthorize BIDs and, in a few states, they approve annual BID budgets. In some states, all members of the BID board of directors must be appointed by the mayor and council. Where BIDs take the form oflocal authorities rather than nonprofit corporations. there may be a greater tendency to assume that BIDs are potential sources of patronage. Some brazen attempts have been made. lbreats of political interference in personnel choices or service contracts are best handled by toughing it out.

Governance

State laws vary on how BIDs are run-some create public authorities, while others permit nonprofit corporations. Most statutes assume that accountability comes through government oversight, which can take the form of officials holding ex officio seats on the BID’s board of directors Cas occurs in New York and New Jersey), the mayor and council appointing the BID’s board of directors (as occurs in Pennsylvania), municipal approval of annual BID budgets (as happens in New Jersey), and so-called “sunset” provisions whereby the Bill requires a new ordinance to continue activities beyond the customary five years. When BID board membership is not controlled by local governments, which is true in about half the cases, state laws generally ignore the question of how boards will be selected. As a matter oflocal choice, filling board seats takes two forms:

• Some board members are elected annually by a BID-defined electorate, typically property owners and business operators. Votes may be weighted by property values and board seats may be allocated by categories (e.g., merchants) to assure representation of diverse interests. Such bylaw issues usually are left to the BID framers. This model–direct election-is a governmental one. The Downtown Washington (D.C.) BID follows this pattern.

• Alternatively, board members are selected to fill vacancies by vote of the existing board (the initial board typically is composed of those who file the incorporation papers). This model resembles the traditional nonprofit corporation, a board-picks-board-members selection system.

When a BID is being planned, little thought generally is given to potential disputes that may arise later. For example, Brooklyn’s Fulton Mall Improvement Association, one of New York City’s oldest BIDs, had a longstanding internal board conflict over what kind of customers the area was seeking. In the beginning, the tone of the BID was set by the department store owners and the pitch was to the middle market and above. Leaders of the area’s discount stores, however, sought a different market and a different allocation of BID marketing funds. After a noisy election, the discounters won and the BID’s resources were redirected.

Those BID boards that are public authorities and those that are nonprofit corporations produce similar programs. Good BIDs come in both forms. Business leaders, however, are more comfortable with nonprofit corporations, although they rarely have a choice (New Jersey authorizes either form). Having to depend on the mayor and council to select board members rarely is papuJar. nor is running into government red tape when BID autonomy is not made clear ;’, the statute. BID organizers should be able to plan a governance structure that uses the nonprofit corporation option. a choice that sometimes requires an amendment to state law. Pennsylvania has incorporated such an option in its BID legislation. as well as broadening the purpose of districts to include service to industrial, residential, and mixed-use areas.

Having established that BIDs can pick their own boards of directors carries with it a responsibility that such nongovernmental organizations be appropriately democratic and that they operate with sufficient government oversight. Local critics say that some of the BID disputes in New York City are traceable to the tendency of Mayor Rudolph Giuliani’s administration to overregulate. In the most celebrated case, however, many charges raised by the city’s BID oversight office, reflected important issues of accountability and were the result of the city government having tllOught through how BIDs should be governed and managed. In addition, BIDs should apply public notice procedures for all meetings, even when not required by law, and should consider adopting ethics rules to avoid any conflicts of interest.

Board Functioning

There are active boards as well as boards that are little more than rubber stamps. The Times Square BID has very active committees and a decision process that reflects considerable invesonent of time and energy on the part of board members. This investroent can be good insurance against the finger pointing that often results when occasional failures are worsened by lack of understandiog and adequate support from board members.

The Downtown Washington (D.C.) BID appeared to have working committees of board members, yet the members reportedly felt out of touch and irritated by meetings that were unproductive. Improvement in both actual and perceived committee performance came along with improved committee staffing. more concise verbal and written reports, and scheduling reforms to allow ample time at meetings for thoughtful discussion by the full board of committee recommendations.

Small BIDs (those with annual revenues ranging from $40,000 to $250,000) typically take on diverse challenges. With limited staff, sometimes only a part-time employee, much of the actual work–as well as the program planning and oversight–can depend on business, and sometimes resident, volunteers. While two or three years of enthusiastic commitment of time by unpaid volunteers who are devoted to the downtown area or to a neighborhood commercial revival is common, a longer period is rare. Both the Lark Street BID in Albany, New York, and the Downtown Millburn (New Jersey) Development Association experienced severe “board burnout;’ especially in the case of customer-attracting special events, the success of which requires many volunteers.

Because small BIDs have a restricted pool of unpaid talent to help get all the jobs done, it is important not to limit committee work to board members-in part to identify future board prospects-and to charge committees with responsibility for recruiting new committee members. Many small BrOs depend to a large degree on resident expertise and energy. But whether residents or commercial people are involved, the key to ensuring continuing participation is being able to point to evidence of a BID’s success. which provides the fuel to attract volunteers.

While the process of planning and organizing BIDs typically takes a long time, it does not necessarily translate into a better foundation or better priorities. Philadelphia’s Center City District, however, invested a year before planning a BID to attract the right corporate leader, one who remained as chairman for more than eight years. Selecting people to be involved is the most important step in BID planning and organization. Given strong. savvy leadership, questions having to do with setting goals and selecting a mix of services to best serve those goals should produce sound decisions. Also, ge tting experts involved in the process, ones who are familiar with many BIDs and who are not ideologically committed to one-model-fits-all planning, can provide essential perspectives.

A tight relationship between a board chairman and a director that renders the balance of the board a mere adjunct may appear to work for a while and can be comfortable for all concerned. Yet, if things go wrong, it is helpful to have many board members who have been directly involved in all major decisions. Members who have helped make decisions can provide reasoned support when appropriate and are less inclined to resign in frustration when things go wrong.

The nonprofit governance formula means BIDs are in law or in practice free of the tension and transparency expected to protect taxpayers from governmental abuses. BID board votes under this system rarely are reported in the media. Few BID rate payers know of board meetings and nonprofit BIDs are not subject to state sunshine laws requiring public notice. State audit requirements, where they exist, are typically vague, not enforced, and widely ignored. Unless a substantial complaint emerges-a crisis that cannot be ignored-the local governments that authorize BIDs ignore them during the five years between reauthorizations.

While the temptation is often great to allow board members to fill all board vacancies, it is probably safer from the standpoint of the BID’s capacity to change with the times to allow rate payers to elect at least some board members directly. Such elections, sometimes viewed as nuisances to BID staffs, nevertheless can constitute an important safety valve and add legitimacy to the board.

BIDs are not immune to the human failings that regularly affect the workings of federal, state, and local governments as well as some non profits. BID board members have been known to vote on issues from which they, or their property, will particularly benefit, or to subvert competitive procurement procedures. While valid or specious charges of mistakes or mischief made by BID board members have been few thus far, there have been sufficient instances to warrant careful attention to the transparency, responsiveness, and accountability of BIDs.

The concern is not that there are yet widespread examples of contract fIXing or payroll padding presently hidden from public view. If more such examples come to light, however, legislative reaction will place excessive restraints on BIDs, making them harder to initiate and limiting their freedom to innovate. It is no small decision for municipal governing bodies to hand off their power to levy assessments to unelected bodies like BID boards. BIDs need to ensure that their decision systems are adequately democratic, open, and responsive, and that issues of eth ics and accountability are considered along with issues of marketing and attracting businesses.

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