11. Voluntary Service Districts are Useful but They Lack Equity and Reliability

In downtowns where efforts to improve the urban environment and create marketing systems that benefit business areas are volunteer-funded, perhaps 15 percent of stakeholders typically do all the work and contribute all the funds. With the passage of time, even these resources usually shrink.

Moreover, the freeloaders – the majority of non-contributing businesses benefiting from the work and funds of the few – typically aggravate the willing, adding a discordant note to cooperative planning. In addition to the lack of equity, voluntary financing of downtown organizations rarely produces sufficient funding, nor does it provide reliable, multiyear revenues.

Voluntary fund-raising is a major time cost to the small staffs of Main Street programs, for example. While Main Street projects have for the most part been successful in the communities where they’ve been applied, there are repeated stories of ones that have shrunk or ended as voluntary resources for operations shrink or stop.

To overcome these inherent limitations of voluntary commitments to improve and market business areas, business improvement districts (BIDs) are inclusive, compulsory, and multiyear. All those with common economic interests are part of the economic solution, and every benefiting business or property is responsible for its share of common costs, paying a mandatory tax or assessment.

Still, hundreds of volunteer- driven downtown organizations, which we shall refer to as voluntary special services districts, exist in North America and abroad, and they have limited utility if applied cautiously.

Phased-in BID eases shift from fledgling voluntary district

Spearheaded by a state authority, features of a public-private redevelopment project along the riverfront of Wilmington, DE (pop. 72,660), include a minor league baseball stadium, theatres, offices, an Amtrak station, and a retail development site.

The Riverfront Development Corp. of Delaware contracted with a firm experienced in all these elements to guide formation of a BID (the Riverfront Wilmington Improvement District) that would assure safe and clean services and marketing. The arrangement worked out initially used the concept of multiyear voluntary agreements to get the services off to a fast start, even before all the public improvements and much of the private investment occurred.

The city ordinance specified an assessment on taxable property, and the business plan provided that the voluntary contributions would decline as property values and assessments increased. The arrangement worked well – the place looks and feels great.

The multiyear voluntary agreements that enabled the Wilmington waterfront organization to produce cleaning, security-hospitality, and marketing before the major property taxpayers were in place provides a good model. The waterfront park and parking lots are well maintained, fear-free, and well promoted, long before the riverfront’s for-profit commercial development has been completed.

Further, the BID financing formula adopted by the sponsoring public and private entities was in place at known costs and obvious benefits well before possibly skeptical business owners made decisions to locate there. No potential investor had to guess what the benefits or the costs would be. The shift to primarily compulsory financing has proceeded without pause, confusion, or interruption of services.

Better to shift from free to fee sooner than later

Rather than the first resource, voluntary funding should be the last resource. If voluntary funding is chosen at the outset, plans for a compulsory charge should be part of the organization’s initial planning. Waiting until the program faces reduced voluntary funding is a dangerous bit of procrastination. While voluntary special services district planners often optimistically anticipate grants to augment contributions, almost no foundation or government agency will pay for multiyear operating costs.

Postponing a BID until late in the game runs the risk of reduced or no services if the potential assessees don’t entirely share the sponsors’ service vision or enthusiasm for its financial support. In some cases, this Micawberish, something-may-turn-up strategy probably reflects an unwillingness to face the challenge of convincing potential beneficiaries that they should pay for programs designed by professionals who will not pay the charges.

The situation is not unlike one experienced in Canada, when a provincial authority offered matching funds to encourage adoption of a compulsory charge. A subsequent provincial government, however, ended the subsidy, and many BIDs ended with it.

Voluntary funding has some potential benefits, principally providing supplemental or temporary resources. Long-term reliance on voluntary funding, however, should be recognized for its limitations.

Without voluntary, multiyear agreements, voluntary funding rarely produces reliable multiyear revenues. Nor does it typically produce as much revenue per year as would be the case when cost sharing is inclusive and compulsory.

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