Urban/Commercial Revitalization: What’s the BID Deal?

Special districts for financing of public amenities for everything from mosquito abatement to sewer improvements to schools have been a long-time fixture in California. Increasingly, the private sector is turning to this public sector assessment mechanism, specifically Business Improvement Districts (BID), for the planning and management of services in urban commercial areas. 

Well established in many East Coast cities, BIDs are experiencing a new wave of interest in California, particularly in the city of Los Angeles, where BIDs are being proposed or considered for Hollywood Blvd., Little Tokyo, Westwood, the Garment District, Canoga Park, Reseda and beyond. 

In the 1960s, in response to greater suburbanization and an increase in regional shopping malls which posed greater competition with downtown retailers, state legislation allowing cities to establish BIDs passed in 1965. Smaller cities and towns have been more active in forming BIDs to help revitalize downtown commercial areas and remain competitive with regional malls, but the Los Angeles region hasn't, until recently, explored the formation of BIDs in commercial and downtown areas. 

A Case Study: L.A. City's First BID

What was originally a Community Redevelopment Agency program to provide a new streetscape and other public improvements, Miracle on Broadway, the umbrella organization for Broadway district merchants, was recently approved by the City Council as Los Angeles' first BID. According to Executive Director Estella Lopez, "With the BID in place, Los Angeles' oldest retail hub can now be a leader in this new era of neighborhood revitalization. Furthermore, it's not City Hall, but the community that will be deciding the priorities and stretching the dollars." With a budget of $500,000, Miracle on Broadway plans to focus on cleaning the downtown retail district from 2nd Street to 9th Street, improving public safety and increasing public improvements. A security agreement is currently being negotiated with the Los Angeles Police Department, and event promotions are being planned. 

"In order to compete with emerging retail centers in Huntington Park and other areas, we had to do something to stay competitive and make our shopping district a place where people feel comfortable and want to bring their family for a day of shopping. The BID will allow us to do that," said Lopez. 

The Broadway BID assessment is based on gross receipts of business licenses with the average assessment coming in around $600. Small retail stores will pay an assessment of about $200 per year while jewelry shops and restaurants could pay upwards of $7,000. 

Malls Without Walls: Santa Monica/Long Beach 

According to Tom Carroll, founding executive director of the successful Third Street Promenade BID in Santa Monica, and current director of the Westwood Village Management District, "In California, if you want to have successful commercial/retail development you need to have either a shopping center or a managed community center like Santa Monica, Old Town Pasadena or Westwood. Basically, the BID movement is to the 21st century what Chambers of Commerce were to the 20th century." 

Carroll also points out that BIDs provide an equitable funding stream for community improvements that is much more effective than the general voluntary association method of asking for membership dues or contributions. ''When you have a $1 million program with 1,200 businesses, like we'll have in Westwood, you are going to attract the necessary community leadership and expertise for a successful program." 

One of the oldest BIDs in Southern California is the Downtown Long Beach Associates (DLBA), formed in 1972 to revitalize downtown retail and commercial activity. Manny Jones, executive director for DLBA comments, "In order to have a successful BID in 1994, you need to have a specific area, a central focus to make the program work. If you try to do too much, some business owners don't feel like they are part of the process." 

Often an additional benefit of BIDs is increased political clout at City Hall. An organized community often has considerable sway over policy decisions and allocation of resources, as well as an ability to effectively communicate problems in the area. When business owners have a problem, they can contact their BID executive director, who is familiar with the workings of city government to find the proper solution. In that sense, the BID functions like a quasi-government City Council office, providing the kind of in-depth constituent services that most local governments can't afford.

Forming a BID

Whether they are called Special Assessment Districts, Business Assessment Districts or Business Improvement Districts - depending on the state laws that authorize them, BIDs have several key elements in common. The initiative for forming the BID usually comes from business leaders who seek common services beyond those that the city can provide. 

The city council has general oversight during the formation of the BID to aid in determining boundaries, approving the annual budget and developing the finance strategy, and determining what services may be provided; while community leaders shape the annual budget, hire staff, let contracts and generally oversee operations. 

Lee Strong, principal with Downtown Focus, a BID consulting firm that has developed many of the currently proposed Los Angeles BIDs, as well as numerous BIDs statewide, notes that the business community must organize themselves in order to form a BID. "It has to be a real grass roots effort on the part of the community. The first step is to form a committee that is truly representative. The community needs to find some consensus on the assessment formula and proposed programs before they can go before the City Council." 

If there is enough community support, the formal BID process begins with a resolution of intent before the City Council. Next, a copy of the BID proposal and resolution is sent to all affected businesses, and two public hearings are conducted. Obviously, a high level of BID support is desired for City Council approval, and the proposal can be blocked if business owners representing 51 percent or more of the total assessments to be collected vote against the project 

After California's landmark Prop. 13 in 1978, the approval process for establishing a new tax became quite different, requiring two-thirds voter approval for a new tax versus a 51 percent majority protest for an assessment. As a result, State BID law was modified in 1978 and again in 1989 to stipulate that a BID fee is a benefit assessment and not a tax. 

Funding BIDs: Who Pays? How Much? 

One of the most unique features and perhaps one of its most attractive qualities, is the fact that BIDs can be funded by innumerable combinations of assessment formulas. BID formulas can be funded through a flat fee increase on a business tax, a percentage of gross receipts or a square foot formula. In Denver, Colorado, the Downtown Denver Business Improvement District funds are covered by an unusual assessment formula, by which fees decrease according to distance from the City's popular 16th Street transit-pedestrian mall. 

The idea behind BIDs is that just as tenants in regional malls pay common area fees for promotions, improvements and other common amenities, the creation of a BID can enhance a commercial district, providing many of the same services as regional malls, and enhancing neighborhood revitalizations by assessing businesses for "common" area amenities and services. More importantly, as local governments find it harder to fund increases in public services demanded in these often high-density areas, BIDs play an ever more important role in providing beefed up public safety through security patrols or actual funding for additional police officers, as well as improved sanitation services such as street cleaning and increased garbage removal. 

Once the BID is in place, benefit assessments are levied and collected by the city, usually on an annual basis and often in conjunction with the collection of business license taxes. Interesting to note, is that one ancillary benefit of collecting BID assessments from business licenses is that often the city identifies business without proper licenses and thus, raises additional revenues. For example, during the planning phase of the Broadway BID, the City Attorney's Office discovered more than 500 unlicensed businesses, netting City Hall over $43,000 annually. 

Limitations on BIDs 

With very little experience in the formal processing and operation of BIDs, the City of Los Angeles is looking to develop more formal guidelines for the BID approval process that ensures business owners and merchants are well aware of the costs and benefits associated with BIDs. According to Paul Smith, Legislative Analyst with the City of Los Angeles, "We have some concerns that a merchant group or association might bring a BID application before the City without really doing their homework. We want to make sure that there has been an inclusive process that reflects the needs of the community." 

Take the case of the recently failed BID proposal for downtown San Pedro. The proposal was brought forward by the San Pedro Revitalization Corporation with support from the San Pedro Chamber of Commerce as an attempt to remain competitive with local malls. Due to poor outreach efforts, including an incomplete list of business tax licenses by the City Clerk's office, the proposal was attacked by a group of area merchants who opposed the BID as a city-sponsored "tax and spend" measure. The proposal was rejected before the City Council with businesses representing 52 percent of the BID assessment voting against the project. 

Legislative Analyst Smith also commented that while some commercial areas might have similar problems, such as public safety, or a need for public improvements and marketing, there is a concern that just spending the money on various programs without any effective oversight might not produce the expected results. "We need a way to quantify the results, to see if the BID programs are being effective. Presently, there is no such mechanism." 

Finally, Assembly Bill 3754 by Assemblyman Louis Caldera (D-Los Angeles), is scheduled to be heard on the floor of the State Senate after the summer recess, and would expand the use of BIDs to enable property owners (not just merchants and businesses owners) to form their own BID associations. According to Jim Gelb, Chief of Staff for Assemblyman Caldera, "We think BIDs can be an important additional tool for revitalization of downtowns and other urban areas in the State. 

Although many have concerns that Business Improvement Districts are just another example of the increase in the privatization of public space, with well over l,000 BIDs in North America, they are reemerging in the Los Angeles and the Southern California region as an important tool in the revitalization of many downtown commercial areas.