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What is a Business Improvement District?

Jun 30, 2020 by Deidre Woollard

Walking through a charming downtown neighborhood, you may have seen pennants on light poles designating the area as a special district. Behind the well-landscaped parklets and the clean streets is often a group of property owners as well as commercial real estate tenants who are working with public organizations in order to promote the area.

What is a Business Improvement District?

Business Improvement Districts (BIDs) are organizations formed by interested parties within a certain geographic area. In most cases, a BID is a public-private partnership involving local businesses as well as elected officials. Businesses contribute to the maintenance of the area, capital improvements, holiday decorations, and community initiatives. These efforts are generally funded through an additional tax levied on property owners in the area. BIDs also can fundraise but the bulk of a BID's funds are generally raised through assessments that are calculated based on the building's square footage and value.

"By law, the BID assessment goes to property owners. Property owners may pass that along to tenants based upon the terms of the leases they have with the tenants, much the same way that commercial real estate taxes are passed along, " said Matthew Bauer, President of the Madison Avenue Business Improvement District in New York City.

The assessment creates a reliable source of funding that can be tapped for a variety of projects. Because a BID is private and public, it's safe from state or city budget cuts. This may give a BID district an extra way to keep the appearance of the area consistently attractive for residents and visitors.

There are thousands of BID programs around the world. In the U.S., they exist in small towns as well as large cities, including New York and Los Angeles, which each have dozens of BIDs. A BID can be similar in scope to a merchant's association, which is usually a voluntary organization. BIDs vary in their size, scope, and influence. Most are overseen by a board of directors who are elected by the BID.

The board of directors generally includes both owners of properties as well as public officials. In the case of the Madison Avenue BID, the Board of Directors are property owners, but members include commercial and residential tenants as well as local officials.

What does a BID do?

A BID can provide a variety of services that supplement what the city provides. These can include:

  • Removal of litter and garbage.
  • Maintaining parks and public spaces.
  • Adding signage that promotes the area.
  • Developing capital improvements such as updating lighting
  • Changes to streets and the creation of pedestrian zones
  • Additional security
  • Implementing programs designed to reduce vandalism and crime
  • Creating local festivals and fairs

In some areas, BIDs may also wield political influence, attending town meetings, and lobbying local government officials. The BID may also advocate for zoning updates or for new projects such as public parks. The success of a business improvement district often depends on how active the BID board is in local politics and how engaged the members are in developing programs that will benefit local businesses.

Will a BID improve your bottom line?

You may not have a choice on whether or not to join a BID depending on the rules of your area. Generally, once a BID has been proposed and approved, becoming part of it is not optional. Because of the value of BIDs, many neighborhoods without one may seek to form one. If there isn't one in the neighborhood where your property is located, you can create one. The process varies by area but generally involves meeting with local politicians and petitioning the city. The creation of a BID must be supported by the bulk of the property owners in the area.

Critics of BIDs say that they promote gentrification and the homogeneity of a neighborhood. There is also a concern that the assessments can squeeze out small businesses and independent tenants.

Pros Cons
Help preserve the value of a property Regular assessments required
Gives you more insight into how government policies impact your business Attending meetings can be time-consuming
Opportunity to work with other owners to improve the area You may not have control over how your assessment money is spent
Can bring more foot traffic to local businesses Gentrification can lead to higher rents

The Millionacres bottom line

BIDs can help property owners work together to maintain the value of an area. While they represent an additional cost in both money and time, a BID can be worth the expense because it helps preserve property prices and brings more attention to local businesses.

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