Monday, June 17, 2013

Debunking the Arguments against Business Improvement Districts

Can you imagine the owner of a regional mall forgoing maintenance and improvements to common areas? With so many shopping options available to customers, shopping center owners know that keeping up with customer expectations requires a steady and on-going investment in public and communal spaces. Ignoring the impact that these spaces have on the customer experience is one of the quickest ways to lose customers and ultimately tenants. There is a reason why shopping centers charge Common Area Maintenance (CAM) fees to tenants. The funding stream allows the shopping center owner to address maintenance on behalf of their tenants - who benefit from happy customers and more foot traffic. CAM charges typically go towards a mix of security, maintenance, promotion and marketing, although some shopping center owners keep a separate Marketing Fund that is managed directly by the merchants.
Successful commercial districts often
require a higher level of maintenance
than is offered by local government entities. 

You've probably figured out where I'm going with this. BIDs are the traditional commercial district version of CAM charges. When BIDs work well, they are a tremendous asset to businesses, property owners and residents. Yet BID critics continue to suggest that downtown's don't need BID services and they can do just fine without them, thank you very much.

The typical arguments that many critics use often reflect a libertarian world view that casts aspersions on cooperative public-private partnerships. Yet we've been down this road before. When independent actors act rationally according to their own self-interest, the outcome is not always in everyone's best interest. The attitude that "someone else" will pay often means no one does - or that those who do bear an unfair burden that should be shared among all beneficiaries. The origin of Business Improvement Districts is based on the premise that shared responsibility through an obligatory contribution to a shared fund is required to prevent free loaders.

SHOULDN'T THE PUBLIC SECTOR PAY FOR THESE SERVICES? Let's look at the Shopping Center example again. Shopping Center owners pay taxes like any other property owner, yet they also require their tenants to pay CAM charges. In most cases those tenants do so because they understand that the additional services they get are what makes their shopping center an attractive and safe place for shoppers.  And ultimately, more shoppers translates into more sales. The idea is that the increased sales pay for themselves, and then some. CAM charges are an investment that should generate a return to the investor, in this case the tenant.

Another issue at play here is that in some communities, governments struggle to provide even the most basic of services. And even when they do provide those services, they might not be robust enough to meet the needs of a successful commercial district. Consider a local government that  picks up trash daily. For a community blessed with high visitation, even daily trash pick up may not be enough. Regularly - and even hourly - litter removal may be required to ensure that customers have a high quality experience. Businesses may not want to take the risk that the City's basic services will not meet the needs of their districts - and they want to pay a little extra for the services that will ensure that customers have a pleasant shopping experience and ultimately return for more.
The ability to control funds at the hyper-local level has its benefits. With local control comes  more flexibility in resource allocation from the exact people who know local conditions and can respond more quickly to issues and concerns.

Quite the contrary. BIDs offer a more direct form of control over the distribution and use of resources than regular tax levy dollars. Consider that a typical City budget is allocated based on the input of many elected officials. Those elected officials are often beholden to constituencies outside of the downtown that vote them into (and out of) office. This can become a challenge to ensuring that downtown districts get the resources they need to remain competitive. One community I worked in was an extreme example of this competition for public resources. Since local business owners did not vote (or contribute) to local elected officials, their was little incentive on behalf of public officials to fix the underlying tax system - which overtly overtaxed commercial properties in an effort to keep residential taxes artificially deflated. One by one businesses were moving out of the community to nearby areas, further undermining the tax base. If these businesses had a way to control their own resources - enabling much needed aesthetic enhancements, advocacy, as well as marketing and promotion, the business environment might have resulted in higher profits and caused them to stay put.

One could argue that a BID assessment takes away from the bottom line and therefor hurts business profitability. But then those are probably the same people who refuse to invest in their buildings and businesses in the first place. As the old adage goes, "it takes money to make money." Maintaining public space is not a luxury - it is an important asset management tool that if left neglected will  undermine the viability of a commercial area. Sophisticated property and business owners know this. That is why they are often the ones spearheading efforts to develop Improvement Districts. Ultimately, these property owners know that the Improvement District will give them a mechanism that creates the administrative capacity and the required funding stream to manage and improve the public experience. The efforts spearheaded by BIDs may differ by place, but they typically include the enhanced maintenance of streets, sidewalks, public parking lots, etc. that make a place a compelling place to visit and shop.

CAN'T THIS MONEY BE RAISED THROUGH FUNDRAISING OR THROUGH VOLUNTARY METHODS? In some communities, voluntary efforts are enough, but in others, a steady and consistent investment is required to maintain and manage common area elements and district amenities. It should also be stated that BIDs typically do fundraise for downtown through everything from events to sponsorship. It is more common than not to see BIDs leverage funds that would not otherwise have been invested in downtown. But the biggest benefit of a BID is that it offers a steady and regular flow of funds that allows for the hiring of professional staff. If I have learned anything over the years it is that the success of a BID is directly correlated to the expertise of its staff. And let's be honest, if a BID manager had to spend all of his or her time raising money, the tasks of marketing, promotion and general management would be significantly more difficult, reducing the impact of BID outcomes - the exact opposite of what any contributor wants to see!

While the answer to this question is not the same in every community - the fact is that effective BIDs actually leverage more investment than a community might receive without a BID. Consider my friend and colleague Ralph DiBart, Executive Director of the New Rochelle Business Improvement District, a bedroom suburb just outside New York City. He has spearheaded numerous grant proposals to the State that have resulted in nearly $1 million dollars of storefront, streetscape and development grants (not loans!) from the State of New York over his tenure as Executive Director. Without a dedicated staff person focused squarely on downtown, these funds would not have been secured and the downtown would not be seeing the benefit of this incredible investment.

Are BID's the panacea for every urban ill? Of course not. But used correctly and in the right context they are a powerful tool for successful economic development.