Wednesday, March 26, 2014

Beyond the Assessment: The Top 5 Alternative Funding sources for Business Improvement Districts

Business Improvements Districts (BIDs) provide valuable, stable funding  for commercial district management activities. Yet one critical, and often overlooked, BID function is the ability to raise additional funds beyond the assessment.  BIDs are effective at leveraging funds in part because the members of a BID – property owners, merchants and in some cases residents – make for a powerful and vocal constituency.
While the degree to which BIDs raise outside funds is very inconsistent (there are  BIDs both small and large that do not have alternative revenue streams) many do successfully find ways to raise additional money. Here is a quick overview of BID revenue streams, based on my experience with New York BIDs, with some suggestions for potential benchmarks for organizations both large and small.   

  1. Assessment: No discussion of BID revenue is complete with mentioning the assessment itself. The special assessment is what makes a BID a BID. Assessments for BIDs are mandatory contributions that property owners must make to the organization, or face penalties or even leans on their properties. These assessments are typically collected by a public agency (although Pennsylvania is at least one exception - there BIDs are responsible for collecting their own assessment) and redistributed back to the BID. State enabling legislation is required to form a BID, but once legislation has been passed, the assessment is assured. For most BIDs, the assessment typically makes up between 75% - 95% of a BID’s budget.
  2. Grants/Contributions: BIDs are non-profit organizations and can therefore apply for grant funding and solicit tax deductible contributions. Because of this, grants and contributions are another popular revenue stream. Bryant Park and the Time Square Alliance – both BIDs with budgets between $1 million and $5 million annually, raise nearly 20% of their budgets from grants and contributions. Smaller organizations (in New York) within CDBG-eligible areas often apply for city grant monies through a program known as Avenue NYC. These grants are typically between $5k and $40k. In some cases, federal or state funding can be secured through local political leaders. In the case of Sunset Park, Brooklyn, the local Congresswoman was able to contribute $180k in funding over a two year period to the program. 
  3. Fundraising/Special Events: Even very small organizations can raise money from special events. A successful BID can aim to raise between 10 – 15% of its annual budget from special events, or anywhere from $5k to $30k or more. Much larger BIDs, those with budgets between $1 million and $5 million, often have substantial additional resources coming from fundraising and special events. Two of New York’s largest BIDs, 34th Street Partnership and Bryant Park regularly raise between $1 – 2 million annually. Although to be fair, Bryant Park is able to host such storied events as Fashion Week – so it is admittedly a bit of an outlier.
  4. Investment Income:  Although investment income (interest on savings) is negligible, especially with interest rates so low,  interest income can make up to 1% of the annual budget.
  5. Special Contracts: In some cases, BIDs contract with outside entities to manage or run additional programs or facilities. One example is parking. Some BID’s have established relationships with local parking authorities and manage parking lots in return for the lot's revenue. And in some cases, the revenue is substantial. In the case of the Lower East Side BID, for instance, parking lot operations made up nearly 50% of the BIDs 2011 budget.     
These are the largest revenue streams for BIDs in New York - but we'd love to hear more about BIDs in other cities and states. Raising revenue is a challenge for all of us - and good ideas are great to share!




5 comments:

  1. Larisa,

    Great blog posting, as per usual. Our BID uses all 5 sources that you mentioned (although - as you pointed out - investment income is negligible) but are strategically focusing on ways to grow the special contracts revenue stream. We do not manage parking in downtown Anchorage, but do provide a number of supplemental contract services that are built on existing skillsets and equipment, i.e. additional maintenance contracts or security contracts.

    Keep up the great posts.

    - Chris

    ReplyDelete
  2. We have had some success leveraging our infrastructure and abilities to perform some tasks on a fee per service basis. You have to be careful to not charge for things that you should be doing in the ordinary course of business, and it's a small stream, but it is something for BIDs to look at - what can you do that others will pay for?

    ReplyDelete
  3. Chris - I think the fee for service option (that Isaac also mentioned) is a real opportunity. If you have the skills and expertise in house, why not charge for it. You just have to be careful that you document that BID funds are not going to pay for services outside of the BID boundaries (which is a common requirement of BID enabling legislation).

    ReplyDelete
  4. Some BIDs issue municipal bonds. While not "free" cash, in that they have to pay interest to bondholders, it does provide a large up front infusion of cash, which if invested in strategic capital projects, can yield larger returns to the BID.

    ReplyDelete
  5. mainly I read all blogs, it is my habit to collect information where ever I can, today I caught your nice blog and it is written to much owesome. Really I very appreciate it.
    commodity tips

    ReplyDelete