By Melanee Cottrill, Civitas
The year was 1989. Business improvement districts were a new concept just starting to spread around the United States, having originated in New York in the late 1970’s. In California, a new state law allowed cities to take the first steps into a brave new world populated with BIDs.
In 1994, a second state BID law built upon the 1989 law’s foundation, ushering in a wave of new, specialized districts. Today, our brave new world includes more than 250 BIDs of various types throughout the state, all working to make California an even better place to live, work, and play.
Many of the state’s original 1989 law districts remain in place today – indeed, a great number of our readers are funded by them. In recent years, however, we have seen more and more districts converting to the 1994 law.
Why is that, you ask? Well…
Stability
Under the 1989 law, a district must be renewed every… single… year.
In other words, every year a publicly noticed City Council hearing is required to continue the district. Every year, the City Council, that one random naysayer-citizen who attends every council meeting, the advisory board, the payors, and anyone else who is paying attention consider whether the district should continue. Maybe it will – indeed, many districts have gone on this way for years – but there is an annual chance that it won’t. The annual renewal also creates an annual possibility that funds will be re-directed elsewhere, which has been seen in several locations (consider, for example a city diverting $160,000 of BID money to hire a new city staff member, under threat of non-renewal).
Legal Challenges
Along with an annual renewal comes an annual opportunity to be sued! Every renewal opens a 30-day window in which an opponent can file a lawsuit. In one city, an opponent has filed a lawsuit every year for the past three years – keeping districts embroiled in a constant stream of legal paperwork, depositions, record production, and court dates…essentially everything except the services they were created to implement.
Meanwhile, 1994 law districts only have a 30-day lawsuit window every five or ten years, letting them remain focused on the bottom line – providing services.
Payor Involvement
Under the 1989 law, payors have limited involvement in the district. The city council has the ability to form, renew, and dissolve the district at its discretion. And the city retains ultimate control over expenditures – but appoints an advisory board, which may or may not include payors, to make suggestions as to how to spend the funds. In some 1989 law districts the advisory board has been translated into a nonprofit managing funds and implementing programs. On the opposite end of the spectrum, some BIDs are entirely managed by city staff, with minimal advice from payors that may or may not be heeded.
In contrast, the 1994 law requires a petition by payors to form and renew the district. It also allows for designation of a nonprofit owners association to manage funds. At least a majority of the nonprofit’s board are usually payors, often times the entire board is payors. The greater involvement from payors helps ensure the programs are appropriately benefitting those who pay the assessment, meeting legal benefit requirements.
The Bottom Line
Many 1989 law districts go on for years with no issues. Others do not. Some had no issue, but have been modernized to enjoy the greater stability of a 1994 law district. The conversion process also provides an opportunity to re-visit district parameters – perhaps increasing the assessment rate or growing the boundaries.
