New City America

GENERAL QUESTIONS AND ANSWERS REGARDING THE STATE OF CALIFORNIA PROPERTY BUSINESS IMPROVEMENT DISTRICT LEGISLATION

Prepared by Marco Li Mandri, New City America, Inc.
The California Property Business Improvement District Legislation that was adopted in 1994, and has been amended twice since its passage, is part of the California Streets and Highway Code, Section 36600. Since its adoption, PBIDs have been embraced as critical tools to expedite revitalization of commercial areas and have been successfully adopted throughout the State of California. This paper represents a brief outline on what services can be funded by, the formation process and limits to the State of California PBID law. The following represents general questions and answers that potential applicant groups may have regarding the formation or renewal of a Property Business Improvement District, (PBID), in the City of State of California…..

What is a State of California Property Business Improvement District?

In brief, the PBID is the state enabling legislation that allows for the creation of a special benefits district. Special benefit districts are defined in Article XIII (d) of the state constitution and are considered to be “property assessment districts”. The district functions to create a stable revenue source to fund special benefits, managed by a non-profit corporation of stakeholders, consistent with a “Management District Plan”, that is required by the legislation. Once there is a successful weighted supportive vote of the benefiting property owners during a public hearing process, the balloting is followed by the adoption of an ordinance by the local government. The ordinance provides for the annual levy of assessments on parcels, to fund the special benefits desired by benefiting property owners.

In order to establish the district, the local entity (City Council, Board of Supervisors), must hold a public hearing and distribute mail ballots in order to gauge the level of support of the weighted property owners in the district. Article XIII, Section D of the California State Constitution, governs the procedures for public hearing notification.

Similar districts are sometimes called Business Improvement Districts, Maintenance Districts, Community Benefit District, or Special Assessment Districts. In State of California, the PBID can be enacted in any city, whether general law or charter. However many cities, including San Diego, Los Angeles, San Francisco, Oakland, Berkeley and Alameda, have adopted their own enabling legislation based upon their Charter City powers.

The concept is to coordinate district responses to problems in the public rights of way, managed by a community based non-profit management corporation that is funded by the assessment district revenues.

Why would anyone want to pay more money, isn’t the City supposed to be providing these services?

Cities in the U.S. tax their citizens through a number of means, (property taxes, sales taxes, hotel taxes, enterprise taxes, special revenues), and allocate them to deliver general benefit services. These services are evolving historically but normally include police, fire, transportation, sewer, water, planning and zoning, streets, lighting, social and cultural affairs, environmental issues, trash and refuse, housing, etc. These services do not and cannot respond to the special needs of a given Downtown or business district.

To respond to those special needs, including sidewalk sweeping, steam cleaning, rapid removal of bulky items and graffiti, responding to illegal encampments, additional security, installation of order, states and localities have adopted special enabling legislation which allows motivated property owners to pay assessments to fund special benefit services. These special benefit assessments are probably the most efficient and effective funds to be paid since they must stay in the district, by law, and are managed by a locally based non-profit corporation made up of those being assessed.

At a time of huge local, state and national budget deficits, it is expected that general services will, in fact, be reduced. These assessments can provide the services each and every business district and Downtown stakeholder wants, but will not be funded by the City.

At a time of huge local, state and national budget deficits, it is expected that general services will, in fact, be reduced. These assessments can provide the services each and every business district and Downtown stakeholder wants, but will not be funded by the City.

What “special benefits” can the district fund?

The special services to be funded are spelled out in the enabling Legislation. They can only legally include those services over and above what a City will normally provide through the general fund. Such special benefit services may include:

Cleaning of the public rights of way, sidewalks and gutter (general vs. special benefit);
Steam cleaning of the sidewalks of the district;
Removal of trash and bulky material;
Security services over and above the services of the local police force;
Parking services or transportation related services;
Economic development;
Special lighting;
Business attraction and retention and structuring a proper commercial mix;
Planning, zoning and land use issues;
Graffiti removal;
Advocacy;
Administration and advocacy on behalf of business districts or neighborhoods
Beautification and decorations;
Tree maintenance, planting, watering, etc;
Marketing and promotion (in business districts only);
Special community or neighborhood fairs, festivals or events;
Can the City replace its general benefit services in that district once the special benefits district is formed?

By law, (Article XIII(d) of the state constitution), property assessment districts can only fund special, not general benefits. General benefits are those allocated to all parcels in the City and funded out of public or general fund revenues. Cities throughout the state normally adopt “baseline services agreements”, that require the City not to withdraw services once the special benefits district has been formed.
Experience has shown that once the assessment district has been formed, the private property owners in the district can normally leverage a greater amount of general benefit City services than before the establishment of the district. This is due to the fact that those property owners are now organized and can request things such as trees and the PBID assessment revenues can maintain additional trash cans, with the understanding that these capital improvements are funded by the City.

What allows the district to be formed and how is it done?

The district is normally initiated by a group of motivated property owners within a given community or district. Experience tells us that a core of property owners representing at least 10 – 15% of the potential assessment weight of the district, is necessary to initiate the investigation. This group will then approach the relevant City department or office to get information related to formation and the function of the special benefit services district or PBID.

A PBID Steering Committee will be formed among various interested parties, including the “weighted property owners” of the potential district. The PBID Steering Committee will meet and determine initial study boundaries and then conduct a study analyzing the level of support for formation of a PBID/Special Benefits district in the target area.

Experience has demonstrated that if at least 20 – 25% of the weighted property owners express support for the concept of the PBID, the Steering Committee will then enter into the formation stage of the PBID. The formation stage includes the following:

The Steering Committee is expanded to include all interested parties, with particular emphasis on the supportive, weighted property owners. State law mandates that property assessment districts can only be formed by an assessment ballot proceeding supported by the majority of weighted property owners within a given district. The weight of a property owner is not determined by the assessed valuation of the property, but rather by the amount that property owner will contribute to the overall budget of the district. There are times when a few major property owners represent a significant amount of weight in the district. Early knowledge of their support or opposition to the district’s formation is critical in the successful formation of the district.

The Steering Committee endorses a PBID Management District Plan for the area. The plan outlines the special benefit services to be funded, the term of the district, the boundaries, the assessment methodology which identifies for formula for determining the costs to each property owner, benefit zones if any, special provisions for discounted assessments, as well as the management structure of the district;

Once the PBID Management District Plan has been approved by consensus of the Steering Committee, a petition is circulated which demonstrates support of a minimum of 50% of the property owners, by weight. For example, if the annual first year budget is $150,000 for a PBID, petitions endorsing the PBID must be signed by $75,000 worth of assessments in the proposed district. Once the 50% weighted threshold has been reach, the petitions are then submitted to the appropriate City Department for processing.

The appropriate City office will then docket a “Resolution of Intent” for consideration by the local governing body. According to the State Constitution, property owners must be allowed to vote on the formation of the district through an “assessment ballot proceeding”/public hearing process. By adopting the Resolution, the Board is instructing the City or County to mail out the ballots to every affected property owner. The property owners have between 45-60 days in which to return the mail ballots. The mail ballots must be returned by the conclusion of the public hearing;

At the conclusion of public testimony at the public hearing, the Elections Department will then count the returned ballots and separate those in support and those in opposition. If the weighted returned ballots in support exceed those returned in opposition, the local governing body can then adopt an ordinance that levies the assessments on the benefiting parcels. The City then informs the County to levy the assessments on the parcels, as per the Management District plan, for the upcoming cycle of property tax bills.

The assessments will appear as a line item on the County property tax bills and will be separated and sent to City for processing. Once an account has been established and a contract is in place with the designated or new non-profit management corporation, the PBID assessments will be transferred from the City to the non-profit organization for management of the delivery of special benefit services to the PBID.

How long does this process take?

The process can take as little as 6 months or as long as 2 – 3 years. What is most important is that the affected community understands the proposal and the boundaries are set around a weighted majority who desire the services to be funded by the district.

Can the district be formed any time during the year?

Yes, however it is best to coordinate the formation process so the public hearing is completed by the end of July each year. This is suggested so there is not such a long delay in approving the district and receiving the revenues from the first property tax bills in December. The sponsoring organization may also work with the local governing body to allow the new PBID Management Corporation, even though the PBID is formed out of cycle, to approach a local financial institution to provide for a line of credit. This line of credit, secured by the PBID assessments, will allow the district to begin services prior to the tax collection cycle.

How are the PBID assessments collected?

As provided by the Legislation, the PBID assessments will appear as a separate line item on the annual property tax bills prepared by the County. Most property tax bills are distributed in the Fall and payment is expected by lump sum or in two installments. The County normally distributes the assessments collected from the PBID, to the City who will in turn then forward them to the designated Management Corporation, pursuant to the authorization of the plan. Existing laws for enforcement and appeal of property taxes apply to the PBID assessments.

Is there a minimum amount that should be generated by the district?

Though there is no legal requirement for assessment revenue generation, practice tells us that a minimum of $150,000 in a business district and $75,000 in a neighborhood should be generated in order to make an impact. The idea of the district is to have the special services make an impact on the problems that the district may face. It is important that the district has adequate revenues to fund the special benefit services that gave rise to the concept of an enhanced services district in the first place.

Once established, must every parcel in the district pay?

Unless specifically mentioned in the plan, every single parcel owner must pay into the district. This includes local, county, state and federal properties. In addition, parcels owned by tax-exempt designated organizations may be exempt from paying property taxes but will not necessarily be exempted from the assessment district. The only way to be exempted is to demonstrate by clear and convincing evidence, that no benefit will be received from the special benefit services funded by the district. The City, as a property owner, may sign petitions, vote in favor and pay into the respective PBID.

How long can the district last once established?

In State of California, the PBID Legislation allows for a maximum life of 5 years. Upon renewal, a district may be established for a maximum of 10 years. The district can be formed for any amount of time, not to exceed the maximum term. Once the district is completed, the provisions for establishment are repeated in order to continue to fund special benefit services.

How could a district be disestablished if it is not functioning as envisioned?

Legislation provides for the disestablishment of the PBID pursuant to an annual review process. Each year that the district is in existence, there will be a 30-day period during which the property owners will have the opportunity to request disestablishment of the district. Within that 30 day period, if the owners of real property who pay 50% or more of the assessments levied submit a written petition, the PBID district disestablishment procedure may be initiated. The local governing body will hold a public hearing on disestablishing the PBID prior to actually doing so.

If there is debt against the district, the district cannot be disestablished. However, due to the short term nature of PBID, they rarely if ever incur long term debts or obligations.

Who controls the funds once the district is established?

A non-profit corporation or “owners association” is usually designated or established once the district has been created. The non-profit corporation Board majority is normally comprised of the property owners paying into the district. The corporation could be an existing corporation, but usually a new one is formed based upon the boundaries of the new district. It could be a mutual benefit or public benefit corporation.

The non-profit PBID management corporation would then enter into a contract with the City, office, to administer the district on behalf of the stakeholders. Bylaws are normally written to ensure that the property owners can be freely nominated and/or elected to the Board. By law, the assessments generated within the district must be allocated to fund special services within the district. The City cannot offload its current baseline level of services with the assessments since the district can only fund “special benefits”.

Once established, can the City increase the assessments?

By law, the only increases in the annual assessment methodology must be pre-determined and placed in the PBID Management District Plan for the district. The City cannot arbitrarily increase the assessments because these are not funds created by or controlled by the City. The assessment may be increased only through a pre-designated CPI factor, or changes in land use such as parking lots being converted to commercial buildings or condos.

How many districts similar to the PBID exist in the Bay Area and State?

Business community assessment districts in which additional fees tied to business licenses have been around for the last 35 years in the state. Property based districts are relatively new to the state, with statewide legislation adopted in 1994 enabling their establishment.

It is estimated that over 2,000 property based districts are functioning in the US and Canada. In the state of California, over 400 business licensed based and property assessment districts in business districts are functioning. Examples of cities that have multiple districts include:

Los Angeles: 33 districts with 4 more in some stage of formation

San Diego: 6 newer property-based districts, 18 merchant based BIDs;

Oakland: 6 districts, with 2 more under formation

Berkeley: 3 districts

New York City: 55 districts

San Francisco As of August 2005, 4 “Community Benefit Districts” and 2 PBIDs have been approved by their respective property owners groups. Currently 5 more districts are under investigation with 2 in formation stages.

This is clearly the national trend. These districts are providing the revenues to fill the gaps left by inadequate or un-funded Downtown/business district services.

Districts that have been recently formed by New City America in the City of State of California include:

Fisherman’s Wharf/San Francisco (July 2005)
Noe Valley - 24th Street/San Francisco (August 2005)
North of Market - /Tenderloin/San Francisco (August 2005)
Castro - Upper Market/San Francisco (August 2005)
Laurel District/Oakland, (July 2005)

Districts that are under investigation and/or formation stage by New City America include:

Fillmore Jazz District/San Francisco
Japan Town/San Francisco
Market Street/San Francisco
Portside – Fisherman’s Wharf/San /Francisco
Koreatown/Oakland
East Liberty, Pittsburgh Pennsylvania
Downtown Santa Ana
Downtown El Cajon

Written by:
Marco Li Mandri, President
New City America, Inc.

2130 Columbia Street
San Diego, CA 92101
(888) 356-2726
FAX: (619) 239-7105
www.newxcityamerica.com

Updated January 28, 2006

Los Angeles:	33 districts with 4 more in some stage of formation
San Diego:	6 newer property-based districts, 18 merchant based BIDs;
Oakland:	6 districts, with 2 more under formation
Berkeley:	3 districts
New York City:	55 districts
San Francisco	As of August 2005, 4 “Community Benefit Districts” and 2 PBIDs have been approved by their respective property owners groups. Currently 5 more districts are under investigation with 2 in formation stages.