What is a San Francisco Community
Benefit District (CBD)?
In brief, the CBD is a local ordinance that
allows for the establishment of a special benefit district. This “special
benefit” district functions to create a stable revenue source that
is established by a mail balloting of affected property owners culminating
in the adoption of an ordinance by the Board of Supervisors. In 2004,
the Board of Supervisors amended the statewide Property Business Improvement
District (PBID)legislation (Section 36600 of the Streets and Highway Code)
by adopting Article 15, the Business Improvement District Procedures of
the San Francisco Business and Tax Regulations Code. The amendment lengthened
the term that the district could be in place, allowed for mixed-use assessments
and provided a more reasonable weighted petition threshold which would
trigger the assessment balloting procedure.
In order to establish the district, the Board of Supervisors
must hold a public hearing and mail out assessment 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 Property Business
Improvement Districts, Business Improvement Districts, Maintenance Districts
or Special Assessment Districts. In San Francisco, the new enabling
ordinance known as the Community Benefit District (CBD), ordinance of
2004 has been adopted to provide local enabling legislation for motivated
business district and neighborhood stakeholders.
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 those revenues 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 neighborhood or business district.
Those services can be simplified by understanding that
“general benefit” services are normally delivered “curb
to curb”, while “special benefits” are funded through
non-public sources and deliver services “curb to property line”.
Since people normally don’t walk down the middle of a street,
what they experience in the public rights of way are to be found in
the “curb to property line” zone. It is their experience
in this zone that shapes their images, positive or negative, of a specific
district or neighborhood.
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, by law, stay in the district
and are managed by a locally based non-profit corporations comprised
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 neighborhood
wants, but will not be funded by the City.
What “special benefits” can a San Francisco
CBD fund?
The special services to be funded are spelled out
in the enabling ordinance or 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;
- Additional removal of trash and bulky material;
- Security services over and above the services of the local police
force;
- Installation of security cameras;
- 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;
- Public space development and management;
Can the City replace its general benefit services
in that district once the special benefits district has been formed?
By law, (Article XIII(d) of the state constitution),
property assessments 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
management corporation 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 additional trees, trash cans, lighting, sidewalk
repairs, and the CBD assessment revenues can maintain these additional
capital improvements.
What allows the CBD 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 Mayor’s Office
of Economic and Workforce Development to get information related to
formation and the function of the special benefit services district.
A CBD Steering Committee will be formed among various interested parties,
including the “weighted property owners” of the potential
district. The CBD Steering Committee will meet and determine initial
study boundaries and then conduct a study analyzing the level of support
for formation of a CBD/Special Benefits district in the target area.
Assuming that at least 20 – 25% of the weighted property owners
express support for the concept of the district, the CBD Steering Committee
will then enter into the formation stage of the CBD. The formation stage
includes the following:
- The Steering Committee is expanded to include all interested parties,
with particular emphasis on the 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 CBD 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 CBD plan has been approved by consensus of the Steering
Committee, the plan is submitted to the City Attorney’s office
for review and an Assessment Engineer certifies that the plan is compliant
with the conditions of Article XIII(d) of the state constitution.
The proposed assessments must be proportional to the benefits to be
provided and they must “confer a special benefit to each parcel
in the district”. Once the Management District Plan and Engineer’s
report has been approved by the City Attorney’s office, a petition
drive is circulated which demonstrates support by a minimum of 30%
of the property owners, by weight. For example, if the annual first
year budget is $150,000 for a CBD, petitions endorsing the CBD must
be signed by $45,000 worth of assessments in the proposed district.
Once the 30% weighted threshold has been reach, the petitions are
then submitted to the Mayor’s Office of Economic and Workforce
Development for processing;
- The Mayor’s Office of Economic and Workforce Development
dockets a “Resolution of Intention” for consideration
by the Board of Supervisors. 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 of Intention, the Board is instructing
the City Clerk 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 of support exceed those returned in opposition, the Board
of Supervisors 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 next cycle of property tax bills consistent
with the Management District Plan and Engineer’s report.
- The assessments will then appear as a line item on the property
tax bills and will be separated and sent to MOEWD for processing.
Once an account has been established and a contract is in place with
the designated or new non-profit management corporation, the CBD assessments
will be transferred to the non-profit for management of the delivery
of special benefit services to the CBD.
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 of
property owners 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 MOEWD is currently working on a plan to allow new CBD formed out
of cycle to approach a local financial institution to provide for a
line of credit. This line of credit, secured by the CBD assessments,
will allow the district to begin services prior to the tax collection
cycle.
How are the CBD assessments collected?
As provided by local ordinance, the CBD assessments will appear as a
separate line item on the annual property tax bills prepared by the
County of San Francisco. Property tax bills are distributed in the Fall
and payment is expected by lump sum or in two installments. The County
of San Francisco shall distribute the assessments collected from the
CBD, to the City of San Francisco’s MOEWD 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 CBD 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
or neighborhood should be generated in order to make a difference. The
idea of the special benefits district is to have the special benefit
services make an impact in the problem that the district or neighborhood
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.
How long can the district last once established?
In San Francisco, the CBD ordinance will have a maximum life
of 15 years. This length of time is to allow property owners to determine
if they wish to fund long term capital improvement projects that will
provide special benefit to their district. The district can be formed
for any amount of time, not to exceed 15 years. Once the district term
has been completed, the provisions for establishment are repeated in
order to continue to fund special benefit services if that is the will
of the benefiting property owners.
How could a district be disestablished if it
is not functioning as envisioned?
Local ordinance provides for the disestablishment of the CBD
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 CBD district disestablishment procedure may be initiated. The Board
of Supervisors will hold a public hearing on disestablishing the CBD
prior to actually doing so.
Due to its long term nature, this new ordinance allows for the growth
of landscaping, its maintenance as well as economic development strategies
related to revitalization that create a more permanent improvement to
the area. If there is debt against the district, the district cannot
be disestablished. All financial obligations in the form of bonds or
loans for capital improvements, must be paid off before the district
can be disestablished.
Who controls the funds once the district is
established?
A non-profit corporation 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, but under local ordinance, “not less than 20% of
voting members of the governing body of the district shall be such business
owners, who do not own, or have an ownership interest in commercial
property located within the district” (San Francisco Business
and Tax Regulations Code, Article 15, Section 1511, (f). 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 CBD 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 CBD 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 CBD 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 assessment districts (PBIDs) 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:
| San Francisco: |
As of August 2006, 5 CBDs and 2 PBIDs have been approved
by their respective property owners. Currently 5 more districts
are under investigation |
| New York City: |
55 districts |
| Los Angeles: |
33 districts with 4 more in some stage of formation |
| San Diego: |
6 newer property-based districts |
| Oakland: |
6 districts, with 2 more under formation |
| Berkeley: |
3 districts |
This is clearly the national trend. These districts are providing the
revenues to fill the gaps left by inadequate or un-funded neighborhood
services. They are the wave of the future and they have finally come
to the City of San Francisco.
Districts that have been formed by New City America in the City of
San Francisco:
- Fisherman’s Wharf (July 2005)
- Noe Valley/24th Street (August 2005)
- North of Market/Tenderloin (August 2005)
- Castro/Upper Market (August 2005)
- Fillmore Jazz District (August 2006)
Districts that are under investigation and/or formation stage in the
Bay Area by New City America:
- Japan Town
- Central Market Street
- Yerba Buena Gardens
- Koreatown/Oakland
- Portside BID (Fisherman’s Wharf 2nd stage)
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.newcityamerica.com
Updated October 20, 2006
