Business Improvement Districts
A handbook for municipal officials
South Dakota Municipal League
208 Island Drive
Ft. Pierre, South Dakota 57532
South Dakota Municipal League, 2011
Table of Contents
Page
Chapter 1: The History of Business Improvement Districts……………………………………………...3
Chapter 2: Uses of Business Improvement Districts……………………………………………………..4
Chapter 3: Creation of Business Improvement Districts…………………………………………………6
Chapter 4: Implementation of Project Plans……………………………………………………………...9
Chapter 5: Some Notes of Caution……………………………………………………………………...11
Appendix A: Exhibits (Samples originally published in 1986…………………………………………13
Appendix B: Samples enacting a per room occupancy tax, enacted by a SD municipality in 2003…...22
Appendix C: South Dakota Statues, Chapter 9-55, Business Improvement Districts………………….37
Chapter 1
The History of Business Improvement Districts
The traditional business district has been at a competitive disadvantage with shopping centers for a number of reasons. These reasons include an inability to raise funds for many purposes such as parking facilities, area improvements, promotion of the area, coordination of activities and similar functions. There have been several programs developed to overcome these disadvantages. Urban renewal grants, community development block grants and urban development action grants were created to allow communities to deal with the physical needs of the central business district. These programs had a number of problems, including a lack of flexibility in dealing with the varying problems of each community. The biggest and most recent problem has been a dramatic reduction in the level of funding for these programs. This resulted in a search by many local officials to find another source of funds for improvement projects in business districts. The problem of finding funds to promote a business area and to coordinate activities was answered by the development of business associations that raise funds for promotional and other activities for which these groups often experience problems getting all of the business people in the area to participate. There are generally “freeloaders” who take advantage of the promotional activities of a group without assisting with the cost of these activities.
The South Dakota Legislature during their 1986 session enacted what is now SDCL Chapter 9-55. This chapter allows municipalities to create and administer business improvement districts. This law was based upon similar statutes from other state, including Nebraska and Kansas. Amended in 1990, 2003, 2004, 2005, 2006, and 2007, chapter 9-55 gives business districts and municipalities the tool that they need to create a special purpose district to overcome some of the problems of development and promotion of business areas.
Chapter 2
Uses of Business Improvement Districts
A Business Improvement District (BID) can be created “within the boundaries of an established business area of the municipality zoned for business, public, or commercial purposes.” An established business area may also include noncontiguous property within the incorporated municipality that has a common zoning designation. (SDCL 9-55-4) This means that a BID can be created in any business area of the community, not just in central business districts. The district can also include similarly zoned property within the municipality, but which is not physically joined to other property in the district.
A Business Improvement District can undertake the following projects and tasks:
1.The acquisition, construction, maintenance, and operation of public off-street parking facilities for the benefit of the district area;
2.Improvement of any public place or facility in the district area, including landscaping and plantings;
3. Construction or installation of convention or event centers, pedestrian shopping malls or plazas, sidewalks, including moving sidewalks, parks, meeting and display facilities, bus stop shelters, lighting, benches or other seating furniture, sculptures, trash receptacles, shelters, fountains, skywalks, and pedestrian and vehicular overpasses and underpasses or any useful or necessary public improvement;
4.Leasing, acquiring, constructing, reconstructing, extending, maintaining, or repairing parking lots or parking garages, both above and below ground, or other facilities for the parking of vehicles, including the power to install such facilities in public areas, whether such areas are owned in fee or by easement, in the district area;
5.Creation and implementation of a plan for improving the general architectural design of public areas in the district area;
6.The development of any activities and promotion of the district area;
7.Maintenance, repair, and reconstruction of any improvements or facilities authorized by this chapter;
8.Any other project or undertaking for the betterment of the facilities in the district area, whether the project is capital or non-capital in nature;
9.Enforcement of parking regulations within the district area; and
10.Employing or contracting for personnel, including administrators for any improvement or promotional program under this chapter, and providing for any service necessary or proper to carry out the purposes of this chapter. (SDCL 9-55-3)
There are two ways that a BID can raise funds to carry out the projects that are authorized by law:
The first method of raising revenue is by levying special assessments against property located within the district. These special assessments can be levied to cover the cost of projects that benefit property within the district to the extent of that benefit. (SDCL 9-55-13) The assessments can be levied based upon front feet, square feet, equivalent front feet or another method of assessment as determined by the governing body. (SDCL 9-55-1; 9-55-2) This means that each community has the ability to develop an assessment method that best meets the needs of that community. The amount of special assessments generally relates to a specific construction project or projects. Special assessments are primarily intended to pay for “brick and mortar” type projects that make an improvement and benefit property. Special assessments for BIDs are levied, certified and collected in the same manner as other assessments. (SDCL 9-55-13)
The second method of raising revenue is the occupation tax. This is a tax that is levied against the users of space located within the district. (SDCL 9-55-2) This tax generally falls upon the tenant rather than the landlord. This tax can be based upon the square feet of area in a business into which customers are invited or space which is used in connection with the business or profession of the user. This generally means that public areas of a business and areas related to the work of persons occupying space are included in the taxable area. The taxable area generally excludes storage areas, janitor and clean up areas and places that are not related to the business that is conducted on the premises. The occupation tax is more often levied to pay for operation, maintenance and promotional costs.
Another way to assess the occupational tax is on rooms rented by any lodging establishment to transient guests as defined in §10-45-7. If the occupational tax is based on rooms rented by a lodging establishment, the tax shall be imposed on the transient guest and such tax may not exceed two dollars per occupied room per night. However, no occupational tax may be imposed on any transient guest who has been offered a room by a lodging establishment on a complimentary basis and no fee or rent was charged for such room. (SDCL 9-55-7)
The special assessment and the occupational tax can be used alone or in combination, but they can only be levied following public hearings and the opportunity to protest against the levies by property owners or tenants. (SDCL 9-55-13) The amount of taxes levied cannot exceed the total cost of projects set out in the project plan developed for the district. (SDCL 9-55-17) In addition, this chapter allows a method maintaining, repairing and reconstructing and paying utility costs for qualifying existing facilities. (SDCL 9-55-18)
The authority of municipalities to create Business Improvement Districts and to carry out projects within the districts is quite broad. The municipality can perform almost any act that will improve the area. However, there is always the limiting factor of the ability of the property owners and tenants to protest against the creation of a district. (SDCL 9-55-10) This means that the municipality must work carefully with the business people in the proposed district area to make certain that the district as created is acceptable to them.
Chapter 3
Creation of Business Improvement Districts
The process of creating a Business Improvement District has several steps which are carefully designed to assure the maximum amount of public input and interaction prior to the actual creation of the district and levying of taxes to pay for the cost of the project that are part of the plans for the district.
The first step for this or any other major municipal project is to work with the persons in the affected area to obtain their ideas on what should be included in the district including area and project plans. The impetus to create the district may (and probably should) actually come from people within the district area. A careful preliminary study and interaction with groups, such as a business association, the Chamber of Commerce, any development groups, major property owners and similar organizations will make the creation of a district much easier.
The next step is to establish the boundaries of the proposed district. The boundaries must be established by resolution. (SDCL 9-55-5) It is wise to include a map of the proposed district boundaries. A sample resolution establishing the boundaries of a BID is included in this handbook as Exhibit A.
Next, the mayor appoints a business improvement board with the approval of the governing body. (SDCL 9-55-5) This board must have at least five members whose term of office is established by resolution. (SDCL 9-55-6) The members must be property owners, residents, business operators or users of space within the boundaries of the district. (SDCL 9-55-5) The board selects from its members a chairperson and secretary. (SDCL 9-55-6) The duty of the board is to advise the governing body on the plan or plans for improvements and activities within the district. The board shall also advise the governing body as to the type of revenue to be raised and the use of any revenue raised. (SDCL 9-55-5) This board is not intended to be an administrative board, but is an advisory group to the governing body.
The governing body, after receiving the report of the business improvement board, may adopt a resolution of intent to create one or more business improvement districts. (SDCL 9-55-7) A sample resolution is attached as Exhibit B. The resolution creating the district must contain the following items:
1.A description of the boundaries of any proposed district;
2.The time and place of a hearing to be held by the governing body to consider establishment of a district or districts;
3.The proposed public facilities and improvements to be made or maintained within any such district; and
4.The proposed or estimated costs for improvements, facilities and activities within any district, and the method by which the revenue shall be raised. If a special assessment is proposed, the resolution also shall state the proposed method of assessment.
The notice of intent shall recite that the method of raising revenue shall be fair and equitable.
In the use of a general occupation tax, the tax shall be based primarily on the square footage of the owner's and user's place of business or based on rooms rented by any lodging establishment to transient guests as defined in §10-45-7.
If the occupational tax is based on rooms rented by a lodging establishment, the tax shall be imposed on the transient guest and such tax may not exceed two dollars per occupied room per night. However, no occupational tax may be imposed on any transient guest who has been offered a room by a lodging establishment on a complimentary basis and no fee or rent was charged for such room.
In the use of a special assessment, the assessment shall be based upon the special benefit to the property within the district. (SDCL 9-55-7)
As noted under item “2” above, a public hearing shall be held on the proposed district as established in the resolution of intent. A notice of a hearing shall be given by mailing a complete copy of the resolution of intent to each owner of taxable property as shown on the property tax roll for such county. If an occupation tax is to be imposed, a copy of the resolution of intent shall also be mailed to the occupant of each address located in the proposed district. Mailing shall be completed at least thirty days prior to the time of hearing. (SDCL 9-55-8) There is no requirement that the noticed be mailed by other than standard first class mail. There is no requirement to publish a notice of public hearing in the official newspaper of the municipality.
At the public hearing, the governing body shall:
1.Hear all protests and receive evidence for or against the proposed action;
2.Rule upon all written protests received prior to the close of the hearing, which ruling shall be final; and
3.Continue the hearing from time to time as the governing body may deem necessary.
If a special assessment is to be used, the proceedings shall terminate if written protest is made prior to the close of the hearing by the owners of a majority of the assessable front footage in the proposed district.
If an occupation tax is to be used, the proceedings shall terminate if protest is made by the users of a majority of the space in the proposed district.
If the general occupational tax is based upon rented hotel and motel rooms pursuant to § 9-55-7, the proceedings shall terminate if written protest is made prior to the close of the hearing by the owners of a majority of the hotels and motels in the proposed district.
Any bonds for the construction of a convention facility that are payable from the proceeds of the hotel and motel room general occupational tax may only be issued and sold if at least two-thirds of the hotel and motel owners in the proposed district approve in writing of the issuance and sale of the bonds. (SDCL 9-55-10)
If the governing body decides to establish a district, it shall adopt an ordinance to that effect. The ordinance shall contain the following information:
1.The number of the resolution of intent and the date it was adopted;
2.The time and place of the hearing that was held on the formation of such district;
3.A statement that a business improvement district has been established pursuant to the provisions of this chapter;
4.The purposes of the district and the public improvements and facilities to be included in such district;
5.The description of the boundaries of such district;
6.A statement that the businesses and professions in the district shall be subject to the general business occupation tax or that the real property in the area will be subject to the special assessment authorized by § 9-55-2;
7.The proposed method of assessment to be imposed on the property within the district or the initial rate of the occupation tax to be imposed on the business users of the space in the district; and
8.Any penalties to be imposed for failure to pay the occupation tax. (SDCL 9-55-12)
A separate ordinance is required for each district that is created. The boundaries of two districts can overlap or one district can have boundaries that are entirely within the boundaries of another district. The same adoption procedure applies to an ordinance creating a BID as applied to all other ordinances. A sample ordinance creating a BID is attached as Exhibit “C”. Exhibit “C-1” contains sample provisions of an ordinance implementing a general occupation tax, and Exhibit “C-2” contains sample provisions of an ordinance implementing an occupation tax based upon rented hotel and motel rooms.
This completes the steps that are necessary to create a BID. The district is now created and ready to perform activities and raise the revenue to carry out those activities. The time for objection to creation of the district and levying of taxes is now past. The actual implementation of the district activities will be covered in the next chapter.
Chapter 4
Implementation of Project Plans
The implementation segment of a BID is the easiest and certainly the most exciting part of the entire process. If there is construction work to be done, it is subject to the same advertising and bidding laws as any other municipal project. The plans and specifications for the work should be prepared by engineers or architects who are employed by the municipality. The work itself should be conducted as any other municipal project. Be prepared for more interest and input than usual from the property owners because of their direct financial interest in the project.
The use of consultants for design work, promotional work, planning and similar activities is entirely up to the governing body in each community. The ability of local staff and citizens to perform some of these activities varies from municipality to municipality. Remember, however, that there are specialized activities, such as publicity campaigns, that are usually best left to experts in the field.