Business Improvement Districts
By: Daniel D. Maddy
Date of Publication: September 2003
Business improvement districts ("BIDs") provide an opportunity for private sector businesses and property owners to come together to provide local improvements and services that enhance existing municipal services. BIDs are typically formed by a local government unit at the request of the private sector. Private businesses and property owners within a designated geographic area or District band together to assess themselves to fund the BID. Although funding is collected by the local government unit, the private sector stays actively involved by administering the BID through a private civic organization. The BID provides the "gas in the tank," funding programs that allow the organization to provide services and management in a coordinated manner for the District. While each BID decides which services it feels it can provide most effectively, BID services often include one or more of the following: maintenance, security, marketing and promotion, advocacy for the District, special events, parking and transportation services, economic development, human services and capital improvements.
Minnesota BIDs are known as a Special Service Districts. A Special Service District can only be established when a city receives community petitions requesting (i) the establishment of a District and (ii) the establishment of a service charge. When appropriate petitions have been received, the city may adopt an ordinance describing the area within the city to be included in the District and the special services to be furnished in the District. Cities are given wide latitude to determine what "special services" will be offered, but a service ordinarily provided throughout the city from general fund revenues of the city is not a special service unless an increased level of the service is provided in the District.
Cities also have wide latitude to impose service charges on any equitable basis reasonably related to the special service provided. Charges must be, as nearly as possible, proportionate to the cost of furnishing the special service and may be fixed on the basis of services directly rendered or by reference to a reasonable classification of the types of premises to which services are rendered. Service charges may be imposed on the basis of the net tax capacity of property on which the service charge is imposed. Service charges imposed on the basis of net tax capacity may be made payable and collected at the same time and in the same manner as provided for the payment and collection of real estate taxes, and if they are, the due date for the payment of the service charge is the same as the due date for real or personal property taxes for the property for which the service charge is imposed. If service charges will be imposed on a basis other than the net tax capacity of the property, then the ordinance adopted to establish the District must establish a method of collection.
Only property classified and used for commercial, industrial or public utility purposes, or that is vacant land owned or designated on a land use plan for commercial or industrial use, may be subject to service charges. Properties that are primarily residential are not subject to service charges. In addition, if service charges will be based upon net tax capacity, properties exempt from the payment of real estate taxes are exempt from service charges.
If a service charge is imposed to pay for a special service ordinarily provided by the city, then the service charge may be imposed only in the amount needed to pay for an increase in the level of that service.
As noted above, community petitions are required to begin the process of establishing a District and establishing a service charge.
No action may be taken to establish a District unless the owners of 25% or more of the land area of property that would be subject to service charges in the proposed District and owners of 25% or more of the net tax capacity of the property that would be subject to service charges in the proposed District file a petition requesting a public hearing on the proposed action with the City Clerk.
In addition, no action may be taken to impose a service charge based on net tax capacity unless the owners of 25% or more of the land area subject to a proposed service charge and owners of 25% or more of the net tax capacity subject to a proposed service charge file a petition requesting a public hearing on the proposed action with the City Clerk. If the service charge will be imposed on a basis other than net tax capacity, then no action may be taken to impose a service charge unless 25% or more or the individuals or business organizations subject to the proposed service charge file a petition requesting a public hearing on the proposed action with the City Clerk.
A District is established when the governing body of the city adopts an ordinance describing the boundaries of the District and the special services to be furnished in the District after holding a public hearing.
Because service charges will be imposed upon all non-exempt property owners, individuals and businesses within the District (not just those property owners, individuals and businesses that have joined in the petitions to the city) parties who wish to object to the establishment of the District are given multiple opportunities to do so. At the public hearing to consider establishing a District, each person affected by the proposed District may testify on any issues relevant to the proposed District. Before the ordinance is adopted or at the public hearing at which it is adopted, any affected land owner may file a written objection with the City Clerk asserting that the landowner’s property should not be included in the District or should not be subject to a service charge because (1) the land owner’s property will not receive services that are not provided throughout the city to the same degree, (2) the land owner’s property is exempt from the levy of the service charge, or (3) neither the landowner’s property nor its use will be benefitted by the proposed special service. The City has 30 days to consider the appeal (but may enact the ordinance in the interim). Under limited circumstances, an affected landowner may appeal the City’s decision regarding the landowner’s property to the District court. As a final protection, the ordinance and/or the establishment of service charges may be vetoed. The ordinance establishing the District does not become effective if owners of 35% or more of the land area in the District subject to the service charge based on net tax capacity or owners of 35% or more of the net tax capacity in the District subject to the service charge based on net tax capacity file an objection to the ordinance before the effective date of the ordinance. The requirements for a veto of the service charges depend upon whether service charges will be based upon net tax capacity or some other basis. The imposition of a service charge based on net tax capacity does not become effective if owners of 35% or more of the land area subject to the service charge or owners of 35% or more of the net tax capacity subject to the service charge file an objection to the resolution before the effective date of the resolution. If the service charge is imposed on a basis other than net tax capacity, then the service charge does not become effective if 35% or more of the individuals or business organizations subject to the service charge file an objection to the resolution before the effective date of the resolution. If a veto occurs, no District can be established during the same calendar year and until a new petition meeting all of the qualifications for a veto has been filed.
Daniel D. Maddy is a shareholder with the law firm of Fryberger, Buchanan, Smith & Frederick, P.A. and provides services and advice in matters relating to business, finance and real estate. He is also Vice Chair of the Board of Directors of the Greater Downtown Council and a member of the BID steering committee considering the establishment of a Special Service District in Downtown Duluth.
For more information on Business Improvement Districts , please contact Dan Maddy or call 218-722-0861.
The information in this article is not intended as, and does not constitute either legal advice or a solicitation of any particular prospective client. The reader should not rely on any information contained herein regarding your specific situation until you have consulted with a qualified attorney.
Circular 230 Disclaimer - Advice, articles and commentary included herein do not constitute an opinion and are not intended or written to be used, and they cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
