Digital Transformation » Systems & Software » Property

Would your company voluntarily pay more taxes? Aside from the philanthropic few, the answer is likely to be a resounding no. But evidence from the equally tax-averse US suggests that, if the taxes could be spent on improvements which are of direct relevance to local businesses, the “resounding no” should in fact be qualified.

As long ago as the 70s, faced both with problems of urban decline and a growing threat from out-of-town business parks and shopping malls, property owners in cities throughout America set up Business Improvement Districts (BIDs). These aim to retain businesses, improve services and enhance the physical and commercial environment. Once implemented, BIDs levy a charge on all properties within a defined area for the provision of local services.

Rules vary over how they may be formed. In general, a group of local property owners, often with government backing, will produce an action plan for business improvement activities. This may then be voted in by a majority of property owners or go through a BID “ordinance”, which allows 30 days for objections.

The principal source of income for North American BIDs is through additional property taxes. Local governments usually collect the assessments together with normal tax bills and then hand the funds over to BIDs.

Although BIDs undertake capital works – such as walkway enhancements, improving parks, installing new landscaping features and special signage – the focus of their activities tends to be on service provision as opposed to physical redevelopment activity.

Therefore, a significant proportion of their revenue is often spent on supplementing typical government services, including cleaning, maintaining public open space and providing extra security. Because of their size, BIDs can bulk purchase services and achieve significant discounts.

They are active in areas of non-governmental services, such as marketing, PR, advertising, and business recruitment. BIDs throughout the US organise and sponsor festivals, retail promotion events and lunch-time events for office workers.

BIDs also provide the businesses involved with a strong collective voice: developing unified positions on matters affecting the local economy, including redevelopment and through performance monitoring of local services. Some go further than this, for example regulating the design of facades and signs, or even influencing the mix of retail businesses in downtown areas.

Finally, they conduct research, collecting and analysing economic and demographic data.

In the main, BIDs have proved immensely successful. When the BID set up in New York’s Times Square came to the end of its first five-year term, it was renewed with 93% backing. The available statistics make this popularity easy to understand. Crime levels in Times Square fell by some 24% in its first year. A similar drop in crime was achieved in Baltimore in its first year. In Dayton, Ohio, office vacancies fell by 23%, adding 120 businesses and 2,600 jobs over a three year period.

There are many reasons underpinning their success. Top of the list is the collective self-interest of business and property owners – there is nothing quite like actually being able to see your money being spent.

BIDs have dedicated leadership. They are also flexible and capable of being adapted to meet local requirements. With a predictable income stream, they can be used to plan for new services and long-term provision. As non-profit corporations, they are relatively free from stifling bureaucracy but at the same time are wholly accountable. Although additional taxes are never popular, the assessments are only a minor element of occupancy costs. But they are no panacea.

Their detractors believe BIDS are yet another example of back-door privatisation.

True, they are private sector led. But local government has a pivotal role in setting-up BIDs, delineating the boundaries for operation, setting the formula for assessment, defining authorised functions, and designating the non-profit organisation. Most cities have further built-in regulatory controls – with a minimum required number of community representatives on the board. Authorising ordinances also require a three to five yearly re-adoption. Large swathes of public open space have not, as originally feared, disappeared into the clutches of private enterprise.

A second concern is that the role of public authorities in providing essential services will decline. But many BIDs have only been set up on the condition that “service level agreements”, which bind the local authority into maintaining a pre-defined level of service, are also implemented.

However, the time taken to get them started can be prohibitive – in New York, for example, the planning and approval of the larger BIDs typically took some 30 months. Where the local planning group has experienced guidance, this can be reduced to as little as four to six months.

Could BIDs work over here? A new study sponsored by the Corporation of London, Business Improvement Districts – New York and London, suggests the model, suitably amended to reflect our own political, social and economic traditions, could be imported. “The time has come to test BIDs in Britain,” it concludes.

The concept of public-private partnership is already well-established as the modus operandi of urban regeneration. Town Centre Management (TCM) espouses many of the principles inherent in BIDs – Coventry has set up a private company to take over a wide range of city centre services.

But there is a long way to go. TCM is heavily reliant on the public sector both for delivery and finance. And as it is operated on a voluntary basis, there will always be free-loaders. If the Uniform Business Rate (UBR) is to be used as the means of assessment, occupiers, rather than freeholders or long leaseholders, would end up paying. Would FDs feel willing to recommend funding area-wide improvements without commitment too from the landowners?

Perhaps most importantly, once established, membership of a BID is mandatory.

New national legislation would therefore be required before BIDs will be possible in Britain.

Notwithstanding these difficulties, however, the American experience shows that, properly packaged and with local accountability, higher taxes could become palatable – and businesses can prosper as a result.

Charlie Fulford is a chartered surveyor with Drivers Jonas.