PublicâPrivate Partnerships: The Case of Business Improvement Districts
Privatization has become one of the most powerful currents in global policy debates. 1 It has become a widely advocated policy in urban redevelopment. 2 Henig wrote that âNotions that seemed provocative but quaint when first introduced by Milton Friedman four decades ago now occupy center stageâ. 3 In the USA, privatization commonly refers to government contracting out service delivery to private providers. 4
By the early 1980s, it was apparent that citiesâ tax bases had eroded due to suburbanization and the demise of manufacturing. 5 During that same period extending into the 1990s, both Republican and Democratic presidential administrations ended the flow of any remaining federal Great Society dollars to support urban programs. 6 In this environment of urban freefall, city governments grabbed onto whatever economic lifeline they could. Municipalities discovered that partnering with neighborhood business interests, especially in the real estate sector, could supplement diminished city services and provide new sources of revenue to revitalize downtowns.
Business Improvement Districts (BIDs) evolved out of this policy environment advocating for publicâprivate partnerships (PPPs) in urban redevelopment. BIDs are private non-profit corporations legislatively created by local government in depressed urban areas. 7 BIDs are doubly charged to increase district property values and to improve the general quality of life in their neighborhoods. 8 Once brought to life by a municipality through a ballot majority of 51% of local commercial property owners, a BID contracts with local government to provide supplemental services such as privately delivered sanitation and security to its contractually designated district.
BIDs fund their provision of services by assessing neighborhood commercial property owners an extra fee beyond their annual real estate tax. That assessment is coercive. If a local commercial property owner was one of the hypothetical 49% of those balloted that did not vote for the BID to be enabled, that owner must still pay the assessment as a tax. If he does not, a lien is put on his property. The assessment is collected by the municipality and then returned in full to a local, private non-profit board called a District Management Association (DMA). The DMA is the same as any voluntary board. It has the ability to draft and pass its own bylaws. Though the DMA holds elections for board members from the membership of the organization, which are commercial property owners, it does not allow elections of its board members by voters from the broader district community of residential property owners and commercial and residential tenants.
The majority of a DMA board are typically mandated by municipal and state legislation to be commercial property owners. Therefore a DMA board, comprised by a majority of one interest group, namely, local commercial property owners voted into office only by members of the very same interest group, decides how to distribute the districtâs municipally collected assessment for services across a neighborhood.
BIDs assess and spend taxes while operating as private corporations. BIDs with larger budgets often engage in district capital improvements and contain strong political leverage, since their boards are stacked with powerful urban commercial real estate owners. 9 Some BIDs, such as New York Cityâs Grand Central Partnership (GCP) in the wealthy midtown Manhattan business district, hold leases on linchpin district properties. 10 In short, BIDs can be viewed as private governments shaping swaths of urban territory through the choices they make on supplemental service delivery, and, in the case of BIDs with large budgets and powerful board members, acting as centers of leverage on the futures of commercial property development in their districts. 11
Ultimately, BIDs represent a âshift to the use of public-private partnerships for urban revitalizationâ. 12 They have developed quickly since the early 1980s as privatization in the form of publicâprivate sector partnering has gained force as a leading policy option in urban redevelopment strategies. 13 BIDsâ growth as a means of urban redevelopment has been rapid. While they are expanding in number across the globe, BIDs are most prevalent in the USA, where there are over 1000. 14 BIDs clearly exemplify a spreading trend by municipal government to contract out to non-profit service providers for the redevelopment of declining local communities. 15
The Question of BIDs and Local Democracy
Hoyt and Gopal-Agge write heuristically that âacademics and practitioners have raised more questions than answers regarding the effect of BIDs on such issues as democracyâ and âaccountabilityâ. 16 They tentatively conclude that âBIDs have blurred the line between the traditional notions of public and privateâ. 17
This study provides a sustained answer to those questions by dissecting the dimensions of organizational public and private behaviors found in BIDs. Once specified, these dimensions can be applied to measure with some degree of precision the extent to which a given BID behaves similar to a public agency.
BIDs contain a tripartite institutional packing of broad public responsibilities. First, BIDsâ primary function is to carry out the traditional public power to tax and spend. Second, they provide a wide array of supplemental services. Third, they seek to implement in their districts the broad public-minded goal of âimproving the urban environment generallyâ. 18 These three sets of responsibilities are carried out by private DMA boards able to write their own organizational bylaws just as board members of any corporation can, and nominated only by members of their own interest group. No private partner of government except BIDs has yet married the ability to behave as a private corporation with a governmental broadness of mission and public power to tax. 19
This characterization begs a thorough investigation into whether BIDs meet public standards of institutional behavior. What is the degree of their accountability to neighborhood stakeholders and municipal partners in local government? Realistically, not all public agencies may regularly meet the most stringent standards of accountability to the citizenry, but they are at least intended to be fully transparent and accountable. Public agencies are constitutionally mandated to conduct their organizational lives in a transparent manner. As organizations charged with transforming whole communities, are BIDs designed and operated with that same public-minded goal of transparency, or are they closed power centers of the local commercial elite that make decisions on services for their districts without any public input? In short, given their publicâprivate hybrid status as private organizations able to tax property owners, how do BIDs operationalize their public and private institutional features?
My investigation has two tiers. It first compels a structural dissection of BIDs from different normative perspectives, seeking to clearly mark and label institutional features of what I call âpublicnessâ and âprivatenessâ to measure the degree to which a BID is democratic. BIDsâ level of democratic behavior will be assessed against the standards of governmental expectations of transparency and accountability, since BIDs have the fundamental public power of taxation legislatively embedded in their organizational structure. This analysis necessarily entails comparison of BIDs with other PPPs being used as instruments of urban economic development. Once a structural and comparative theoretical unpacking of BIDs is delineated that responds, at least in theory, to Hoyt and Gopal-Aggeâs fundamental problem in not knowing where BIDs fall on the continua of organizational democracy, we can move on to a descriptive sampling of diverse case studies that elicit how BIDs in different kinds of socio-economic communities really behave in their home communities.
New York has the most BIDs of any US city. 20 Their presence covers practically every few blocks in some boroughs of New York City and provides a richly varied sampling of BIDs in different kinds of communities. At last count, there were 72 BIDs in New York City, 21 representing multiple neighborhoods exhibiting the wide array of economic and social diversity found throughout New York. Six different BIDs have been selected as case studies based on their budget size and location in differing socio-economic districts. Drawing from Gross, these six New York City BIDs have been ordered into three categories based on annual budget. 22 BIDs with annual budgets of over $1 million are considered wealthy, BIDs with annual budgets of $300,000 to $1 million are considered medium, and BIDs with annual budgets less than $300,000 are considered poor. 23 Two BIDs at each budget level have been selected. Each twinned pair of similarly budgeted BIDs also function in different types of socio-economic communities and contain commercial property owners from different professional backgrounds comprising their boards.
Ultimately, whether BIDs behave more or less publicly speaks to the level of public accountability at work in this new type of urban economic development instrument. My purpose is to explore how a private partner of government behaves once it takes on governmental ambitions and public power. I want to qualify just how accountable BIDs are to both their communities and to their contracted municipal partners in local government. Findings drawn from this analysis will reveal the degree to which BIDs maintain more or less public standards of democratic governance.
Given most of Am...