Business Improvement Districts in Pennsylvania: Implications for Democratic Metropolitan Governance

Abstract

This article discuses the results of an empirical study on the business improvement districts (BID)s in Pennsylvania. As self-assessment districts that have gained economic and political importance in metropolitan areas, BIDs pose challenges for metropolitan governance. This article examines Pennsylvania's BIDs to illustrate these challenges. Pennsylvania is one of the earlier states to legally enable BIDs and it has a wide variety of BIDs: from the wealthiest and most functionally diverse to those with very limited funds and scope. The evolution of the BID laws in Pennsylvania are discussed. Also discussed are the processes of BID creation, continuation, and dissolution; the proliferation of their functions and powers; their revenue sources; and their accountability to local governments and general publics. The findings of the research suggest that multiple theoretical explanations are needed to understand BIDs since they are simultaneously mechanisms of privatized public service delivery and policy implementation and active participants in metropolitan governance.

Keywords:

• business improvement districts
• metropolitan governance

Notes

1. Houstoun, L.O. Jr. Business Improvement Districts; 2^nd Ed.; Urban Land Institute & International Downtown Association: Washington, DC, 2003; 2. Houstoun cites sources that estimate the total number of BIDs in the United States and Canada around 800. Ross, B.H.; Levine, M.A. Urban Politics: Power in Metropolitan America; 6^th Ed.; F. E. Peacock Publishers: Itasca, IL, 2001; 244. Ross and Levine cite the estimates of 1,200 BIDs in the United States. BID-like entities, which do not have all the characteristics of the BIDs in the United States, are also increasingly popular in Britain, Japan, and South Africa. BID-like entities are beyond the scope of our discussions in this article.

3. Kickert, W.J.M.; Klijn, E. H.; Koppenjan, J. F. Managing Complex Networks: Strategies for the Public Sector; Thousand Oaks, CA: Sage, 1997. Teisman, G.R; Klijn, E. Partnership Arrangements: Governmental ­Rhetoric or Governance Scheme? Public Administration Review 2002, 62(2), 197–205.

9. For the other settings the research was conducted, see the articles by Meek and Hubler; Wolf; and Morçöl and Zimmermann, “Community Improvement Districts in Metropolitan Atlanta” in this issue.

10. The research questions are mentioned and discussed in the articles by Meek and Hubler; Wolf; Morçöl and Zimmermann, “Community Improvement Districts in Metropolitan Atlanta”; and Morçöl and Zimmermann, “Metropolitan Governance and Business Improvement Districts” in this issue. The full listing of the questions and the research design can be obtained from the first author of this article.

11. For the definitions and names used in different states see the other article in this issue. Also see Briffault, R.A Government for Our Time? Business Improvement Districts and Urban Governance. Columbia Law Review 1999, 99 (2), 365–477; Pack, J.R. BIDs, DIDs, SIDs, SADs: Private Governments In Urban America. Brookings Review 1992, 10 (4), 18–22.

13. For an extensive discussion of the history and current status of municipal authorities in Pennsylvania, see Governor's Center for Local Government Services, Municipal Authorities in Pennsylvania, 9th Ed.; Commonwealth of Pennsylvania, Department of Community and Economic Development: Harrisburg, PA, August 2002.

14. This power was granted to municipalities by the courts (See: Governor's Center for Local Government Services. op. cit. 2002, 7).

15. Governor's Center for Local Government Services. op. cit. 2002, 2.

16. Governor's Center for Local Government Services. op. cit. 2002, 16, 17.

17. Sources of the information in this paragraph are our interview with Jeri Stumpf, who was the executive director of the Urban Affairs Committee of the Pennsylvania House of Representatives during the 1990s and played a major role in drafting the 1998 and 2000 acts, and the following documents, of which he was the lead author: Eradicating Blight and Expediting Economic Development in Pennsylvania in the 21^st Century: A Report to PA General Assembly Pursuant to House Resolution 91. March 1996; House Resolution 91: Legislative Solutions for Ending Blight in Pennsylvania. August 1998; Urban Revitalization and the Eradication of Blight. March 2001.

18. The 1998 act redefined the statuses of BIDs for the “cities of the first class” in Pennsylvania (Philadelphia). The 2000 act expanded the coverage of the 1998 act to the rest of the state.

19. In Pennsylvania, the required percentages of property owners to block the establishment of a BID changed over time. The 1967 act stated that to block the establishments of a BID, either more than 50% of the persons representing the ownership in the district or owners whose property valuation were assessed for 51% or more of the total property valuation in the district had to object. In the 1980 amendments, the required percentage was reduced to 33% (at least owners whose property valuation were assessed for 33% of the total property valuation in the district). In the 1998 act, it was raised back to the 1967 level (51%); in the 2000 act it was reduced to 40%.

20. The laws in Pennsylvania did not set particular term limits for BIDs. The recent trend seems be to increase their terms. First BIDs were created for 5-year terms; many of them have been extended for longer terms.

21. See the other articles in this issue for some of the other states. Among the states studied, Georgia is somewhat different. Georgia's suburban community improvement districts are the products of excessive economic growth, not decline, particularly in suburban shopping areas. However, Pennsylvania's BIDs represent the general nationwide pattern.

22. Mallett, W.J. Private Government Formation in the DC Metropolitan Area. Growth & Change 1993, 24 (3), 385. Among the structural changes that took place in the metropolitan areas in the United States in the 20^th century were suburbanization and the draining of urban cores of their populations and, thus, their tax bases. Warner, S.B. The Private City: Philadelphia in Three Periods of Its Growth, Revised Ed.; University of Pennsylvania Press: Philadelphia, 1987; 178–190. Warner illustrated this process in his case study of Philadelphia. Philadelphia began losing its resident population in the late 19^th and early 20^th centuries, which was followed by large corporations and other businesses moving their offices to suburbia after World War II.

23. The University City District was formed mainly by the three universities in the district (the University of Pennsylvania, Drexel University, and the University of the Sciences), which were joined and actively supported by Amtrak, public hospitals, and the United States Postal Service.

24. We collected this information about programmatic priorities from our interviews with BID executive directors and BIDs' financial statements. Note that the administrative expenses in Table 1 are likely higher than actual, due to the classifications we made and the lack of information we had available to make them. Most of the BIDs we interviewed did not allocate payroll and related expenses to programmatic activities, although much of these payroll costs could probably have been allocated to the various programs, had the BIDs utilized a cost allocation system. Given that we did not have the information to make the appropriate allocations, we included total payroll expense and the related fringe benefits in administrative expenses, making the administrative expenses reflected in Table 1 higher than they likely are in actuality.

25. Arguably, the planning authority was implicit in the 1967 and 1980 acts, because they mention preparation of plans for business improvements. The 1998 and 2000 acts are clearer on the issue. Whether or not clearly mentioned in laws, the planning authority has been inherent development of the BID across the United States (see Houstoun, L.O. Jr. Business Improvement Districts, 2^nd Ed.; Urban Land Institute & International Downtown Association: Washington, DC, 2003, passim.

26. The website of CCD states that the court is operated in partnership with law enforcement and social service agencies. It also states that the court is primarily funded with public sector funds and funds that are raised by CCD (http://www.centercityphila.org/ccdprograms.html (accessed March 2003). For other examples of community courts and a discussion of their significance, see Morçöl and Zimmermann, “Metropolitan Governance And Business Improvement Districts” (in this issue).

27. Financial Statements and Independent Auditors' Report, Center City District Foundation, December 31, 2002 and 2001; and Financial Statements and Independent Auditors' Report, Center City District, December 31, 2002 and 2001.

30. An issue that we could not clarify in our interviews is whether or not residents were assessed for administrative expenses (The 1996 law requires that they should be exempted from administrative expenses.). Because in practice it is very difficult to separate administrative expenses from others, whether BIDs comply with this requirement of the law or not was difficult to verify.

33. Briffault. op. cit. 1999.

37. One of the anonymous reviewers of this article suggested that local governments may be leaving BIDs alone because the enabling state laws and the local ordinances that create BIDs have sunset provisions, which can be triggered by a majority vote of the property owners and a BID can be terminated at any time. This mechanism, the reviewer suggested, can be used to hold BID governing boards accountable. The reviewer's point is valid, but termination by vote is only one—and extreme—method of accountability. The Pennsylvania laws do not allow property owners to recall, or not to re-elect, particular board members if they are dissatisfied with their performances. This is allowed in Georgia (see Morçöl and Zimmermann, “Community Improvement Districts in Metropolitan Atlanta,” in this symposium). We address the election system in Georgia later in the article. In Pennsylvania local governments can remove board members in the next cycle of appointments, as we mentioned in this article. However, more important than the legal provisions is the actual attitudes and behaviors of local government leaders. It was our observation that they prefer a hands-off approach.

38. Mitchell, J. Business Improvement Districts and Innovative Service Delivery; Report sponsored by a grant from the PriceWaterhouseCoopers Endowment for the Business of Government, November 1999. Mitchell noted that a large percentage of BIDs in the nation use performance benchmarks and conduct evaluation studies.

41. See Morçöl and Zimmermann “Metropolitan Governance and Business Improvement Districts” in this issue.