In the 1970's, New York City was home to three Special Assessment Districts (SADs), the predecessors of today's Business Improvement Districts (BIDs). Currently, the City supports 34 BIDS and an additional 39 areas have expressed some level of interest in establishing their own BIDs. What began as a concept to raise funds for capital improvements, has transcended into the emergence of the "micropolis"-- an alliance of City blocks, which utilize property assessments to supplement the service delivery of the municipality in which they exist. In fact, these BIDs often mirror municipal government by levying assessments to pay for their own security, sanitation, social services and capital construction.
Property owners in a BID are mandated to pay assessments -- failure to pay could result in fines and foreclosure proceedings. Unlike residents of municipal government, however, BID property owners are given no opportunity to vote for the continuation of the BID, its manager and assessment. The Committee has strong concerns that many property owners and merchants are not properly informed about their BID's activities. In fact, the report demonstrates that a significant number of property owners do not believe their annual assessment has been a good investment.
Although the report concludes that, overall, BIDs have had a positive impact on many New York neighborhoods, BIDs nevertheless require additional oversight and in some cases serious operational restructuring. While there is tremendous interaction between the Department of Business Services (DBS) and the BIDs during the approval process, the Administration has failed to allocate the sufficient resources needed for DBS to conduct effective oversight of ongoing BID activity. Additionally, the BIDs' boards of directors have often failed to take responsibility for the oversight and management of the BID. In the case of the larger BIDs, many board members are prominent members of the business community and could provide real management assistance, yet do not contribute enough time to the BID. In the case of the smaller BIDs, many property owners do not get involved with the boards of directors.
This report is intended to give the public a comprehensive look at New York City's BIDs, including their operations and services. Additionally, the report offers recommendations to strengthen existing BID operations as well as provides guidance to the dozens of other neighborhoods which have expressed an interest in creating their own BIDs.
The report is divided into sections which detail a number of significant findings and recommendations. Some of these findings and recommendations include:
- Last year, New York City's BIDs occupied at least 550 blocks throughout the City. In Fiscal Year 1995, BID assessments totaled $42 million -- $12.5 million more than the five Borough Presidents spent in FY'95.
- Less than half of the property owners and managers surveyed stated that their BID assessment was a good investment. Similarly, 23% percent said they had complaints about the BID, and 37% percent were either dissatisfied with, or unsure about the BID.
- It is nearly impossible to dissolve a BID. Since the dissolution of a BID is prohibited for any BID with outstanding debt, the legislation guarantees that the worst managed BIDs, those which may owe enormous sums to creditors, cannot be dissolved. Furthermore, a BID could guarantee its continued existence by issuing bonds or incurring such debt.
- Little effort is made to monitor the desire of property owners to continue supporting the BID.
- Elections should be held prior to the expiration of every five year BID contract to determine if property owners are still interested in supporting the BID.
- Subsequent contracts executed between DBS and the BIDs should require that BIDs, in conjunction with DBS, hold special, well publicized meetings prior to the end of a contract to determine property owner satisfaction and desire to continue the BID.
- DBS should continue its recently implemented practice of requiring that parties wishing to establish BIDs submit written statements of support from affected property owners.
- DBS should investigate the feasibility of BIDS obtaining insurance to protect the BIDs and/or their property owners against creditors' claims and to allow for dissolution even in the event of outstanding debt.
- Despite the fact that all BIDs claimed they engaged in public outreach and that property owners were aware of the BIDs' activities, the Committee's research revealed that many property owners and managers were poorly informed about BID operations. For example;
90% said they did not know what percentage of the BID's budget was spent on administrative costs;
85% said they did not know, or were not sure of the salary paid to the BID's district manager;
61% said they did not know the name of their BID's district manager;
57% said they did not know, or were not sure, who was in charge of their BID;
34% said they were not at all familiar with BID operations;
31% said they had never received any BID mailings or newsletters; and
31% did not know the name of their BID.
- All property owners should be mailed a copy of the annual report which includes budget, service, and salary information. This requirement should be included in subsequent contracts executed between DBS and the BIDs.
- Mass mailings should be supplemented with other methods of communication, including hand-delivering notices, placing notices in community newspapers and, where available, utilizing on-line communication systems.
- Future contracts executed between DBS and the BIDs should require that the annual report be produced after the fiscal year is completed.
Complaint Resolution Process
- Most BIDS have failed to implement an adequate complaint resolution process. Eighty-five percent of the BIDs resolved complaints informally without compiling written documentation. As a result, it is impossible for the City Council or any other outside entity to know how many complaints have been made against the BIDs.
- The importance of implementing an adequate complaint resolution process is best demonstrated by the case of the Grand Central Partnership Social Services Corporation (GCSSC). Long before allegations were made that the GCSSC workers operated as "goon squads", the GCSSC was the subject of two separate $5 million lawsuits. The first case, which was settled, involved a GCSSC client who was allegedly assaulted and thrown through a glass window by a GCSSC worker. In the second lawsuit, a homeless individual was badly burned after a GCSSC kitchen worker allegedly poured boiling water on him. These incidents should have alerted the GCSSC to the serious managerial problems which existed, and had actions been taken, may have ultimately prevented the loss of more than a half-million dollar grant from HUD.
- The 5th Avenue BID manager, when asked by council staff if any complaints had been made against the BID, failed to acknowledge the existence of a $2 million lawsuit filed against the BID. This incident is further evidence of the need for a formal complaint resolution process.
- BIDs should maintain a log to record all complaints, especially those resulting in lawsuits.
- Any legal action taken against a BID, or a related entity, should be immediately reported to the BID board of directors, DBS and the City Council Finance Committee.
- Some BID board members also serve on boards of organizations which the BID has contracted with for services. While this practice is not improper on its face, BID board members may be subjected to potential conflicts of interest in carrying out their fiduciary duties. To date, DBS oversight in this area has proved inadequate.
- Many BID managers are also employees of organizations who either share office space with the BID or which the BID has contracted with for the provision of services. While this practice is not improper on its face, it certainly raises potential conflicts of interest and ethical questions about how much time is actually being devoted by the manager to the BID.
- The potential conflicts that can occur when BID board members and managers have other affiliations is most evident in the case of the Jamaica Mall SAD. The Jamaica Mall's manager was also president of the Jamaica Chamber of Commerce, the entity contracted by the Jamaica Mall for managerial services. In addition, many of the Jamaica Mall's board members also served as board members to the Chamber. This relationship resulted in a pending $1 million lawsuit, which alleged serious mismanagement and fraud. Furthermore, Jamaica Mall property owners have spent almost $80,000 of their assessment on legal fees to resolve these issues.
- At least 39% of the BID managers received compensation from, and/or had responsibilities to other organizations.
- In at least two cases, BIDs made illegal loans to other organizations. A third BID made a cash grant to an organization which shared common board members.
- In the future, contracts executed between DBS and the BIDs should prohibit a BID from allowing more than 10% of its board members from also serving on a board whose organization contracts with such BID.
- DBS should monitor the election of BID property owners to the board of directors to ensure that the fiduciary responsibilities of BID board members are not compromised by their membership in organizations doing business with, or integrally related to the operation of the BID.
- DBS should require BID managers and other senior personnel to disclose to the board of directors all duties and obligations to other organizations. This disclosure should include salary, responsibilities and anticipated time commitment.
- Most BIDs have failed to establish and utilize performance indicators that specifically measure BID performance. This is not surprising given that 51% of the BID managers stated their board of directors has not made performance assessment a priority and 66% of BID managers admitted they could improve their performance assessment activities. Many BIDs rely on informal, visual assessments of performance, rather than on any quantifiable measurement.
- The contracts executed between DBS and the BIDs mandate that DBS evaluate the performance of BIDs prior to contract renewal. Although at least 20 BID contracts have expired, and subsequently been renewed, DBS has never conducted performance evaluations of the BIDs.
- DBS should assist each BID with developing a set of clearly understood and adequate performance indicators which can measure the success of service delivery.
- Since economic growth was the primary objective in the creation of BIDs, at a minimum, all BIDs should formally track economic indicators such as the number of store front vacancies, the number of new businesses and the number of jobs created.
- DBS must conduct a performance evaluation of the BIDs prior to the expiration of their contracts. This evaluation should be performed by someone other than the individual who serves as the Mayor's representative on the BID board of directors.
- The East Brooklyn BID's FY `94 financial condition was so perilous that its audit concluded it might have to cease operation.
- Thirty-nine percent of all BID managers said they had problems obtaining their assessment from the city in a timely fashion.
- Despite recommendations to budget on a 14 month cycle or maintain sufficient reserve funds to prevent the interruption of services, 51% of the BIDs have failed to implement such practices.
- Some BIDs obtained bridge loans to pay for operating expenses in order to prevent the interruption of services. This has resulted in a portion of the annual assessment being allocated towards interest payments instead of the provision of services.
- Some BIDs failed to conduct contractually mandated audits.
- DBS must immediately ensure that all BIDs provide annual audited financial statements, as required by their contracts. Furthermore, DBS should review these audits and take appropriate action where warranted.
- DBS should further encourage and specifically train BIDs to budget on a 14 month cycle and to create reserve funds which would allow the BIDs to continue operations without resorting to bridge loans during lags in assessment collection and distribution.
- DOF should give consideration to paying the BIDs a small percentage of their anticipated assessment at the start of every fiscal year.
- An organization which had contracts with multiple BIDs to provide services, allegedly hired undocumented immigrants.
- The contracts executed between DBS and the BIDs do not require BIDs to adopt internal written contracting procedures. Only eight BIDs provided Council staff with such contracting procedures.
- In four of the BIDs, services were provided by entities that had not executed formal written contracts with such BIDs.
- Subsequent contracts executed between DBS and the BIDs should require that each BID adopt comprehensive internal written contracting procedures.
- All future contracts executed between DBS and the BIDs should require that formal, written agreements be executed for any service provided by an outside entity.
- BIDs should be provided access to the City's pre-qualified vendor lists.
- Two BIDs, Church Avenue and Nassau Mall, allocated more than 40% of their respective budgets to administrative costs. Incredibly, the Columbus/Amsterdam BID budgeted 52% for administrative costs.
- Thirty-three percent of the BIDs allocated more than 30% of their budgets to administrative costs. When totaled, BIDs budgeted 15% for administrative costs.
- Ninety percent of the respondents in the outreach survey did not know what percentage of their assessment was spent on administrative costs.
- The highest administrative costs by percentage were incurred by those BIDs with the smallest budgets. While in some instances this is understandable, questions are raised about a BID's primary mission when 50% of the property owner's assessments goes towards administrative costs.
- Prior to the adoption of the annual budget, BID management should be required to mail proposed budget summaries to all BID property owners which clearly set forth administrative costs.
- Because the BIDs were established to provide direct services to property owners, DBS should ensure that the majority of the BID assessments are spent on the provision of such services, rather than administrative costs.
- Six BIDs paid their district managers annual salaries of at least $100,000 and three BID managers were paid more than the Mayor of New York City. Overall, the average salary paid to the BID managers was $48,733. Disturbingly, only 15% of all respondents knew their BID manager's salary.
- The Grand Central, 34th Street and Bryant Park BIDs collectively paid their vice-president of security $144,999 and their vice-president of sanitation $114,530. Yet, the City's Police and Sanitation Commissioners each earned $110,000.
- The Church Avenue BID allocated 29% of its total budget to pay for the $35,000 salary of its district manager. The same BID only allocated $6,000 for two sanitation personnel.
- A review of the BIDs' annual reports revealed that staff salaries were not clearly and fully disclosed.
- Including district managers, eight BIDs collectively employed 26 people who earned more than $70,000 per year.
- As it is explicitly stated in their contracts with DBS, BIDs must comply with all State and Federal wage laws. DBS should take a more aggressive oversight role in monitoring such compliance.
- All staff salaries must be publicly documented as part of a BID's annual report that is mailed to all property owners.
- BIDs were created to provide services to property owners and commercial tenants within geographically defined areas. Property owners who are mandated to pay the BID assessment should not have to compete with other neighborhoods for the services of BID staff. The management of multiple BIDs by the same individual or organization violates the original intent of BIDs.
- The Jamaica Chamber of Commerce previously managed two BIDs; Jamaica Mall and 165th Street. Currently, the Chamber is a defendant in a $1 million lawsuit in which the Jamaica Mall alleges mismanagement and potential fraud.
- In the future, no one individual or organization should be permitted to simultaneously manage more than one BID. Furthermore, those individuals who currently manage more than one BID should be prohibited from simultaneously managing any additional BIDs.
Providing Services Outside of the District
- BIDs were established to provide services specifically within their boundaries, yet the GCSSC provided social services on a contractual basis to numerous entities outside the district, including banks, playgrounds and the World Trade Center. Although technically an independent organization, the GCSSC is indistinguishable from the Grand Central Partnership BID.
- DBS must clarify the language in all subsequent contracts executed with the BIDs to explicitly prohibit BIDs from providing services outside of their boundaries which do not promote, enhance, or improve the BID. Any violation of these contract provisions should immediately be reported to the City Council Finance Committee.
- While technically the GCSSC is an independent organization, the Committee concludes that it is indistinguishable from the Grand Central BID and, as such, should stop providing services outside of the BID area.
- The Council's outreach survey showed inconsistencies in satisfaction levels among respondents regarding service delivery. Thirty-seven percent of the respondents to the outreach survey stated that they were either dissatisfied or unsure about the quality of BID services. More than 50% of the respondents were unable to claim that the BID assessment was a good investment. Additionally, 45% felt the BID had not accomplished its goals, or were unsure if the BID had accomplished its goals.
- Survey results showed that satisfaction levels among property owners and managers were directly related to their level of involvement with the BID. Overall, respondents who served on the BIDs' boards of directors were disproportionately pleased with the BIDs' performance. Those respondents who did not serve on the boards showed a much higher level of dissatisfaction with BID performance.
- BIDs should make every effort to assess property owner satisfaction regarding BID services. Outreach surveys, phone calls, and more frequently noticed meetings should be conducted to review the BIDs' effectiveness in providing such services.
- Of those respondents who stated in the outreach survey that their BID provided sanitation services, 81% claimed that the BID was cleaner.
- Ninety-four percent of all BIDs provided some level of sanitation service, and 20% of the BIDs' operating budgets were allocated towards this area.
- Approximately 330 supplemental sanitation workers were hired by the BIDs in FY'95.
- Almost 40% of the BID managers believed that the city had reduced sanitation services to the BID during FY'95. Five BID managers believed their areas were intentionally targeted because the BID already provided this service.
- While sanitation efforts are effective throughout the BIDs, without greater oversight it is difficult to determine whether contractors are meeting the terms of their contracts. DBS should require that BIDs conduct contractor evaluations and provide copies of such evaluations to DBS and the City Council Finance Committee.
- BIDs should be required to establish and utilize performance indicators that adequately measure BID sanitation services.
- Despite the well publicized reductions in the City's crime rates and the significant expenditures by BIDs for security, 40% of the respondents to the outreach survey, who stated that their BID provided security services, did not think the BID was safer or did not know if the BID was safer.
- In FY '95, the BIDs collectively hired approximately 363 security officers.
- BIDs should make every effort to assess member satisfaction regarding their security services. Outreach surveys, phone calls and more frequently noticed meetings should be conducted to review the BIDs' effectiveness in providing such services.
- Although 94% of the BIDs offer some kind of promotional and marketing services, only 57% of the outreach survey respondents were aware that their BID provided such services. Of this number, 36% thought that business had not improved, or were unsure if business had improved.
- BIDs were created to help stabilize and develop New York's business communities. However, many BIDs do not monitor economic indicators such as storefront vacancies and job creation to assess the success of their services.
- BIDs should create performance indicators which adequately measure the level and success of promotion and marketing within their districts.
- In light of New York City's current economic climate, DBS and the newly formed BID Association should provide increased support and or resources to assist the BIDs in their efforts regarding promotion and marketing.
- The approach utilized to provide social services by the Grand Central, 34th Street and Bryant Park BIDs, contained serious managerial and supervisory flaws.
- In 1995, allegations were made that the GCSSC's homeless outreach program utilized "goon squads" to beat up homeless people. However, the Committee determined that as early as 1990 and 1992 there were complaints made that GCSSC workers used excessive force against homeless people.
- According to GCSSC personnel, outreach workers could begin working after attending as few as two or three workshops.
- BIDs should only undertake homeless outreach services by contracting with an independent entity experienced in this field. This should be mandated in future contracts executed between DBS and the BIDs for those BIDs which elect to provide homeless services.
- Any BID which provides homeless services should completely separate outreach and security components.