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General Questions and Answers Regarding the San Francisco Community Benefit District — Adopted 2004
Prepared by Marco Li Mandri, New City America, Inc.
The new Community Benefit District Ordinance of 2004 was adopted unanimously adopted by the San Francisco Board of Supervisors in February and signed into law by Mayor Gavin Newsom in March 2004. Since that time, efforts to establish new CBDs have grown all over the City. This paper represents a brief outline on what services can be funded by the new San Francisco CBD.
The following represents general questions and answers that potential applicant groups may have regarding the formation of a new Community Benefit District (CBD), in the City of San Francisco.
What is a CBD?
In brief, the CBD is a locally established special benefits district. The district functions to create a stable revenue source that is established by a vote of property owners and the adoption of an ordinance by the Board of Supervisors within a specifically designated area.
In order to establish the district, the Board of Supervisors must hold a public hearing and distribute mail ballots in order to gauge the level of support of the weighted property owners in the district. Article XIII, Section D of the California State Constitution, governs the procedures for public hearing notification.
Similar districts are sometimes called Property Business Improvement Districts, Business Improvement Districts, Maintenance Districts or Special Assessment Districts. In San Francisco, the new enabling ordinance known as the Community Benefit District (CBD), ordinance of 2004 has been adopted to provide local enabling legislation for motivated business district and neighborhood stakeholders.
The concept is to funnel district responses to problems in the public rights of way to a community based non-profit management corporation that is funded by the assessment district revenues.
Why would anyone want to pay more money; isn't the city supposed to be providing these services?
Cities in the U.S. tax their citizens through a number of means, (property taxes, sales taxes, hotel taxes, enterprise taxes, special revenues), and allocate them to deliver general benefit services. These services are evolving historically but normally include police, fire, transportation, sewer, water, planning and zoning, streets, lighting, social and cultural affairs, environmental issues, trash and refuse, housing, etc. These services do not and cannot respond to the special needs of a given neighborhood or business district.
To respond to those special needs, including sidewalk sweeping, steam cleaning, rapid removal of bulky items and graffiti, responding to illegal encampments, additional security, installation of order, states and localities have adopted special enabling legislation which allows motivated property owners to pay assessments to fund special benefit services. These special benefit assessments are probably the most efficient and effective funds to be paid since they must stay in the district, by law, and are managed by a locally based non-profit corporation made up of those being assessed.
At a time of huge local, state and national budget deficits, it is expected that general services will, in fact, be reduced. These assessments can provide the services each and every business district and neighborhood wants, but will not be funded by the City.
What "special benefits" can the district fund?
The special services to be funded are spelled out in the enabling ordinance or legislation. They can only legally include those services over and above what a City will normally provide through the general fund. Such special benefit services may include:
Can the City replace its general benefit services in that district once the special benefits district is formed?
By law, (Article XIII(d) of the state constitution), property assessment districts can only fund special, not general benefits. General benefits are those allocated to all parcels in the City and funded out of public or general fund revenues. Cities throughout the state normally adopt "baseline services agreements", that require the City not to withdraw services once the special benefits district has been formed.
Experience has shown that once the assessment district has been formed, the private property owners in the district can normally leverage a greater amount of general benefit City services than before the establishment of the district. This is due to the fact that those property owners are now organized and can request things such as trees and the CBD assessment revenues can maintain additional trash cans, with the understanding that these capital improvements funded by the City.
What allows the district to be formed and how is it done?
The district is normally initiated by a group of motivated property owners within a given community or district. Experience tells us that a core of property owners representing at least 10-15% of the potential assessment weight of the district, is necessary to initiate the investigation. This group will then approach the Mayor’s Office of Economic Development to get information related to formation and the function of the special benefit services district.
A CBD Steering Committee will be formed among various interested parties, including the "weighted property owners" of the potential district. The CBD Steering Committee will meet and determine initial study boundaries and then conduct a study analyzing the level of support for formation of a CBD/Special Benefits district in the target area.
Assuming that at least 20-25% of the weighted property owners express support for the concept of the district, the Steering Committee will then enter into the formation stage of the CBD. The formation stage includes the following:
How long does this process take?
The process can take as little as 6 months or as long as 2-3 years. What is most important is that the affected community understands the proposal and the boundaries are set around a weighted majority who desire the services to be funded by the district.
Can the district be formed any time during the year?
Yes, however it is best to coordinate the formation process so the public hearing is completed by the end of July each year. This is suggested so there is not such a long delay in approving the district and receiving the revenues from the first property tax bills in December. The MOED is currently working on a plan to allow new CBD formed out of cycle to approach a local financial institution to provide for a line of credit. This line of credit, secured by the CBD assessments, will allow the district to begin services prior to the tax collection cycle.
How are the CBD assessments collected?
As provided by local ordinance, the CBD assessments will appear as a separate line item on the annual property tax bills prepared by the County of San Francisco. Property tax bills are distributed in the Fall and payment is expected by lump sum or in two installments. The County of San Francisco shall distribute the assessments collected from the CBD, to the City of San Francisco’s MOED who will in turn then forward them to the designated Management Corporation, pursuant to the authorization of the plan. Existing laws for enforcement and appeal of property taxes apply to the CBD assessments.
Is there a minimum amount that should be generated by the district?
Though there is no legal requirement for assessment revenue generation, practice tells us that a minimum of $150,000 in a business district and $75,000 in a neighborhood should be generated in order to make a difference. The idea of the district is to have the special services make an impact in the problem that the district or neighborhood may face. It is important that the district has adequate revenues to fund the special benefit services that gave rise to the concept of an enhanced services district in the first place.
Once established, must every parcel in the district pay?
Unless specifically mentioned in the plan, every single parcel owner must pay into the district. This includes local, county, state and federal properties. In addition, parcels owned by tax-exempt designated organizations may be exempt from paying property taxes but will not necessarily be exempted from the assessment district. The only way to be exempted is to demonstrate that no benefit will be received from the special benefit services funded by the district. The City will sign petitions, vote in favor and pay into the respective CBD.
How long can the district last once established?
In San Francisco, the CBD ordinance will have a maximum life of 15 years. This length of time is to allow property owners to determine if they wish to fund long term capital improvement projects that will provide special benefit to their district. The district can be formed for any amount of time, not to exceed 15 years. Once the district is completed, the provisions for establishment are repeated in order to continue to fund special benefit services.
How could a district be disestablished if it is not functioning as envisioned?
Local ordinance provides for the disestablishment of the CBD pursuant to an annual review process. Each year that the district is in existence, there will be a 30-day period during which the property owners will have the opportunity to request disestablishment of the district. Within that 30 day period, if the owners of real property who pay 30% or more of the assessments levied submit a written petition, the CBD district disestablishment procedure may be initiated. The Board of Supervisors will hold a public hearing on disestablishing the CBD prior to actually doing so. Thus the disestablishment procedure is no more difficult than the provisions of the establishment procedure.
Due to its long term nature, this new ordinance allows for the growth of landscaping, its maintenance as well as economic development strategies related to revitalization that create a more permanent improvement to the area. If there is debt against the district, the district cannot be disestablished. All financial obligations in the form of bonds or loans for capital improvements, must be paid off before the district can be disestablished.
Who controls the funds once the district is established?
A non-profit corporation is usually designated or established once the district has been created. The non-profit corporation Board majority is normally comprised of the property owners paying into the district, but under local ordinance, 20% of the seats of the management corporation must be set aside for non-property owners, (business tenants, community members, etc. ) The corporation could be an existing corporation, but usually a new one is formed based upon the boundaries of the new district. It could be a mutual benefit or public benefit corporation.
The non-profit CBD management corporation would then enter into a contract with the City, through the City Attorney’s office, to administer the district on behalf of the stakeholders. Bylaws are written to ensure that the property owners can be freely nominated and elected to the Board. By law, the assessments generated within the district must be allocated to fund special services within the district. The City cannot offload its current baseline level of services with the assessments since the district can only fund "special benefits".
Once established, can the city increase the assessments?
By law, the only increases in the annual assessment methodology must be pre-determined and placed in the CBD plan for the district. The City cannot arbitrarily increase the assessments because they are not funds created by or controlled by the City. The assessment may be increased only through a pre-designated CPI factor, or changes in land use such as parking lots being converted to commercial buildings or condos.
How many districts similar to the CBD exist in the Bay Area and state?
Business community assessment districts in which additional fees tied to business licenses have been around for the last 35 years in the state. Property based districts are relatively new to the state, with statewide legislation adopted in 1994 enabling their establishment.
It is estimated that over 2,000 property based districts are functioning in the US and Canada. In the state of California, over 400 business licensed based and property assessment districts in business districts are functioning. Examples of cities that have multiple districts include:
This is clearly the national trend. These districts are providing the revenues to fill the gaps left by inadequate City services. They are the wave of the future and they have finally come to the City of San Francisco.
Written by:
Marco Li Mandri, President
New City America, Inc.
2130 Columbia Street
San Diego, CA 92101
(888) 356-2726
FAX: (619) 239-7105
