Frequently Asked Questions
Prepared by Marco Li Mandri, New City America, Inc.
Community Benefit District
The Community Benefit District Ordinance of 2004 was adopted unanimously by the San Francisco Board of Supervisors in February and signed into law by Mayor Gavin Newsom in March 2004. Since that time, many CBDs have been established and 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 ordinance.
The following represents general questions and answers that Japantown business owners, property owners, residents and community members may have regarding the formation of a new Japantown Community Benefit District, (CBD)
What is a San Francisco Community Benefit District (CBD)?
In brief, the CBD is a local ordinance that allows for the establishment of a special benefit district. This "special benefit" district functions to create a stable revenue source that is established by a mail balloting of affected property owners culminating in the adoption of an ordinance by the Board of Supervisors. In 2004, the Board of Supervisors amended the statewide Property Business Improvement District (PBID)legislation (Section 36600 of the Streets and Highway Code) by adopting Article 15, the Business Improvement District Procedures of the San Francisco Business and Tax Regulations Code. The amendment lengthened the term that the district could be in place, allowed for mixed-use assessments and provided a more reasonable weighted petition threshold which would trigger the assessment balloting procedure.
In order to establish the district, the Board of Supervisors must hold a public hearing and mail out assessment ballots in order to gauge the level of support of the weighted
property owners in the district.
Why would Japantown business, property owners or residents 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 those revenues 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.
Those services can be simplified by understanding that "general benefit" services are normally delivered "curb to curb", while "special benefits" are funded through non-public sources and deliver services "curb to property line". Since people normally don't walk down the middle of a street, what they experience in the public rights of way are to be found in the "curb to property line" zone. It is their experience in this zone that shapes their images, positive or negative, of a specific district or neighborhood.
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, by law, stay in the district and are managed by a locally based non-profit corporations comprised of those being assessed.
What "special benefits" can a Japantown CBD 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:
- Cleaning of the public rights of way, sidewalks and gutter (general vs. special benefit);
- Steam cleaning of the sidewalks of the district;
- Additional removal of trash and bulky material;
- Security services over and above the services of the local police force;
- Installation of security cameras;
- Parking services or transportation related services;
- Economic development;
- Special lighting;
- Business attraction and retention and structuring a proper commercial mix;
- Planning, zoning and land use issues;
- Graffiti removal;
- Administration and advocacy on behalf of business districts or neighborhoods
- Beautification and decorations;
- Tree maintenance, planting, watering, etc;
- Marketing and promotion (in business districts only);
- Special community or neighborhood fairs, festivals or events;
- Public space development and management; (Peace plaza, Buchanan Plaza);
Can the City replace its general benefit services in Japantown once the Japantown CBD has been formed?
By law, (Article XIII(d) of the state constitution), property assessments 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 management corporation 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 additional trees, trash cans, lighting, sidewalk repairs, and the CBD assessment revenues can maintain these additional capital improvements.
How would the Japantown CBD be formed?
A Japantown CBD Committee will be formed among various interested parties, including the "weighted property owners" of the district. The Japantown CBD Committee will meet and determine initial study boundaries and then conduct a survey 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 CBD Committee will then enter into the formation stage of the CBD. The formation stage includes the following:
- The Committee is expanded to include all interested parties, with particular emphasis on the weighted property owners. State law mandates that property assessment districts can only be formed by an assessment ballot proceeding supported by the majority of weighted property owners within a given district. The weight of a property owner is not determined by the assessed valuation of the property, but rather by the amount that property owner will contribute to the overall budget of the district. There are times when a few major property owners represent a significant amount of weight in the district. Early knowledge of their support or opposition to the district's formation is critical in the successful formation of the district.
- The Committee endorses a CBD plan for the area. The plan outlines the special benefit services to be funded, the term of the district, the boundaries, the assessment methodology which identifies a formula for determining the costs to each property owner, benefit zones if any, special provisions for discounted assessments, as well as the management structure of the district;
- Once the CBD plan has been approved by consensus of the Committee, the plan is submitted to the City Attorney's office for review and an Assessment Engineer certifies that the plan is compliant with the conditions of Article XIII(d) of the state constitution. The proposed assessments must be proportional to the benefits to be provided and they must "confer a special benefit to each parcel in the district". Once the Management District Plan and Engineer's report has been approved by the City Attorney's office, a petition drive is circulated which demonstrates support by a minimum of 30% of the property owners, by weight. For example, if the annual first year budget is $150,000 for a CBD, petitions endorsing the CBD must be signed by $45,000 worth of assessments in the proposed district. Once the 30% weighted threshold has been reach, the petitions are then submitted to the Mayor's Office of Economic and Workforce Development for processing;
- The Mayor's Office of Economic and Workforce Development dockets a "Resolution of Intention" for consideration by the Board of Supervisors. According to the State Constitution, property owners must be allowed to vote on the formation of the district through an "assessment ballot proceeding"/public hearing process. By adopting the Resolution of Intention, the Board is instructing the City Clerk to mail out the ballots to every affected property owner. The property owners have between 45-60 days in which to return the mail ballots. The mail ballots must be returned by the conclusion of the public hearing;
- At the conclusion of public testimony at the public hearing, the Elections Department will then count the returned ballots and separate those in support and those in opposition. If the weighted returned ballots of support exceed those returned in opposition, the Board of Supervisors can then adopt an ordinance that levies the assessments on the benefiting parcels. The City then informs the County to levy the assessments on the next cycle of property tax bills consistent with the Management District Plan and Engineer's report.
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 special assessment bills prepared by the County of San Francisco. Property assessment 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 MOEWD 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.
Once established, must every parcel in the Japantown CBD pay?
Unless specifically mentioned in the plan, every single parcel owner within the boundaries of the special benefit district must pay into the CBD. 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 by "clear and convincing evidence" that no benefit will be received from the special benefit services funded by the district.
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 term has been completed, the provisions for establishment are repeated in order to continue to fund special benefit services if that is the will of the benefiting property owners.
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 50% 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.
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, "not less than 20% of voting members of the governing body of the district shall be such business owners, who do not own, or have an ownership interest in commercial property located within the district" (San Francisco Business and Tax Regulations Code, Article 15, Section 1511, (f). 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, office, to administer the district on behalf of the stakeholders. Bylaws are normally written to ensure that the property owners can be freely nominated and/or 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 these 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?
As of August 2006, 5 CBDs and 2 PBIDs have been approved by their respective property owners. Currently 5 more districts are under investigation
New York City:
33 districts with 4 more in some stage of formation
6 newer property-based districts
Districts that have been formed by New City America in the City of San Francisco:
6 districts, with 2 more under formation
- Fisherman's Wharf (July 2005)
- Noe Valley/24th Street (August 2005)
- North of Market/Tenderloin (August 2005)
- Castro/Upper Market (August 2005)
- Fillmore Jazz District (August 2006)
Districts that are under investigation and/or formation stage in the Bay Area by New City America:
- Central Market Street
- Yerba Buena Gardens
- Portside BID (Fisherman's Wharf 2nd stage)
Marco Li Mandri, President
New City America, Inc.
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