What's the bid deal? Can the Grand Central Business Improvement District serve a special limited purpose?

• Author: Garodnick, Daniel R.
• Position: New York City

INTRODUCTION

Business Improvement Districts ("BIDs") have changed the landscape of urban governance. Clothed with limited powers traditionally held by the state, BIDs are private entities that provide supplemental sanitation, security, and social services to limited geographic areas within cities.(1) Today, BID workers are a regular presence on the municipal terrain--whether they are sweeping streets, hailing taxis, or providing tourist information. BIDs have harnessed private sector creativity to solve complex municipal problems and have made cities safer and cleaner.(2)

Funded by an extra assessment on property owners, BIDs conduct their operations with an efficiency that eludes city bureaucracies--they are flexible, nimble, and directly accountable to the local businesses that pay for the bulk of their operations. Yet, questions of constitutionality exist when a BID, exercising limited governmental powers, is managed by a board of directors elected through a process that weighs votes in proportion to the value of land owned and guarantees that property owners will always comprise a majority of the board.

Such questions were posed in a recent Second Circuit case, Kessler v. Grand Central District Management Ass'n, in which non-property-owning citizens residing in a BID challenged the voting structure for electing members of its board.(3) Disempowered from fully participating in the BID's management, the Kessler plaintiffs argued that a governmental scheme that weighed the votes of property owners more heavily than residents violated the constitutional guarantee of "one person, one vote."(4) As problematic as such a voting structure could be, the success of BIDs and other special purpose districts arises from their efficiency in providing services--efficiency that exists only at the price of subjugating traditional notions of equality.

Nowhere have these questions been debated more fiercely than in New York City, which is home to the largest concentration of BIDs in the United States.(5) Following an introduction to the BID concept in Part I, Part II of this Comment discusses the nature of New York's most prominent BID and the subject of the Kessler case: the Grand Central Partnership ("GCP"). Part III addresses the Supreme Court's treatment of the "one person, one vote" principle(6) and its application to local and special purpose districts. Part IV examines the Kessler challenge itself, exposing flaws in both the District Court's and the Second Circuit's analyses. Finally, this Comment will demonstrate through hypothetical examples that BIDs actually may create inefficiencies because property owners and residents may not have matching incentives for the provision of public goods.

1. BUSINESS IMPROVEMENT DISTRICTS

   1. What Is a BID?

      BIDs are territorial subdivisions within a city in which all property owners or businesses are subject to additional tax assessments(7) that are used to fund services and improvements within the district.(8) Services provided by BIDs are directed at improving the quality of life within the BID's territory, and may include garbage collection, street maintenance, security patrols, and even limited social services.(9)

      Developed from the concept of "special purpose districts," BIDs were created by state legislatures to remedy particular public policy challenges that traditional governmental institutions either were incapable of attacking or were simply unwilling to address.(10) While such districts historically have been limited in scope, they have resolved civic problems, such as water storage(11) and agricultural improvements and power,(12) that affect certain individuals more than others. The enabling statutes of the districts generally allowed them to operate on a special, limited basis, while restricting the vote for the district's management to those who were disproportionately affected.(13) Unlike BIDs, special purpose districts typically did not address broad municipal problems nor provide police or social services.

      BIDs have grown to serve an essential function in municipal governance for several reasons. First, they successfully harness private sector creativity for the purpose of beautifying and securing large geographic areas in cities.(14) Second, they bring "government" one step closer to the people, so much so that business leaders often call their BIDs rather than their City Council officials for solutions to municipal problems.(15) Third, they appeal to many commercial merchants because they solve the nagging "free rider" problem,(16) whereby only some merchants foot the bill for local innovations, but all reap the resulting benefit of the improvements.(17) BIDs also ensure that all property owners in the area are locked into a payment scheme.(18) Finally, limiting the vote to property owners ensures that revenues raised will be reserved for the particular programs desired by those most heavily burdened by the tax.(19)

      BIDs are structured so that all commercial, industrial, and residential property may be subject to a tax assessment in proportion to the valuation of the property.(20) A city agency collects the tax and disburses the assessment to the BIDs.(21) The BIDs use those funds to provide services that are supplemental to those provided by the city itself.(22) Each BID has a "district management association" operated by a board of directors that is entrusted with making strategic decisions concerning the provision of daily services.(23)

      In New York, the state legislature passed its BID law in response to deteriorating conditions in business districts throughout many municipalities in the state.(24) Like the special purpose districts noted above, the predecessors to New York BIDs were established in the 1970s, when cities "created special districts which collected assessments from property owners to pay for pedestrian malls and street improvements."(25)

   2. Forming a BID

      Several layers of approval are required before a BID is created.(26) In New York City, for example, BID advocates must inform property owners and commercial tenants of the proposed BID, including its budget and tax assessment scheme, the services to be provided, and its territorial boundaries.(27) Although no formal vote is required of property owners, BID proponents must continue to solicit support "until enough support has been generated and there seems to be general consensus on the boundaries, services, and budget of the proposed BID."(28) Supporters then must compile a detailed district plan(29) and forward it first to the Department of Business Services ("DBS"), which is the City agency that oversees all BIDs, and then to the City Council and other elected officials.(30) Following an open public meeting, the City Planning Commission reviews the proposal and prepares a report approving or disapproving the district plan.(31) The Commission then submits its report to the Mayor, Borough President, City Council, relevant council member or members, and the City Clerk.(32)

      The City Council holds another public hearing and will receive objections to the plan for a period of thirty days.(33) This process applies only to property owners--lessees in the district subject to commercial or residential leases do not have the right to file formal objections to the plan. Yet, if owners of at least fifty-one percent of the assessed valuation of benefited real property within the BID, or fifty-one percent of the owners of such property, file objections, the BID will not be established.(34) Unless sufficient objections block a BID's creation, the City Council may vote to create the BID and to allow DBS to contract with the BID for the proposed supplemental services.(35) The Department of Finance ("DOF") collects annual assessments from property owners and provides the money to DBS, which distributes bi-weekly disbursement checks to the BID.(36)

      At a time when "urban governments to a large extent dictate the quality of life in urban America,"(37) BIDs have been proliferating and have been enormously successful in achieving real improvements.(38) Nearly forty BIDs are in operation in New York City,(39) and more than half of the states have statutes allowing localities to create similar improvement districts.(40) Approximately one thousand BIDs already are in existence in the United States,(41) and New York City's mayor, Rudolph Giuliani, has said that BIDs are "filling in for government."(42) This phenomenon is perhaps most evident within the geographic area of the Grand Central Partnership.

2. THE GRAND CENTRAL PARTNERSHIP

   1. The Grand Central Partnership Defined

      The Grand Central BID covers seventy-five blocks in midtown Manhattan's central business area, with Grand Central Terminal standing at its center.(43) It encompasses a high-rent commercial area with several architectural landmarks, including the Chrysler Building, the Daily News Building, and St. Bartholomew's Church.(44) It contains more than fifty-one million square feet of commercial real estate, accounting for fourteen percent of Manhattan's total office space.(45) The property within the GCP was valued at approximately $7.8 billion in 1994.(46) The BID's security patrol has produced a sixty percent drop in crime, taxi dispatchers maintain orderly queues outside Grand Central Station, and new lampposts, planters, and trash receptacles sit on nearly every block in the district.(47) Dan Pisark, a director of the Grand Central Partnership, noted that "new stores have opened, and existing ones are investing in expansions, with vacancies as low as 2%."(48) Neither proponents nor critics can deny the positive impact of the GCP.

   2. Function of the Grand Central Partnership

      In its district plan, the GCP sought to contract with DBS to offer the following supplemental services: security, sanitation, tourist information, social services for homeless persons, special maintenance and repair, public events, and retail improvements.(49) Today, the GCP...