San Diegans for Open Government reopen discussion on BID legality

By Manny Lopez | SDUN Reporter

The business improvement district (BID) phenomenon has proliferated throughout San Diego in recent years, and has some residents questioning the funding mechanisms, accountability and democratic nature of this relatively new urban revitalization strategy.

These self-assessment districts are initiated by the private sector, directed by owners and sanctioned by the City Council to operate within designated geographic areas. The City’s Office of Small Business administers the BID program, and reports that over 11,000 small businesses raise more than $1.3 million annually through 18 BIDs in San Diego.

Attorney Cory Briggs, representing local watchdog group San Diegans for Open Government, sued the City in June, arguing that assessments paid by businesses in the form of a separate charge on their business tax certificates constitutes a levy, or tax, and therefore violates Proposition 26.

Called the Stop Hidden Taxes initiative, Prop. 26 was approved by California voters in 2010 and closed a loophole that allowed the passage of higher taxes by calling them “fees.” Now, the law requires a two-thirds majority vote before enacting any new taxes.

“Anytime a local agency tries to raise revenues it either has to get voter approval or it has to raise them in a way that qualifies as an exception to the voter-approval requirement,” Briggs said.

“Business assessments that are not tied to a particular service, such as water or sewage treatment, or that are not tied to a specific benefit to real property, such as picking up the trash in a community, do not qualify for an exception,” he said.

In part responding to a 2011 court decision ruling the former Greater Golden Hill Maintenance Assessment District invalid, City Attorney Jan Goldsmith sent a memo dated July 27, 2012 advising the Council and Mayor not to impose any new assessments without voter approval, unless the program to be funded by the assessment only benefits those that are charged and not others, Briggs said.

BIDs are quasi-governmental, private-public ventures in which businesses within a defined geographical area pay a fee. In San Diego, those fees range from $40 to $1,200 annually, with anchor businesses paying up to $5,000. Funds paid to BIDs are technically not taxes, although failure to pay can result in fines and filing of a lien.

The City then contracts with an organization – usually a non-profit merchant association – that represents the assessed business owners. The BID decides how collected fees get spent and what gets accomplished, among other initiatives. They provide privately managed services that usually focus on promotion as the primary tool for urban commercial revitalization.

Diane Faulds is an accountant and former board member of Discover Pacific Beach, the Pacific Beach BID, serving from 2008 to 2011. During that time, Faulds said that she witnessed instances of discrepancies on the organization’s financial statements that could potentially be in violation of its BID contract with the City.

“The system itself is completely unregulated and the rules are not properly enforced by anybody,” Faulds said. “There is no uniformity among the BIDs and the bylaws that direct them are all different.”

In a separate lawsuit, Briggs is accusing the Downtown San Diego Partnership, a property and business improvement district (PBID), of mismanaging funds by paying high-priced consultants who were not doing work related to the PBID.

“They spent money on things to feather the Downtown Partnerships nest beyond taking care of PBID business,” he said. “That’s basically stealing from the taxpayers.”

Briggs is asking the nonprofit to give a full accounting of all disbursements and to repay any non-allowed expenditures.

Benjamin Nicholls, executive director of the Hillcrest Business Association, said BIDs are some of the most heavily examined organizations in the city, undergoing rigorous audits by several different groups.

He said BIDs are obligated to post all of their important documents online, so if anyone wants to know exactly where taxpayer money is being spent, they can go to the organization’s website and view the contracts.

“I think that recent initiatives that have passed such as Prop. 26 have created some interesting policy discussion points for the business improvement districts,” Nicholls said. “There might be opining that legal-type people need to do, on what the effects of those initiatives will have on these special assessment districts.”

Gerrie Trussell, executive director of the Mission Hills Business Improvement District, said the majority of business owners want BIDs because they are able to pool their resources and compete with larger entities, such as malls and big-box stores.

Trussell also said that participation in a BID gives them a voice in their community through advertising support and exposure, which helps create goodwill that all small businesses need.