Understanding Business Improvement District formation: An analysis of neighborhoods and boundaries

Meltzer, R.

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Meltzer, R. (2012). Understanding Business Improvement District formation: An analysis of neighborhoods and boundaries. Journal of Urban Economics, 71(1), 66-78.

Business Improvement Districts , Economic Development , Private governments , Public good provisions , Urban revitalization

Business Improvement Districts (BIDs) provide supplemental services to urban commercial corridors using funds from member assessments. They have become a very popular urban revitalization tool, but their formation is still largely unexplained. Theory implies that BIDs will form if they add to aggregate welfare and if the marginal net benefit of membership is positive. I test this for the neighborhood overall and at the BID boundary. Using unique, micro-level and longitudinal data from New York City, I employ survival analysis methods to estimate the likelihood of a neighborhood forming a BID. I then estimate the likelihood of the marginal property’s BID membership by comparing the characteristics of properties located immediately inside and outside of the BID boundaries. I find that BIDs are more likely to form when there is more commercial space over which the BID benefits can be capitalized and when there is homogeneity in service and spending preferences across properties. BIDs also tend to form in neighbor- hoods that possess signs of appreciation and growth. Generally, BIDs are more likely to form in neighbor- hoods with higher valued properties with the exception of very wealthy areas. The BID boundary, however, is comprised of relatively less valuable properties.

Main finding
Business Improvement Districts (BIDs) are urban commercial corridors where supplementary and exclusive services are organized through “private governments”. BIDs work as a method to revitalize neighborhoods that can be formed through a voting structure based on the support of 51% or more of the assessed property value, though with a minority of property owners. New York City has the largest number of BIDs in the country with at least one BID in every borough, though unevenly distributed. BIDs are likely to be formed when there is more commercial space, homogeneity among the property owners in preferences over services and spending, and signs of appreciation and growth in the neighborhood, while property values are less relevant. The policy implications are threefold: BIDs are not likely to be formed in low potential neighborhoods and need a critical mass of valuable properties, therefore the responsibility of the local government can be to assist to form a BID.

Description of method used in the article
Data from the New York City Department of Small Business Services (SBS) is used and combined with the Real Property Assessment Dataset and the Geolytics Neighborhood Change Database.

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3D / Digital / Datasets
Geographic locations