Last month, Florida took center stage when Gov. Ron DeSantis (right) moved to eliminate the Reedy Creek Improvement District. Senate Bill 4C, introduced on April 19 and enacted on April 22, dissolves special districts which have not been “re-established, re-ratified, or otherwise reconstituted by special law or general law after November 5, 1968”. the original The Reedy Creek Improvement District Bill was signed into law on May 12, 1967 by the then Governor. Claude R. Kirk Jr.
Since that time, there’s been a lot of conversation around Reedy Creek, Disney’s Special Neighborhood. One of our sneak peeks of Reedy Creek’s potential disbanding has been widely shared — a screenshot even made an appearance on HBO’s “Last Week Tonight with John Oliver.” Everyone, it seemed, was talking about Disney.
Often the conversations focused on the scope of Disney’s Special District, which covers 25,000 acres, or about 40 square miles, and receives about 250,000 visitors daily. The district charter allows the company to fund and oversee everything from firefighting and emergency medical services (EMS) to road construction and maintenance.
It feels special, not just because it has “special” in the name, but also because it’s associated with a company that has long billed itself as magical.
But the truth is that the underlying laws that allow Reedy Creek to exist are really very ordinary: there are more than 1,800 special districts in Florida alone.
Special districts have different shapes and even more different names, depending on where in the world you live. In the United States, we tend to refer to these types of districts as Business Improvement Districts, or BIDs. Other names include special service areas, community improvement districts, and special improvement districts, such as Reedy Creek. No matter what they are called, the idea is the same: those inside a particular border pay additional taxes to fund projects, services and maintenance. Typically, these types of services are those that are not provided by state and local governments or are not provided in a sufficient manner for the district.
the New Orleans Downtown Development District claims to be the “first assessment-based business improvement district” in the United States. It was created by the Louisiana Legislature in 1974 with a focus on economic development, cleanup, and safety.
However, some, including the Florida State Department of Economic Opportunity, argue that the first special district was created in 1736 by Benjamin Franklin. The Union Fire Company, modeled after the Boston Fire Society, is considered the first officially organized all-volunteer fire company in the United States and was formed to respond to Philadelphia’s inadequate response to fires in the city. Franklin’s private fire company required members to pay a subscription—funds were pooled and used for fire prevention and firefighting services, much like BIDs do today.
Operation of BIDs and other special services
BIDs can be formed to deal with all sorts of issues that might normally be considered the responsibility of state and local governments. You’ve probably seen BIDs at work, funding everything from streetscapes to street cleaning and extra security, and assumed these services were paid for out of government coffers. But special districts aren’t usually dependent on government money — they’re private dollars at work.
Unlike in the days of Benjamin Franklin, participation in an IDB is not always voluntary. Indeed, a BID or special district is a legal entity created by a state or local authority. Here’s how it works. Typically, businesses — although residents can participate — will approach local authorities to create a BID under existing state law. With this membership, a map of the district is drawn and a vote takes place. If there is support to move forward, the BID will be officially established.
Sometimes, however, it can give the illusion of being willful. For example, in the case of Reedy Creek, Disney is the largest landowner in the special district. This means that there are few surprises when it comes time to vote.
And BIDs don’t last forever. Most are subject to limitations that require some sort of re-authorization. In many cases, this means that landowners are polled at regular intervals – five- or ten-year benchmarks are not uncommon – to ensure that those paying the tax are in favor of keeping the district.
District funding is generally determined by a tax assessment on the value of commercial properties. Exemptions may exist for owners of residential property located in the neighborhood and other types of businesses such as non-profit organizations, but these should normally be excluded. And in some cases, lines can be drawn so that some businesses pay more for more services, while businesses on the outskirts of the district pay less and receive less service.
It is common for a BID to be organized as a non-profit organization. As such, it would have a board generally made up of community representatives and business owners who pay the assessment or tax, with non-voting members who could include exempt owners and government officials. As with any nonprofit corporation, the board oversees policy, but not day-to-day operations, which is the responsibility of an executive director or similar official.
The executive director is responsible for determining how to spend the money collected. There are usually well-established parameters that are described in the law. Depending on the specific needs of the area, this could include fire and security services (as with Reedy Creek), sidewalk cleaning, and safety improvements like crosswalks. Sometimes funds can be earmarked for beautification projects – those street planters, fancy lighting and benches you might have noticed in some commercial hallways might just be the work of a BID. The money can also be used for community gatherings like festivals and marketing, like maps and websites, for business districts.
If I sound like I have some experience with BIDs, I am. I served on the board of the Roxborough Development Corporation in Philadelphia, including a stint as chairman. At the time, we had a relatively new BID and worked closely with other special districts, like Manayunk, Germantown, East Falls, and Center City, to figure out what worked and what didn’t.
I’ve spent countless hours walking with the Executive Director along our trade corridor, meeting building and business owners, and speaking with developers. These are companies that I know well. My kids went to school at the top of the hill and we often walked to the ‘woods ice cream’ stand on hot afternoons. And on Saturday, just before floor hockey, we stocked up on coffee (for me) and pastries (for the kids) from the local bakery. Our bank was so local that they started keeping dog treats at the counter in case we stopped by with our lab.
I was a tax lawyer, business owner, and resident, so I brought all of those perspectives to the table. It was revealing.
And while I realized that BIDs and similar special districts could do a lot of good, I also learned that, as with any organization, there were criticisms to be made. Clearly, as in the case of Reedy Creek, those with the most property in a particular district tend to have the power to set the rules. They pay the most, don’t they? This way, it can feel like the big owners are running the show. It’s not always wrong.
Another review? The amounts paid, generally classified as taxes, are often deducted from property assessments. This means that when the value of properties increases, as is the case now, the amounts to be paid also increase.
And there’s also palpable opposition to the idea that businesses feel the need to pay more for services that, in some cases, they think their property taxes should cover. Sometimes, as in the days of Benjamin Franklin, there are concerns that cities and towns are not doing enough to keep residents safe and provide an acceptable level of service. Paying more for these services may be unappealing to some, while others accept the shift towards more control as beneficial.
What if BIDs or Special Service Districts disappear?
Florida’s attempts to disband Reedy Creek won’t go into effect until 2023, assuming there’s no legal action before then to keep it and five other special government agencies in place. smaller. But no matter what happens in Florida, special districts, BIDs, etc. still exist across the country and around the world. However, as the Florida legislature has demonstrated, they largely exist as long as state governments agree they should. And if that changes, are state and local governments ready to take over some of these services? This is an interesting question for business owners, taxpayers and voters.
This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest tax news, tax law and tax policy. Look for Erb’s column each week in Bloomberg Tax and follow her on Twitter at @taxgirl.