Last month, Florida took center stage when Gov. Ron DeSantis (R) took steps to eliminate the Reedy Creek Improvement District. Senate Bill 4C, introduced on April 19 and signed into law on April 22, dissolved special districts that were “not reestablished, re-ratified, or otherwise reconstituted by a special act or general law after November 5, 1968.” The original Reedy Creek Improvement District bill was signed into law on May 12, 1967, by then-Gov. Claude R. Kirk Jr.
Since that time, there’s been a lot of conversation surrounding Reedy Creek, Disney’s special district. One of our Insights focusing on Reedy Creek’s potential dissolution was widely circulated—a screenshot even made an appearance on “Last Week Tonight with John Oliver” on HBO. Everyone, it seems, 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 per day. The district’s charter allows the company to fund and oversee everything from firefighting and emergency medical services (EMS) to road building and maintenance.
It feels special—not only because it has “special” in the name but also because it’s associated with a company that has long promoted itself as magical.
But the truth is that the underlying laws that allow for Reedy Creek’s existence are really very ordinary: there are more than 1,800 special districts in Florida alone.
Special Districts
Special districts have different forms and even more different names, depending on where in the world you live. In the US, we tend to refer to these kinds of districts as business improvement districts, or BIDs. Other names include special services areas, community improvement districts, and special improvement districts—like Reedy Creek. No matter what they’re called, the idea is the same: Those within a particular boundary pay additional taxes to fund projects, services, and maintenance. Typically, these kinds of services are those not performed by state and local governments or are not being carried out in a manner that is sufficient for the district.
The Downtown Development District of New Orleans claims to be the “first assessment-based business improvement district” in the US. It was created by the Louisiana Legislature in 1974 with a focus on economic development, cleaning, and safety.
However, some, including the State of Florida Department of Economic Opportunity, argue that the first special district was created in 1736 by Benjamin Franklin. The Union Fire Company, modeled from the Boston Fire Society, is considered the first formally organized all-volunteer fire company in the US and was established to address Philadelphia’s inadequate response to fires in the city. Franklin’s private fire company required members to pay a subscription—monies were pooled and used for fire prevention and firefighting services, not unlike BIDs do today.
How BIDs and Other Special Services Work
BIDs may be formed to address all kinds of issues that might ordinarily be considered the responsibility of state and local government. You’ve probably seen BIDs at work, funding everything from streetscapes to street cleaning and additional security and assumed that those services were paid out of government coffers. But special districts don’t typically rely on government money—those are private dollars at work.
Unlike in Benjamin Franklin’s time, participation in a BID is not always voluntary. That’s because a BID or special district is a legal entity created by a state or local authority. Here’s how that works. Typically, businesses—though residents may participate—will reach out to local authorities to create a BID under an existing state law. With that buy-in, a map of the district is drawn, and a vote takes place. If there’s support to move forward, the BID will be formally established.
Sometimes, though, it may give the illusion of voluntary. For example, in the case of Reedy Creek, Disney is the single largest landowner in the special district. That means that there are few surprises when it’s time to vote.
And BIDs don’t last forever. Most are subject to limitations that require some kind of reauthorization. In many cases, that means that the property owners are polled at regular intervals—five- or 10-year marks are not uncommon—to ensure that those who are paying the tax are in favor of continuing the district.
Funding for the district is generally determined by a tax assessment on the value of commercial properties. Exemptions may exist for residential property owners located in the district and other kinds of businesses like nonprofits, but those normally have to be carved out. And in some cases, lines may be drawn so that some businesses pay more for more services, while businesses on the edges of the district pay less and receive fewer services.
It’s commonplace for a BID to be organized as a nonprofit organization. As such, it would have a board usually made up of community representatives and business owners who pay the assessment or tax, with nonvoting members that might include exempt property owners and government officials. As with any nonprofit corporation, the board oversees policy but not the day-to-operations—that falls to an executive director or similar manager.
The executive director is tasked with figuring out how to spend the money that’s collected. There are generally some well-established parameters that are outlined in the legislation. Depending on the specific needs of the area, that could include fire services and security (as with Reedy Creek), sidewalk cleaning, and safety improvements like pedestrian crossings. Sometimes, funds may be earmarked for beautification projects—those street planters, fancy lighting, and benches that you might have noticed in some commercial corridors could well be the work of a BID. Money may also be used for community gatherings like festivals and marketing, like maps and websites, for business districts.
My Experience
If I sound like I might have some experience with BIDs, that’s true. I served on the Board of the Roxborough Development Corporation in Philadelphia, including a stint as president. 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 spent countless hours walking with the executive director throughout our commercial corridor, meeting with property and business owners, and speaking with developers. These were businesses that I knew well. My kids attended school at the top of the hill, and we often walked to the “wooder ice” stand on warm afternoons. And on Saturdays, just before floor hockey, we’d fuel 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 drive-up window in case we stopped by with our Lab.
I was a tax attorney, business owner, and a resident, so I brought all of those perspectives to the table. It was eye-opening.
Criticisms
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 had. It’s clear—as with Reedy Creek—that those who own the most property in a particular district tend to have the power to make the rules. They’re paying the most, right? In that way, it can feel like big property owners run the show. That’s not always untrue.
Another criticism? Money paid in, typically classed as taxes, is often keyed off of property assessments. That means that when property values go up—as they are doing now—the amounts payable go up, too.
And there’s also a palpable opposition to the idea that businesses feel the need to pay more for services that, in some instances, they believe their property taxes should cover. Sometimes, as in Benjamin Franklin’s time, there is a concern that cities and towns aren’t doing enough to keep residents safe and provide a level of acceptable service. Paying more for those services may be unappealing to some, while others accept the creep towards more control as beneficial.
What Happens if BIDs or Special Service Districts Go Away?
Florida’s attempts to dissolve Reedy Creek won’t take effect until 2023, assuming that there’s no legal action before that time to keep it—and five other smaller special governmental agencies—in place. But no matter what happens in Florida, special districts, BIDs, and the like still exist all over the country and the world. However, as demonstrated by the Florida legislature, they largely exist so long as state governments agree that they should. And if that changes, are state and local governments prepared to pick up the tab for some of these services? It’s an interesting question for business owners and taxpayers—and voters.
This is a regular column from Kelly Phillips Erb, the Taxgirl. Erb offers commentary on the latest in tax news, tax law, and tax policy. Look for Erb’s column every week from Bloomberg Tax and follow her on Twitter at @taxgirl.