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State Legislation Governing Business Improvement Districts

Property and Business Improvement District Law of 1994

The ability to establish a Business Improvement District is granted by the State of California through the "Property and Business Improvement District Law of 1994." The law states "Upon the written petition, signed and acknowledged, of the property owners in the proposed district who will pay more then 50 percent on the assessments proposed to be levied, the City Council may initiate proceedings to form a district by the adoption of a resolution expressing its intention to form a district." The resolution of intention shall contain the following: (a) The management district plan. (b) A time and place for a public hearing on the establishment of the property and business improvement district and the levy of assessments.

The management plan shall contain all of the following: (a) a map of the district to locate each parcel of property within the district. (b) The name of the proposed district. (c) A description of the boundaries of the district. (d) The improvements and activates proposed for each year of operation. (e) The total annual amount proposed to be expended for improvements, maintenance and operations in each year of the operation of the district. (f) The proposed source of financing. (g) The time and manner of collecting assessments. (h) The specific number of years, to a maximum of five, in which assessments will be levied. (i) The proposed time for implementation and completion of the management district plan (j) Any proposed rules and regulations to be applicable to the district. (k) A list, by assessor's parcel number, of the properties to be benefited. (l) Any other item or matter required to be incorporated therein by the City Council.

The assessments levied on property pursuant to this part shall be levied on the basis of the estimated benefit to the property within the business improvement district. The City Council may classify properties for purposes of determining the benefit to property of the improvements and activities provided. Properties in private residential use are presumed not to benefit from the improvements and service, funded through these assessments, and shall not be subject to any assessment.

Click here to view the text of the legislation.

Proposition 218 and Business Improvement Districts

In 1996 voters passed Proposition 218, an initiative measure that amended the California Constitution to require local governments to hold a vote of the affected property owners before any proposed new or increased assessment could be levied. It was created to stop abuses in the use of assessments, namely their use to raise revenue for general governmental services other than property-related services. One of the many things Proposition 218 does is impose stricter requirements to establish a BID and assess property owners. To establish a BID, a specific procedure including notice, public hearings and voting must be adhered to.

To be valid under proposition 218, an assessment must meet two substantive requirements. First the BID must confer a special benefit on the assessed properties over and above those conferred on all properties in the district or on the public at large. Proposition 218 makes clear that only special benefits are assessable, so general benefits must be separated and funded by alternative sources. Second, each entity being assessed, may only be assessed an amount proportional to the special benefit it receives. Proposition 218 places the burden of proving special benefit and proportionality on the proponents of a BID.

Proposition 218 requires a BID to consist of description of the boundaries, an outline of the service plan, a budget, the methodology of the assessment., a timeline, and a description of the future management of the district. Local governments must ensure that proposed business improvements districts assess the parcels in the district in proportion to the benefits each will receive, as well as ensure the benefits those parcels are receiving are true special benefits and not the general benefits the locality as whole will receive.

Click here to view the text of the legislation.

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