A city establishes a business improvement district (BID) in its central downtown area. The central downtown area encompasses the properties located along approximately one mile of the city’s main street. It also includes the properties on adjoining and parallel streets located within a five-block radius of the main street. The city levies a $0.05 BID tax per $100 in assessed value on all real and personal property subject to taxation within the defined district. (The town also levies a general ad valorem property tax of $0.39 per $100 assessed value on all taxable real and personal property in the town. That means that real and personal property owners within the BID pay a total of $0.44 per $100 valuation.) Town officials justify levying the additional tax within the BID because the town performs certain targeted services and projects only in its downtown area. For example, the town used BID tax revenue to install sidewalks and street lighting along the one mile section of Main Street located within the BID. It also used BID tax proceeds to fund a marketing campaign to attract residents and non-residents to the downtown businesses, most of which are located on Main Street. The city recently launched a new program to attract new businesses to fill several empty building spaces, whereby the city provides up to a $15,000 grant to a new entity that locates in its downtown. The grants are funded by BID tax revenue and may be used to make building façade improvements. The city intends to use this grant program to target certain types of commercial entities to balance the current mix of downtown businesses—namely boutiques, cafes, and restaurants. The city adopts an intricate points system to administer the grant program whereby it awards more points to the targeted types of businesses, thereby giving them an advantage in competing with other commercial entities for the grants.
Ira Tated, whose property is located on one of the side streets in the BID complained at a recent city board meeting that it is unfair (and illegal) that he has to pay the BID tax because the city has not put in sidewalks or street lighting on his street. Another property owner, Ann Oyed, also located on one of the side streets wrote an op-ed letter decrying the false (and illegal) promises made by city officials about the “benefits” of the BID. She also does not believe that her BID tax revenue is benefiting her business in any way. Finally, Mal Content relocated his tattoo business to Main Street a few months ago. He unsuccessfully applied for a façade grant to spruce up his shop’s entrance. He now claims that because he pays the BID tax he was legally entitled to equal access to the grant funds even though his business is not on the favored-status list.
Putting aside any potential political and public relations issues, do any of these property owners have a legal claim against the city for misappropriation of BID tax proceeds?
No. The city has no duty to expend BID tax dollars so as to equally benefit each individual property owner within a BID. The city’s governing board is free to target its expenditures according to its vision of how best to enhance its downtown.
Recall that G.S. Ch. 160A, Art. 23 (Municipal Service District Act), authorizes North Carolina municipalities to establish special taxing districts to fund, among other services or functions, downtown revitalization projects. Specifically, the Municipal Service District Act implements Section 2(4) of Article 5 of the North Carolina Constitution, which allows a local government to define special areas (districts) in order to assess additional ad valorem property taxes on properties located within the districts to fund projects and services in the districts. (Note that counties have similar authority to establish special taxing districts to fund certain services or functions, but that authority does not include downtown revitalization projects.) When a city establishes a special taxing district for the purpose of financing downtown revitalization projects, it is commonly referred to as a Business Improvement District or BID.
If a city establishes a BID, the city board is authorized, but not required, to levy a BID tax, the revenue generated from which must be used to fund downtown revitalization projects or services. Downtown revitalization is defined very broadly to include:
improvements, services, functions, promotions, and developmental activities intended to further the public health, safety, welfare, convenience, and economic well‑being of the central city or downtown area. . . . Examples of downtown revitalization projects include by way of illustration but not limitation all of the following:
(1) Improvements to water mains, sanitary sewer mains, storm sewer mains, electric power distribution lines, gas mains, street lighting, streets and sidewalks, including rights‑of‑way and easements.
(2) Construction of pedestrian malls, bicycle paths, overhead pedestrian walkways, sidewalk canopies, and parking facilities both on‑street and off‑street.
(3) Construction of public buildings, restrooms, docks, visitor centers, and tourism facilities.
(4) Improvements to relieve traffic congestion in the central city and improve pedestrian and vehicular access to it.
(5) Improvements to reduce the incidence of crime in the central city.
(6) Providing city services or functions in addition to or to a greater extent than those provided or maintained for the entire city.
(7) Sponsoring festivals and markets in the downtown area, promoting business investment in the downtown area, helping to coordinate public and private actions in the downtown area, and developing and issuing publications on the downtown area.
G.S. 160A-536(b). A governing board is free to determine which of these (or other) projects or programs will provide the biggest benefit to its downtown area and spend the BID tax revenue (and any other revenues allocated to the BID) accordingly. As with the expenditure of general property tax revenue, there is no requirement that each and every property owner equally benefit or even directly benefit from the financed projects or programs. In other words, there is no duty to provide “equal service” to all property owners within the BID. A governing board need only determine that a particular project or program will promote downtown revitalization.