Managing the Micropolis
Proposals to Strengthen BID
Performance and Accountability

Staff Report to the Committee on Finance,
New York City Council,
Herbert E. Berman, Chair


TABLE OF CONTENTS

INTRODUCTION

BID CASE STUDIES
Noho New York Bid
Bensonhurst-86th Street and Greenpoint Bids
Madison Avenue Bid
Grand Central Bid

LEGISLATIVE PROPOSALS



INTRODUCTION

In November of 1995, the Finance Committee issued a report titled "Cities Within Cities: Business Improvement Districts and the Emergence of the Micropolis." The report provided the first detailed oversight of Business Improvement Districts (BIDs) in New York City, including their operations, services and finances. This oversight effort generated tremendous interest among individuals and groups in the public and private sectors, educators and scholars, and citizens on a local, national and international level. Since it was first issued, over five hundred copies of the report have been distributed by Finance Committee staff. It has been the subject of numerous seminars, panel discussions and classroom lectures throughout the country, and was also referenced in a report prepared by the London School of Economics regarding the possible creation of BIDs in the City of London. Essentially, the report brought to light those operational deficiencies evident in New York City's BIDs and put into question the overall concept and necessity of BIDs.

During its detailed oversight, the Finance Committee employed a comprehensive approach to adequately review BID operations, services and finances. This included sending letters to all of the existing BIDs requesting extensive documentation, conducting in-person interviews with each of the existing BID managers and participating in walking tours of the BIDs. Additionally, the Committee's staff conducted phone surveys with 404 BID property owners and property managers, and held several meetings with personnel at the Department of Business Services (DBS). This comprehensive approach provided the City Council and the public with its first in-depth look at the full scope and breadth of New York City BIDs. Some of the areas that were reviewed by the Committee's staff included BID dissolution mechanisms, the complaint resolution process utilized by BIDs, BID contracting procedures, the specific services BIDs provide and their overall cost, the provision of services outside of district boundaries, the provision of social services, and the adequacy of existing BID oversight.

Although the Finance Committee report concluded that BIDs have generally had a positive impact on many New York City neighborhoods, it also stressed that BIDs clearly required additional oversight and in some cases, extensive operational restructuring. Evident throughout the numerous findings and recommendations highlighted in the report, was the Committee's great concern that many property owners and merchants within the BIDs are not properly informed regarding their BID operations and services, including information concerning BID establishment and dissolution mechanisms, BID budgets and salaries, administrative costs, affiliation conflicts within BID boards of directors, contracting and complaint resolution procedures and the overall quality of BID services. In fact, the report demonstrated that a significant number of property owners did not feel that their annual assessment was a good investment.

Clearly, the report's findings greatly contradicted the overall positive perception held by many groups throughout New York City (including the general public, BID managers and various government entities) regarding the existence of BIDs and their activities. As a result of the Finance Committee's extensive oversight, the concept of BIDs and their extensive operations have been put into question. For many, BIDs have inevitably become an unaccountable "micropolis", where property owners and in some cases, area merchants, are mandated to pay assessments with little or no opportunity to vote for the establishment or continuation of the BID, its manager or the assessment - a "micropolis" where there is little or no disclosure regarding operations and services, and more importantly, the expenditure of assessments.

As mentioned above, the report indicated a very serious need for additional oversight of the City's existing and proposed BIDs. As a result of this conclusion, over the past two years the Finance Committee has continued its oversight of BIDs by taking a very comprehensive look at certain issues that have been raised by BID property owners and merchants regarding the establishment and operation of various BIDs throughout the City. In one case, the Committee's staff conducted an extensive survey to address specific allegations made against a particular BID and its leadership. At the time the Committee issued its report in November of 1995, a comprehensive list of legislative proposals was not distributed for public comment. After engaging in additional oversight for the past two years, the Committee is now prepared to issue a supplemental report outlining its proposals to amend the existing BID state law.

Included in this supplemental report is a discussion of certain issues that were raised during the past two years regarding the Noho New York BID, the Bensonhurst-86th Street BID, the Greenpoint BID, the Madison Avenue BID and the Grand Central BID. In the first four cases, BID property owners and merchants raised very serious questions regarding the integrity of the BID establishment process, the BID approval mechanisms currently in place, and the level of disclosure being conducted by BID management concerning BID finances, operations and services. In the final case study, various disclosure, management and governance issues are raised by certain property owners within the Grand Central BID. The questions raised by these property owners and merchants have clearly reaffirmed many of the findings and recommendations made in November of 1995 by this Committee in its original BID oversight report, and have served as additional guidelines for many of the legislative proposals highlighted herein.

BID CASE STUDIES

Noho New York BID Findings

On November 28, 1995, the Finance Committee held a hearing on Int. No. 642, a bill in relation to the establishment of the Noho New York BID (the "Noho BID"). At the conclusion of this hearing, the legislation was laid over by the Committee pending the completion of the thirty-day objection period on December 27, 1995, as set forth in section 25-407(a) of the BID law (NYC Administrative Code, 25-401 to 25-417). At the conclusion of such objection period, only two objections to the establishment of the Noho BID had been filed in the Office of the City Clerk. At the time, the Committee did not feel this represented a significant number of objections. However, on December 28, 1995, the day after the thirty-day objection period had concluded, an additional 25 objections were filed in the Office of the City Clerk.

Technically, since these objections were not filed within the thirty-day objection period, they were not considered valid under the BID law. Moreover, the 25 objections would not have been enough, under section 25-406(b) of the BID law, to require the automatic disapproval of the Noho BID. Nevertheless, in light of the significant number of objections filed, the Finance Committee delayed its vote on Int. No. 642 in order to closely review these objections and help resolve any concerns that were raised by property owners within the Noho BID. At the urging of Councilmember Berman, the sponsorship group of the Noho BID and representatives of the commercial property owners that had filed their objections with the City Clerk's Office commenced having meetings to address the concerns that were raised.

The commercial property owners in opposition to the establishment of the Noho BID outlined a number of issues. They contended that the majority of all the property owners within the proposed Noho BID did not receive proper notice regarding the formation of the BID and that specifically, commercial property owners were not adequately represented on the BID board of directors. According to such property owners, in the two years prior to the hearing on Int. No. 642, most property owners and tenants in the Noho BID never received any mailings or had any contact with the Noho BID sponsoring group, except for a certified mailing required by section 25-406(c) of the BID law which notified all property owners of the November 28, 1995, public hearing on Int. No. 642. Clearly, the property owners in opposition felt that the sponsoring group in the Noho BID had not conducted the necessary outreach. They indicated that the public hearing is the final stage in the BID approval process and that any outreach should have occurred much earlier.

Additionally, the property owners in opposition contended that the services the BID intended to provide, such as sanitation, security and promotion, were duplicative and completely unnecessary. Moreover, they believed that the proposed budget for the Noho BID -- which totaled $540,000, including over $100,000 in administrative costs and approximately $235,000 in security costs -- was excessive. They also contended that in light of the sponsorship's inadequate outreach, their time to comment on such budget was limited.

Some additional concerns raised by the property owners in opposition included their contention that the Noho BID was not a "true" BID because the BID was comprised mostly of residential property owners and tenants, and not-for-profit groups that generally pay little or no assessment, as opposed to commercial property owners and tenants. In view of this make-up within the Noho BID, property owners in opposition were concerned with the lack of involvement by commercial property owners and tenants in the formation of the BID, and their limited representation on the BID board of directors. Even more disturbing for these property owners was the assessment allocation formula included in the BID's district plan which required that owners of commercial property be assessed at the rate of 13.6 cents per square foot, while all other property owners would be assessed at the rate of 4.5 cents per square foot. Essentially, this assessment allocation formula required commercial property owners to subsidize 75 percent of the entire BID budget despite their limited involvement and participation within the BID and its board of directors.

After a number of meetings to discuss and negotiate the relevant issues, and after some additional oversight by the Finance Committee, an agreement was reached between the Noho BID sponsoring group and the commercial property owners in opposition. The board of directors for the Noho BID was expanded from 18 to 20 members (exclusive of the public representatives), 12 of which represent owners of fully commercial property, five of which represent owners of not-for-profit and mixed-use property, and three of which represent residential, commercial and not-for-profit tenants. In order for the commercial property owners to attain 75 percent of the voting power on the BID board of directors, those 12 members representing the commercial property owners were each provided with two votes, while the remaining 8 members of the BID board of directors were each provided with one vote. Consequently, there will be a total of 32 votes (exclusive of the public representatives), 24 of which will be allocated to the fully commercial properties and eight of which will be allocated to the not-for-profit, tenant and residential properties. Finally, the BID's first year budget was reduced from $540,000 to $350,000, a reduction of approximately thirty-five percent.

Bensonhurst-86th Street and Greenpoint BIDS Findings

On June 25, 1996, the Finance Committee held a hearing on Int. No. 795 in relation to the establishment of the Bensonhurst-86th Street BID (the "86th Street BID"). During such hearing, extensive testimony was heard in support of the 86th Street BID. Notwithstanding this support for the BID, a very significant amount of property owners within the BID appeared before the Committee to voice their strong opposition to its establishment. In fact, a lengthy petition was signed by 148 property owners and merchants within the 86th Street BID protesting and objecting to the establishment of the BID. This petition was introduced into the record at the hearing. In light of the overall BID formation process -- which in some cases lasts two full years -- the Finance Committee found it astonishing that opposition of this magnitude had never come to light.

When an initial public hearing is held on legislation to create a particular BID, it is assumed that all of the necessary outreach has been conducted, and that any concerns raised by the property owners and merchants within a BID have been addressed by the sponsoring group and DBS during the formation process and more importantly, during the preparation of the district plan. Despite the required outreach conducted by BID sponsoring groups in the past, it has not been unusual for some property owners and merchants within a BID to remain opposed to its establishment. This was clearly not the case with the 86th Street BID. The large number of objections made public at the June 25 hearing raised very serious questions about the actual outreach that was conducted by the 86th Street BID sponsoring group, and whether there was full disclosure regarding all of the BID's proposed operations, services and finances.

Despite the sponsoring group's contention that adequate outreach and full disclosure took place, it seems clear that such was not the case. If adequate outreach and disclosure had occurred, opposition to the BID would have surfaced earlier in the BID's establishment process. It is quite possible for a particular sponsoring group to conduct outreach without disclosing relevant information to property owners and merchants within a BID. Clearly, the large number of objections by property owners and merchants within the 86th Street BID, point to a lack of effective outreach and disclosure of relevant information by the BID's sponsoring group. Interestingly, the sponsoring group expressed great surprise at the number of objections that were raised during the public hearing.

The objections raised by some of the 86th Street BID property owners and merchants mirrored many of the objections raised in the Noho BID. In general, those in opposition questioned the necessity of the 86th Street BID, the alleged desire of property owners to establish the BID, the costs associated with its establishment and operation, and the overall lack of disclosure by the sponsoring group regarding the BID's operations, services and finances.

At the conclusion of the June 25 hearing, Int. No. 795 was laid over by the Finance Committee, pending the completion of the thirty-day objection period on July 25, 1996. During this objection period, the requisite number of property owners pursuant to section 25-406(b) of the BID law filed their objections to the establishment of the 86th Street BID. As a result of these objections, the Finance Committee pursuant to section 25-407(b)(1) of the BID law was required to pass a resolution disapproving the establishment of the BID. Since 1990, when the City Council assumed responsibility for adopting the legislation which establishes BIDs, the case of the 86th Street BID was the first time a BID had been disapproved as a result of the requisite number of objections being filed. In light of the limited time and resources an opposition group has under the current BID law to object to the establishment of a BID, and in view of the many concerns this Committee raised in its 1995 BID report regarding the outreach and disclosure process currently utilized by BID sponsoring groups, this was no small feat.

On December 11, 1996, the Finance Committee held a hearing on Int. No. 873 in relation to the establishment of the Greenpoint BID. Like the 86th Street BID, extensive testimony was heard in support of and in opposition to the establishment of the Greenpoint BID. While it was evident to the Committee that there would be some opposition to the creation of the Greenpoint BID, it never expected the level of opposition that was present at the December 11 hearing. Once again, the Committee questioned how this level of opposition could have remained unnoticed during the entire Greenpoint BID formation process -- a process which lasted almost two full years. Like the 86th Street BID, the large number of objections made public at the December 11 hearing raised very serious questions about the actual outreach that was conducted by the Greenpoint BID sponsoring group, and whether there was full disclosure regarding the cost and operation of the BID. It also raises questions regarding the ability of DBS to effectively monitor and oversee the BID formation process. In fact, it is impossible to understand how DBS could not have been aware of the extraordinary level of opposition in both the 86th Street and Greenpoint BIDs.

Those in opposition raised numerous issues regarding the establishment of the Greenpoint BID. In addition to testifying that the BID's budget was excessive, they also questioned whether the BID was even necessary in the Greenpoint area of Brooklyn. Additional concerns were raised regarding property assessment amounts, the potential for significant budget increases by the BID board of directors, the penalties and consequences that would be associated with failing to pay the assessment, the BID's potential to accrue significant debt and the property owners' potential liability regarding such debt, and most importantly, the makeup of the BID's board of directors. Specifically, they questioned the presence of board members who were not real property owners within the BID and thus would not be required to pay any assessments. While one can understand this concern, section 25-414(b) of the BID law currently provides that the BID board of directors "shall be composed of representatives of owners and tenants within the district, provided, however, that not less than a majority of its members shall represent owners and provided further that tenants of commercial space and dwelling units within the district shall also be represented on the board." Thus, there is no statutory requirement that every board member be a property owner within the BID.

At the conclusion of the December 11 hearing, Int No. 873 was laid over by the Finance Committee, pending the completion of the thirty-day objection period on January 13, 1997. During this objection period, a significant number of property owners filed their objections to the establishment of the Greenpoint BID. In total, 157 objections were filed with the City Clerk, an amount which represented 55 percent of the owners of benefited real property within the BID. This amount exceeded the 51 percent figure that is required under the BID law to disapprove the BID. As a result of these objections, the Finance Committee was required under the BID law to pass a resolution disapproving the establishment of the Greenpoint BID.

Individuals and groups that support the existing process for the establishment and approval of BIDs point to the disapprovals of the 86th Street BID and the Greenpoint BID as proof that such process is in fact adequate and highly effective. While some would say the current process "worked" in the case of these two BIDs, there remain many outstanding questions regarding the integrity of such process and its actual effectiveness. Despite the fact that the 86th Street and Greenpoint BIDs were disapproved during the thirty-day objection period, it remains unclear why the sponsors of both BIDs and DBS indicated to the Finance Committee that they were completely unaware of any significant opposition.

During the BID establishment process, a significant amount of money and energy is expended by the BID sponsoring group over a long period of time (sometimes two years) in order to measure and eventually gain support for the establishment of the BID. During this extended process, the sponsoring group is responsible for conducting extensive outreach to all of the property owners, commercial tenants, residents and elected officials within the BID's boundaries, and for providing them with an opportunity to participate in the planning process. Moreover, the sponsoring group must demonstrate to DBS that all of the property owners and commercial tenants have been provided the opportunity to discuss the BID, and more specifically, its budget and proposed assessment and services.

In many cases, DBS requires sponsoring groups to obtain signed letters of support from property owners within the BID. In general, these letters of support are obtained very early in the BID establishment process before many of the BID's details regarding services, operations, and finances are completely set forth and available. Despite DBS's requirement, there is no threshold amount of property owners that must submit these letters of support in order for the approval process to move forward. This is clearly counterintuitive. One would expect that DBS requires letters of support (after full disclosure of the BID's operations and costs) from significantly more than 50 percent of the property owners located within a particular BID in order to establish clear support for its establishment. Unfortunately, this is not the case. While DBS did require all four BIDs discussed in this report to obtain letters of support, significant levels of support from property owners were never reached by any of the BIDs' sponsoring groups. In fact, in many cases letters of support were obtained from merchants (not property owners) located within the BIDs who will never be required to pay an assessment, and more importantly, do not have the power under the BID law to file an objection to the establishment of the BID.

The Committee further points out that when property owners actually sign a letter of support, in many cases they will do so because the assessment can be passed along to the commercial tenant located within the property. As a result, the property owner never has to bear the cost of the BID. In addition, in some cases letters of support are signed without a clear understanding of the BID concept, the services that will be provided, and what the cost of those services will be. Finally, the Committee points out that letters of support are obtained by the sponsoring group and submitted to DBS very early during the BID's establishment process when it is extremely difficult for full disclosure and adequate outreach to have been completed. In many ways, the letter of support can be compared to a non-binding petition.

If the extensive outreach steps outlined above and "strictly required" by DBS are met by a sponsoring group wishing to establish a BID, it is hard to explain how very significant and vocal opposition (such as the opposition evident in both the 86th Street BID and the Greenpoint BID) could have remained unnoticed by DBS or the sponsoring group over a period of two years. One could easily conclude that the extensive outreach required by DBS was never conducted and that the only outreach that occurred involved those property owners, commercial tenants and merchants that clearly supported the establishment of the BIDs. One could further conclude that those individuals or groups that opposed the creation of these BIDs were never included in the overall BID planning process or their concerns were completely ignored, thus decreasing the possibility of any significant opposition. In all of the cases discussed in this report, many property owners opposing the creation of a particular BID asserted that they first knew of the BID when they received notification approximately thirty days prior to the public hearing held by the City Council regarding the local law to establish the BID. As previously stated, this notification is required pursuant to section 25-406(c)of the BID law.

In the case of the 86th Street and Greenpoint BIDs, sufficient opposition was raised and expeditiously mobilized during the thirty day objection period. This opposition resulted in the disapproval of both BIDs by the Finance Committee. In light of the questions that have been raised regarding the overall outreach and disclosure conducted, and in view of the limited period of time that is made available by the existing BID law to those property owners wishing to object to the establishment of a BID, it is astounding that more than half of the property owners in both the 86th Street and Greenpoint BIDs were able to timely file the required objection documents with the Clerk of the City of New York.

While the current process "worked" in these particular cases, it remains inherently flawed. There is no guarantee that already existing BIDs did not have similar levels of property owner opposition, but nevertheless were never disapproved because the necessary level of opposition could not be mobilized, and ultimately attained in the required period of time. What if in fact, the necessary level of opposition could not be attained because the outreach required by DBS and the current BID law never took place, or because extensive disclosure regarding the BID's operations and services, its budget and its assessment did not occur? Even worse, what if the actual property owners located within a proposed BID were never notified at all because they were not registered as owners on the City's latest assessment roll, or because they resided in another state or country, thus making it difficult for such owners to be located and contacted? What if sponsoring groups did not reach out to property owners who they knew would be in opposition to the establishment of a particular BID? Frankly, all of the above scenarios are possible and become more likely when one analyzes the case studies for both the 86th Street and Greenpoint BIDs. There is absolutely no reason to believe that the level of opposition in these BIDs would have remained unnoticed for such a long period of time if appropriate outreach and disclosure had been conducted by the BIDs' sponsoring groups. Either appropriate outreach and extensive disclosure did not occur, or the current outreach, disclosure and approval process is inherently flawed.

Madison Avenue BID Findings

On November 28, 1995, the Finance Committee held a hearing on Int. No. 643, a bill in relation to the establishment of the Madison Avenue BID. At the conclusion of such hearing, the legislation was laid over by the Finance Committee pending the completion of the thirty-day objection period on December 27, 1995. At the conclusion of such objection period, only three objections to the establishment of the Madison Avenue BID had been filed in the Office of the City Clerk. These objections represented less than 1 percent of the assessed valuation of all the benefited real property situated within the Madison Avenue BID and less than 1 percent of all the owners of benefited real property situated within the Madison Avenue BID. In light of the small number of objections that were filed, the City Council adopted Int. No. 643 on January 18, 1996, and the legislation was approved by the Mayor on February 5, 1996 (Local Law 10).

Unlike the BID case studies discussed above, significant opposition to the Madison Avenue BID did not surface until after the establishment of the BID was approved locally. Less than one month after Local Law 10 was approved by the Mayor and shortly before the BID received final approval from the State Comptroller, property owners, and owners and managers of some of the most prominent businesses located within the proposed boundaries of the Madison Avenue BID began to formerly express their opposition. In one of numerous letters written to Mayor Giuliani, a business owner on Madison Avenue asserted that her self-generated survey of 100 business owners within the BID showed that only four business owners were actually aware that a BID existed and that only one business owner completely understood the BID concept and how the Madison Avenue BID was financed and planned. This was an astounding survey result.

Many in opposition to the BID expressed their disapproval of the BID directly to the Finance Committee and its staff. They contended that the Madison Avenue BID was approved because property owners and commercial tenants within the BID were completely unaware of its proposed establishment. They attributed this lack of community awareness to the inadequate level of outreach conducted by the sponsors of the Madison Avenue BID. They even went as far as to question the integrity of the outreach conducted by the BID's sponsors. Specifically, they contended that a large percentage of the financially impacted property owners and commercial tenants within the BID were unaware of the BID until after the approval process had been completed. Moreover, those in opposition alleged that they were never offered the opportunity to voice their opinions regarding the BID's proposed services and operations, and its proposed annual budget of over $1.3 million. In fact, numerous property owners indicated that they first became aware of the exact nature and existence of the Madison Avenue BID when they received their first assessment bill from the Department of Finance. Additionally, many property owners and merchants questioned the actual necessity of creating a BID on Madison Avenue to provide services that the City of New York was already responsible for providing. Some even contended that the BID was established to create a paid position for the Director and his associates. Those in opposition also cited Madison Avenue's historically clean sidewalks and private security presence as obvious reasons why a BID would not be necessary in the area.

In light of the small number of objections that were filed with the City Clerk's Office with respect to the establishment of the Madison Avenue BID, the Finance Committee was both surprised and concerned by the level of opposition which arose after the BID approval process had been completed. As in all of the BID case studies discussed above, this level of opposition raised serious questions about the existing BID approval process. As one might expect, the sponsors of the Madison Avenue BID argued that a tremendous level of outreach was conducted. According to the sponsoring group, their outreach included more than a dozen public meetings, four public hearings, constant media coverage, and most importantly, the mailing of over 17,000 letters to the BID's property owners and commercial tenants. Clearly, this level of outreach would appear to be more than sufficient to meet the requirements currently set forth by the BID law and DBS.

In view of the significant opposition that came forth after the BID was approved locally, and the allegations that were raised by such opposition, Chairman Berman requested the City Council's Office of Oversight and Investigation to conduct its own survey to help determine the level of outreach conducted by the BID sponsoring group during the BID's establishment process and the actual level of awareness and understanding by property owners and commercial tenants within the Madison Avenue BID regarding the BID's proposed finances, operations and services. For reasons which will be specifically discussed below, the results of the Council's survey substantiated many of the allegations that were raised by property and business owners in opposition to the BID and further highlighted those problems that are inherent within the existing BID approval process.

Between the dates of July 22, 1996, and July 29, 1996, the Council's Office of Oversight and Investigation administered a phone survey to property owners and property managers within the Madison Avenue BID. A comprehensive list of properties within the BID and their respective owners was generated by the Department of Finance in order to complete the phone survey. The Finance Committee decided to confine the survey to commercial property owners (those paying significant assessment amounts), thus excluding residential property owners (those paying only $1 assessments) from the survey. The reason for this distinction was obvious. Clearly, those property owners paying a $1 assessment did not have the same vested interest, if any at all, in the establishment and operation of the Madison Avenue BID when compared to those property owners paying a significant assessment. Even if certain residential property owners were, in theory, opposed to the establishment of the BID, they would have been much less inclined, in view of such limited vested interest, to file objections with the City Clerk's office. In fact, one could argue that most, if not all, of the residential property owners would be supportive of the Madison Avenue BID since they would indirectly, and in some cases, directly benefit from the services provided by the BID without incurring any cost.

The inclusion of residential property owners in the survey would not have painted a true picture of property owner support within the Madison Avenue BID and would have rendered the results of the survey almost meaningless. Essentially, the commercial property owners within the BID subsidize nearly 100 percent of the BID's entire budget. Additionally, BIDs have historically been established for the purpose of improving the economic climate within a designated area. For these reasons, the Finance Committee concluded that it was more important to determine whether commercial property owners within the Madison Avenue BID supported its establishment and continued operation.

Incredibly, out of a list of 765 possible properties, 497 (or 65 percent) were residential in nature and were excluded from the survey phone calls. This finding was extremely significant as it relates to the existing BID approval process which requires that at least fifty-one percent of the owners of benefited real property within a BID file objections with the City Clerk's office in order to disapprove the BID. Given this fact, it becomes almost irrelevant whether the sponsors of the Madison Avenue BID conducted the necessary outreach. Even if they had conducted the highest level of outreach and significant opposition to the BID had in fact surfaced, it would have been virtually impossible for commercial property owners to disapprove the BID. Only 35 percent of the property owners within the Madison Avenue BID possessed a "real" vested interest in the establishment and operation of the BID. The remaining 65 percent consisted of residential property owners who, for the most part, had little or no interest in approving or disapproving the BID. In fact, for reasons that have already been stated above, it would be difficult to find any significant and legitimate reasons why a residential property owner would take the necessary time and effort to file an objection disapproving the establishment of a BID. In the case of the Madison Avenue BID, the probability of obtaining the requisite number of objections was virtually zero.

Upon further analysis, the findings in the survey become even more disturbing. After excluding 497 residential property owners from the survey, a pool of 268 commercial property owners remained. During the week of the survey, the Council's Office of Oversight and Investigation made an exhaustive attempt to reach, by phone, every single commercial property owner included in the list generated by the Department of Finance. For every property included in the Department of Finance list, the registered owner was called numerous times for a period of one week. Despite this exhaustive and concentrated effort by the Council's Office of Oversight and Investigation, a large percentage of property owners could not be contacted and surveyed.

Incredibly, during the entire week of the survey, only 50 property owners and property managers were contacted. Of those 50, only 12 were actually registered commercial property owners. Despite the resources used by the City Council and the significant amount of time that was devoted to the survey, only 12 registered commercial property owners out of a possible 268 could be contacted and surveyed (this represents approximately 4.5 percent of those property owners with a vested interest in the BID and less than 2 percent of the total number of property owners within the BID). This result is nothing short of astounding, and places the entire BID approval process in question. Given that the Department of Finance list used by the Office of Oversight and Investigation was a similar list to that used by the sponsoring group for the Madison Avenue BID in its outreach efforts, it is difficult to understand how the outreach conducted by the sponsoring group (however extensive it might have seemed) could have been effective. Frankly, it is highly probable that "real" outreach never occurred within the Madison Avenue BID.

For a variety of reasons, property owners who are mailed information regarding a particular BID will never respond to or take notice of such information. In some cases, the registered owner will not be the actual owner of the property in question. In many cases, the registered owner's address is simply incorrect or the registered owner resides in another state or country and is very difficult to locate or contact. Most likely, those property owners who actually receive such information have no knowledge of the BID concept or the types of services provided by BIDs, and therefore, discard the information they receive as irrelevant. Ultimately, a property owner tends to react and take notice upon receipt of the first assessment bill when there is the realization that monies are due. Under these circumstances, it is extremely difficult to conduct the level of outreach that will result in full disclosure among the property owners within a particular BID. As indicated in this report, under the existing BID approval process, it has been rare when the level of opposition needed to disapprove a BID has actually been mobilized and attained within the required period of time.

The Finance Committee stresses that it did not find any evidence of fraud or negligence in the outreach conducted by the Madison Avenue BID sponsoring group. In fact, one could argue that the sponsoring group exceeded the level of outreach required by the existing BID law and DBS. In analyzing the BID case studies, it would be shortsighted to conclude that the problems highlighted therein can be addressed by simply imposing additional and stricter outreach requirements. Imposing these requirements will not guarantee that the opposition voice will be heard. In order to guarantee that there is clear and substantiated support for a BID, one must address the approval process currently in place - a process which counter-intuitively measures support for a BID by the level of disapproval within such BID - a process which clearly imposes an unfair and misplaced burden on those property owners that are, or might be opposed to the establishment of such BID. This opposition will, in many cases, remain uninformed and even worse - completely silent.

Some might argue that this is a very cynical view of the BID approval process and that in fact, DBS requires sponsoring groups to obtain signed letters of support from property owners within a proposed BID. However, as previously discussed in this report, there is no threshold amount of property owners that must submit these letters of support in order for the approval process to move forward. In addition, many letters of support are obtained from merchants within the BIDs that are not required to pay an assessment, and thus do not possess the authority to file an objection. Moreover, property owners will readily sign a letter of support because the assessment can be passed along to the commercial tenant located within the property regardless of whether that tenant supports the BID. It begs the question - who is actually supporting the establishment of a BID when the establishment process first commences?

Given the Council's poor success rate in contacting commercial property owners within the Madison Avenue BID, it becomes difficult to conclude that the effort put forth by the Madison Avenue BID sponsoring group resulted in full disclosure of the BID's proposed budget, services and operations. While it is commendable that such sponsoring group appears to have held numerous public meetings and hearings, made constant use of the media and participated in an extensive letter-writing campaign, it is clear (as evidenced by the level of opposition that surfaced after the BID was approved locally and by how difficult it was for the Council to contact property owners) that full disclosure could not have occurred. Even when the Council's Office of Oversight and Investigation used the most direct line of communication available over a significant period of time, it was only able to contact and survey 12 commercial property owners within the BID. Again, this is an astounding result.

Additional survey findings highlighted below even further demonstrate the unsuccessful outreach conducted by the Madison Avenue BID sponsoring group. It should again be noted that of the 50 phone surveys that were conducted, only 12 included actual commercial property owners. Additionally, such phone surveys were conducted more than six months after the Madison Avenue BID was approved locally. Some of the more significant findings from the 50 phone surveys included:

Property Owner Survey

In addition to administering a phone survey to property owners and managers within the Madison Avenue BID, the Council's Office of Oversight and Investigation administered a similar phone survey to 43 business owners and business managers located within the BID. While business owners and managers do not have the authority under the BID law to file an objection with the City Clerk, it is imperative that such business owners and managers be fully informed regarding the BID's finances, operations and services. In many cases, if the lease contains a pass-along clause the property owner will pass the BID assessment along to the commercial tenant and thus will not have to bear the cost of the BID. Clearly, under these circumstances the opinions of business owners and managers must be heard and given considerable weight in the establishment process. In view of the obvious need to include business owners and managers in the outreach and establishment process, the results of this additional phone survey are equally disturbing. Some of the more significant findings included:

Tenant Survey

Grand Central Bid Findings

The following case study addresses a variety of issues that have been raised by concerned property owners regarding the overall management and governance of an already existing BID. While the Grand Central BID is generally regarded as one of the more successful BIDs in New York City with regard to output, serious questions have been raised with respect to the leadership of such BID. According to some very respected and knowledgeable property owners within the Grand Central BID, the BID's leadership has, among other things, needlessly caused the resignation of significant Board and Committee members of the BID.

Property owners within the BID who have raised their concerns regarding the overall management and governance of the BID have outlined a number of issues. In general, they contend that the leadership of the Grand Central BID has been marked by an increasing and improper arrogation of power in their hands. Specifically, they contend that the leadership has manipulated the Board and Committee systems within the BID and revised the BID's by-laws to legitimize their abusive practices. Even more disturbing is the contention that the leadership has met any attempts to question their authority by systematically withholding relevant information, by being evasive and disingenuous, and by excluding any questioners from any meaningful participation in the BID. Additionally, property owners within the BID question the managerial relationship that has been created between the Grand Central BID and the 34th Street and Bryant Park BIDs, and the conflict of interest that can potentially arise as a result of this relationship. This conflict of interest issue regarding the Grand Central BID was first addressed in the Finance Committee's BID report in November of 1995.

In order to highlight what they perceive as serious problems with the overall management and governance of the BID, property owners have raised numerous issues. First, they contend that the BID's President, receives excessive compensation for what is essentially a part-time position. Currently, the BID's President is also the President of the 34th Street and Bryant Park BIDs. His total compensation for heading the three BIDs is nearly $400,000. This makes him the single highest paid public official in New York and perhaps the country. His salary for heading any one of the three BIDs (approximately $125,000) would be more indicative of the compensation provided to a full-time President for the management of one high-profile and successful BID in New York City.

In addition to this excessive compensation, property owners point out that the Grand Central BID allows its senior staff to devote 15 percent of their work time to outside employment. Clearly, this encourages the President of the BID to use the institutional status of the BID, and the knowledge and experience he has gained in his work with the BID, to create additional compensation for himself and other senior officers and officials of the BID. Moreover, this additional compensation results from conducting business that has absolutely nothing to do with the BID. Essentially, if the activities of the BID are not closely monitored, there will be nothing to prevent the President from spending an inordinate amount of time on non-BID business and from spending BID funds in a manner that will ultimately help increase his own compensation. According to property owners within the BID, under these circumstances nobody is protecting the interest of the BID taxpayer. Moreover, there is a part-time President who is paid approximately $125,000 for approximately one-third of 85 percent of his time.

In addition to the compensation issue highlighted above, property owners allege that self-serving tactics have been systematically employed by the leadership of the Grand Central BID in order to obtain unfettered control and power within the BID.

According to property owners, when the Finance Committee of the Grand Central BID met to discuss the BID's 1995-1996 budget, a consensus was formed to adopt guidelines to control the hiring practices of the BID and the BID's overhead spending. Additionally, the Committee agreed to require detailed financial disclosure information from senior management within the BID. According to property owners, the Chairman of the Board and the BID's President suddenly adjourned the Finance Committee meeting. By the time the meeting had been reconvened, they had allegedly arranged for the addition of four new members to the BID's Finance Committee in order to establish the support necessary to oppose the new guidelines being considered. This occurred despite the absence of these "instant" members from any previous meetings or discussions that had been held by the BID's Finance Committee regarding the proposed new guidelines. Property owners allege that at the time, this action was not permitted by the BID's by-laws, and that the leadership of the BID attempted to cover its tracks by supporting and eventually adopting subsequent changes to such by-laws. These changes are discussed below.

As proof of the BID leadership's attempts to improperly place an inordinate amount of power in the hands of the Chairman of the Board, property owners point to a number of recent changes that have been made to the BID's by-laws. According to property owners, these changes become very disconcerting when one considers the Code of Professional Standards and Practices for BIDs that was enacted by the New York City BID Managers Association in May of 1996 and that was signed by the President of the Grand Central BID. Specifically, the Code seeks to ensure full disclosure, accountability, democratic representation and power-sharing within all of the City's BIDs.

The Grand Central BID's by-laws provide that "[t]he Board shall have an Executive Committee, an Audit Committee, a Nominating Committee, a Finance Committee, and a Construction Committee, and such other standing committees as the Board may from time to time find appropriate. Recent changes to the BID's by-laws have provided the Chairman of the Board with the power to appoint the members of any of these committees. The by-laws require only one member of each committee to be a member of the Board.

The new by-laws clearly state that the Chairman alone has the authority to appoint members to the Nominating Committee, the Finance Committee, the Audit Committee and the Construction Committee. While the BID's by-laws provide that the Executive Committee shall consist of the Chairman, President, Treasurer, Secretary, and the Chairmen of the Audit Committee, Nominating Committee, Finance Committee and the Construction Committee, the by-laws also provide that the Chairman alone has the authority to appoint other Executive Committee members. In addition to these provisions, it should be noted that any member of any Committee of the Board may be removed by the Chairman with or without cause. Moreover, if the Board adopts a resolution designating a special Committee of the Board or any other special Committee, the members of such Committees will also be appointed by the Chairman. Finally, with respect to the Chairman's Committee appointment powers, there are no limits prescribed in the BID's new by-laws regarding the number of members that must serve on each Committee. Therefore, the Chairman has the authority to appoint any number of members to a Committee without limit. It is this specific power that currently allows the Chairman to "legally" add new members to a Committee, as opposed to the scenario described above where it is alleged by property owners that four new "instant" members were inappropriately added to the BID's Finance Committee to simply further the leadership's agenda. Given the potential for abuse by the Chairman, the question remains whether this power should exist at all. In summary, the Chairman has a strong and intimidating stranglehold of the Board, its Committees and its Committee members. This governing scheme does not lend itself to a true and fair democracy.

One could clearly argue that these changes have been made to the BID's by-laws with the intention of taking power away from the BID's Board and its Committees, and placing such power solely into the hands of the Chairman. With this increasing arrogation of power, the Chairman would certainly be capable of obtaining unfettered and continuous control of the BID, including its operations, services and finances. In fact, this control may already exist. Clearly, this possibility raises very serious questions regarding the level of disclosure and accountability that exists within the BID, and the level of democratic representation that exists for property owners within the BID. The potential for abuse is tremendous.

In addition to the by-laws issues discussed above, property owners allege that the BID's leadership tampered with minutes taken at a July 13, 1995 Audit Committee meeting. According to property owners, the Audit Committee endorsed the idea of establishing an internal audit function, but the minutes of the meeting failed to reflect this endorsement. Attempts by the Committee to correct the minutes were refused and the endorsement, which had been agreed upon in the presence of City officials, has repeatedly been denied by the BID's leadership. Property owners also allege that in 1996, the Grand Central BID increased its annual overhead without prior authorization from the BID's Finance Committee, and failed to provide detailed information to property owners regarding the overall development of the BID's budget. According to property owners, the Chairman and the President of the Grand Central BID specifically authorized, without obtaining support from the Finance Committee or other members of the Board, a $50,000 expenditure on property located outside of the BID's boundaries in violation of the bond covenants governing the BID's $30 million bond issue.

In addition, property owners within the Grand Central BID contend that when the BID's leadership proposed an assessment increase for Fiscal Year 1995/1996 they did not provide any compelling financial reason for such an increase. According to property owners, the leadership argued that a prospective labor settlement required the existence of a reserve fund so that adequate negotiating resources would be available to the BID. Property owners within the BID doubted this assertion and consequently sought a commitment from leadership that this reserve fund would not be used to create new staff positions or to fund additional overhead. According to property owners, the BID's leadership refused to agree to this stipulation.

Property owners also contend that the leadership has, on numerous occasions, intentionally withheld information from the BID's Board. In 1995, the BID's auditors (Peat Marwick) prepared an audit that was especially critical of the Grand Central BID. A draft audit letter highlighting Peat Marwick's findings was distributed to the BID's Audit Committee. According to property owners, despite numerous requests from Audit Committee members, the Chairman and President of the BID refused to distribute the final audit letter to the BID's Board. Property owners reasoned that leadership refused to comply with this simple request because of the letter's harsh criticisms regarding the BID's practices.

Additionally, property owners allege that at the BID's 1997 annual meeting, a 45-page budget was distributed and voted on with almost no opportunity for discussion and analysis by the BID's Board and its property owners. Property owners also allege that the BID's Comptroller was dismissed after he repeatedly criticized the governance of the Grand Central BID and expressed his concerns that the BID's Board was systematically denied access to information which was necessary for meaningful and informed oversight. Ironically, the Comptroller was the only internal financial management control resource within the BID. Even more disturbing is an allegation by property owners that the leadership unethically removed one of the largest property owners within the Grand Central BID from the BID's Board, essentially leaving such property owner without any representation or input on the Board and its Committees.

LEGISLATIVE PROPOSALS

The oversight conducted by the Finance Committee during the past two years and outlined in the BID case studies above has assisted the Committee in developing the legislative proposals highlighted herein. The Committee's proposals attempt to address many of the concerns that have been raised by property owners in various BIDs throughout the City. The Committee does not necessarily believe that these legislative proposals address the entire myriad of problems evident in New York City BIDs today, but it does believe that it represents an excellent framework to begin addressing some of those problems. Some individuals or groups will find the Committee's proposals too burdensome or restrictive. Others may conclude that the proposals are not nearly enough. It is the Committee's hope that individuals and groups with concerns regarding the overall BID process and the activity of BIDs in New York City will enthusiastically respond to the proposals herein and offer either their support or their opinions as to why a particular proposal would not be a good or feasible idea. With this necessary input, the Committee will be better able to develop the best and most comprehensive list of legislative proposals which will result in the most positive effect on the overall BID process, and the activities and operations of BIDs.

I. Restructure BID Approval Process

The BID case studies in this report have clearly shown that the BID approval process currently in place is inherently flawed. As previously stated, this process counter-intuitively measures support for a BID by the level of disapproval within the BID and it imposes an unfair and misplaced burden on those property owners in opposition to the establishment of the BID. Evident throughout the BID case studies is a lack of effective and adequate outreach by BID sponsoring groups during the BID establishment process, and an overall lack of disclosure by BID leadership regarding BID operations, services and finances. This lack of outreach and disclosure has had significant consequences. In many cases, opposition within a BID has remained uninformed and without a voice during the BID establishment period.

In order to ensure the integrity of the BID establishment process and to prevent the creation of unnecessary and unwanted BIDs, the BID approval process must be completely altered. Currently, a BID can be approved by the City Council if the number of objections required to prevent the establishment of such BID are not filed with the City Clerk's office during the 30-day objection period. The Finance Committee's legislative proposal would provide that the establishment of a BID can be approved by the City Council only if owners of at least 60 percent of the assessed valuation of all the benefited real property situated within the boundaries of the BID, as shown upon the latest completed assessment role of the City, or at least 60 percent of the owners of benefited real property within the BID, file their approval with the City Clerk's office regarding the BID's establishment. This requirement would place a clear and well-deserved burden on BID sponsoring groups to adequately inform and educate property owners within a proposed BID regarding the BID's operations, services and finances. Consequently, property owners would have the responsibility (after adequate and effective outreach) of affirmatively approving the establishment of the BID. The Finance Committee also recommends that property owners be provided with 90 days to file such approval after the City Council's public hearing on the local law that would establish a particular BID.

II. Require Property Owner Approval of Existing BIDs Before any BID Renews its Contract with DBS

While restructuring the BID approval process would help ensure that unnecessary and unwanted BIDs are not created in New York City, it is also important to ensure that property owners within a BID continue to support the BID's existence after it has been created, and that such property owners are fully informed regarding BID operations, services and finances. The 1995 BID report concluded that DBS makes little effort during a BID's contract period to determine if there is continued support for the BID. The report also concluded that DBS makes little effort to regularly solicit feedback from property owners within the BIDs. Consequently, the renewal of a BID's contract with DBS is based on perfunctory hearings and submissions which do not adequately measure property owner satisfaction. The 1995 BID report stated that this process may result in the perpetuation of a BID which fails to account for charges in the sentiments of original property owners, or the sentiments of property owners new to the BID since its establishment.

In view of these concerns, the Finance Committee's legislative proposal would require property owners to approve the continuation of a particular BID at any time the BID's contract with DBS is up for renewal. Generally, BIDs will execute a contract with DBS for a period of five years. Under the proposed legislation, the same 60 percent level of approval by property owners would be required for a BID to continue its existence. One must keep in mind that if the 60 percent level of approval were not reached but a BID still had outstanding and unpaid debt, the BID could not be dissolved.

III. Require DBS to Mail Performance Evaluation Surveys and Survey Results to all Property Owners Prior to any Property Owner Vote to Approve the Continuation of a BID

In order to assist property owners within a BID when they consider whether the existence of the BID should continue, the Finance Committee's legislative proposal would require DBS to mail performance evaluation surveys to all of the property owners within the BID at least one year prior to the renewal of the BID's contract with DBS. Property owners would then be required to complete the surveys and submit them to DBS within 90 days. After receipt of these surveys, DBS would be required to mail the results of such surveys to property owners at least six months prior to the renewal of the BID's contract. This extensive outreach would help ensure the level of disclosure required and expected by BID property owners so that informed and intelligent decisions can be made regarding the continued existence of the BID.

IV. Prohibit the Pass-through of BID Assessment Charges by Property Owners to Their Tenants

In many cases, property owners within a BID will readily pass their assessment to commercial tenants located within their property. Because of this ability to pass along an assessment, property owners do not always have to bear the cost of the BID. This is important information to consider when one attempts to determine the level of support for the establishment of a particular BID.

The Committee concluded in the BID case studies above that when property owners actually sign a letter of support during the outreach and establishment process, in many cases they will do so because they know that the assessment can be passed along to the commercial tenant located within their property. Since they do not have to bear the cost of the BID, property owners will be willing to sign a letter of support without a clear understanding of the BID concept, its services, its operations and its finances. Under these circumstances, property owners will rarely have any reason to file an objection with the City Clerk's Office during the 30-day objection period. In view of this ability to pass along assessments, it is very difficult to accurately determine the actual level of property owner approval within a BID. Moreover, commercial tenants will be paying for an assessment that, in most cases, they have not supported or approved, and will be paying for services they may not even require. The Finance Committee's legislative proposal would prohibit the pass-through of BID assessments by property owners to their tenants.

V. Require City Council's Approval Before a BID Incurs any Debt

Section 24-415 of the BID law provides that, assuming there is no outstanding debt, a BID may be dissolved "by local law of the City Council upon its own motion or upon the written petition of (1) the owners of at least 51 percent or more of the total assessed valuation of all benefited real property...and (2) at least 51 percent of the owners of the benefited real property..." According to the 1995 BID report, the ability of BIDs to incur large amounts of indebtedness through the sale of bonds, the accumulation of accounts payable, or the utilization of bridge loans could prevent the dissolution of a particular BID regardless of any property owner dissatisfaction that may exist within such BID. As evidenced in the BID case studies above, property owner dissatisfaction continues to increase in BIDs throughout the City. Moreover, property owners will ultimately be liable for any interest incurred on these debts and a portion of the BID's assessment will be spent to pay for such interest, rather than for services within the BID.

The BID case studies highlighted in this report have reemphasized the need for more accountability and disclosure by BID leadership regarding BID operations, services and finances. Specifically, property owners continue to question BID leadership's unlimited authority to accrue debt without property owner input. In view of the concerns raised herein regarding the accrual of debt by BIDs and the serious affect such accrual has on the possible dissolution of a BID, the Finance Committee's proposed legislation would require BIDs to acquire City Council approval before incurring any such debt.

VI. Require Commercial Property Owners to Comprise a Certain Percentage of Property Owners Within the BID, and to Comprise a Certain Percentage of the Members of the BID Board of Directors

Currently, section 25-414(b) of the BID law provides that the board of directors of a BID "shall be composed of representatives of owners and tenants within the district, provided, however, that not less than a majority of its members shall represent owners and provided further that tenants of commercial space and dwelling units within the district shall also be represented on the board." In the Noho BID case study, the assessment allocation formula required commercial property owners to subsidize a majority of the BID's budget despite their limited involvement and participation within the BID and the BID's board of directors. The Finance Committee found that these commercial property owners were inadequately and disproportionately represented on the BID's board of directors and that they were unfairly and disproportionately assessed.

In almost every existing BID throughout the City, commercial property owners are required to subsidize a significant portion of the BID's budget. This seems appropriate since the general purpose of a BID is to improve the economic climate within a designated area and commercial property owners are the intended beneficiaries of this potentially improved climate. In order to ensure that commercial property owners are adequately represented on a BID's board of directors and fairly assessed, the Finance Committee's legislative proposal would require that commercial property owners comprise at least two thirds of the members of a BID's board of directors (exclusive of the public representatives on the Board). This would ensure equal voting power for commercial property owners.

Because of the large percentage of non-paying residential property owners within the Madison Avenue BID, it would have been highly improbable for financially impacted commercial property owners to ensure the disapproval of the BID. In the case of the Madison Avenue BID, residential property owners comprised approximately 65 percent of the BID. In view of the historical reasons for establishing a BID and the fact that residential property owners are rarely ever responsible for subsidizing the operation and continued existence of a BID, the property owner makeup of the Madison Avenue BID was completely disproportionate and grossly unfair. One should take note that the property owner makeup of the Noho BID was also questioned by commercial property owners within that BID. In order to avoid these scenarios in the future, the Finance Committee's legislative proposal would also require that commercial property owners comprise at least two thirds of all the real property owners within a BID.

VII. Require the Timely Mailing of Proposed District Plan to All Property Owners and Tenants Within a Proposed BID

The Finance Committee's legislative proposal would require the mailing of the proposed district plan to all property owners and tenants within a proposed BID at least six months prior to the public hearing of the local law that would establish such proposed BID. This requirement would provide property owners with an adequate amount of time to determine and analyze the BID's proposed operations, services and finances. This would allow property owners to make an intelligent and informed decision regarding their level of support for the establishment of the BID.

VIII. Require the Annual Mailing of BID's Annual Report, Contracting Procedures, Complaint Resolution Processes and Proposed Annual Budget Prior to its Adoption by the Board of Directors to all Property Owners Within the BID

Evident throughout the BID case studies is the contention by property owners that there is a serious lack of outreach and disclosure by BID sponsoring groups and BID leadership regarding BID operations, services and finances. Without adequate outreach and the full disclosure of information, property owners cannot adequately determine whether they support a BID or disapprove of its creation or continued existence. It is difficult to create effective and measurable standards regarding outreach and disclosure within BIDs, but at a minimum, BID leadership and its board of directors should be required to disseminate some level of information to all of its property owners so that informed and intelligent decisions can be made, and BID leadership can be held accountable for its management and governance of the BID.

The Finance Committee's legislative proposal would require the annual mailing of the BID's annual report, contracting procedures, complaint resolution processes and the proposed annual budget (prior to its adoption by the board of directors) to all property owners within the BID. With this array of information, property owners will be better equipped to participate and contribute to the operation of a BID, and to question the overall management and governance of the BID. This dissemination of information will also assist property owners when they determine their level of support for the continued existence of the BID.

IX. Prohibit a BID From Allowing More Than 10 Percent of its Board Members, or any of its Officers From Also Serving on a Board Where the Organization Contracts or is Associated With Such BID, or From Being Employed by an Organization That Contracts or is Associated With Such BID

The Finance Committee's 1995 BID report concluded that several existing BIDs shared staff and office space with organizations which they contracted with for the provision of services.

Additionally, the report concluded that many BIDs had board members who served on the boards of organizations which had contracts or other types of associations with such BIDs. Several BID managers were also employed by other organizations which either shared office space with the BID or were contracted to provide services to the BID.

According to the 1995 BID report, these affiliations between BIDs and these other organizations, although not improper on their face, raised serious concerns regarding potential conflicts of interest, the improper utilization of BID funds and, in the case of BID managers, the actual time being spent working for the BID. The report concluded that it was critical that managerial responsibilities and loyalties be clearly defined and disclosed to the BID board of directors and the BID's property owners.

In the Grand Central BID case study, property owners raised serious concerns regarding the inordinate amount of time the BID President spends on non-BID business and the improper utilization of BID funds. Additionally, owners seriously questioned the President's loyalty to the BID. In view of these concerns, the Finance Committee's legislative proposal would prohibit a BID from allowing more than 10 percent of its board members or any officer of the BID from also serving on a board where the organization contracts or is associated with such BID, or from being employed by an organization that contracts or is associated with such BID. Legislative proposals ten and eleven also address some of the concerns raised by property owners within the Grand Central BID.

X. Prohibit the Multiple Management of BIDs

The Finance Committee's 1995 BID report found that when more than one BID is managed by the same individual or organization, it is very likely that conflicts of interest will occur, raising serious questions regarding the amount of time and resources that are being devoted to each BID. The report stated that "[i]t is inevitable that property owners in one BID will compete against property owners in another BID for managerial attention and services." While the New York General Municipal Law and the New York City Administrative Code provide that BIDs are required to provide supplemental improvements "which will restore or promote business activity in the district," there do not exist any provisions in the BID law that explicitly prohibit the management of multiple BIDs by the same individual or organization. Notwithstanding this lack of a prohibition, the multiple management of BIDs appears to contradict the original intent of the BID enabling legislation.

The Finance Committee's proposed legislation would provide that no one individual or organization shall be permitted to simultaneously manage more than one BID. Any individual or organization that currently manages more than one BID would not be grandfathered into the legislation.

XI. Require the Leadership of Each BID to File a Biennial Certification With DBS Asserting That Leadership has Abided by Those Standards Set Forth in the Code of Professional Standards and Practices for BIDs regarding Disclosure, Accountability, Democratic Representation and Power Sharing

This certification requirement would help ensure the meaningful participation of financially vested property owners in the overall operation of a BID. By making the leadership of a BID responsible for creating a democratic governing structure within the BID, property owners will be better able to provide informed and intelligent recommendations regarding the BID's operations, services and finances. Moreover, those recommendations will be seriously considered by BID leadership and wherever appropriate, will be implemented.

After the leadership of the BID files its certification with DBS, DBS will be required to substantiate and verify the assertions made by leadership. In addition, DBS would be required to determine whether the BID's leadership has, in fact, safeguarded the rights of property owners within the BID pursuant to the Code of Professional Standards and Practices for BIDs. Thereafter, DBS would be required to mail its findings to all of the property owners within the BID, and establish a time period for those property owners to comment on such findings. This would help DBS effectively monitor and address property owner concerns regarding the overall management and governance of the BID.