The Math Behind Cleaner Streets a Behind-The-Scenes Look at BID Assessment Formulas

For this month’s edition of Perch Perspectives, I chose to write about something that I spend way too much time thinking about: New York City Business Improvement District (BID) assessment formulas (this article is specifically about NYC BIDs, but some of the information may be applied across other states). Now what the heck is a BID assessment formula? 

BIDs are place-based organizations providing supplemental services to a very specific geography – a finite set of properties within a commercial corridor. BIDs are also special assessment districts, meaning that BID services are funded by a special assessment (tax) on properties within the BID’s geography. But how does that assessment get delivered? Every BID has a different and unique mathematical formula for determining what portion of the total annual BID assessment each property pays. That’s the assessment formula. 

A BID’s “assessment cap” is the maximum amount of money that it can assess to all the properties within its geography in a year. Most BIDs don’t start assessing at their cap, and may take 5-7 years to reach it. The assessment formula is the formula by which that big number – the amount that gets billed each year – gets broken down amongst all the properties within the BID’s geography. Assessment formulas are extremely nerdy and unsexy, but a crucial element of BID formation, and really the ultimate determinant of whether your BID accomplishes the stated goal that every property pays in proportion to the value they receive from BID services. 

Ok, well, let’s just pause right there. If that seems like an impossible task … well, it is! Let’s start with this idea of value. I mean, how do you even measure the value that a property receives from a BID? And what does “value” even mean? Is it something measured with data, like the number of shoppers in the district, number of trash bags collected, number of holiday lights hung, number of large-scale planters installed? Increase in property values over a period of time? (surprisingly there is very little data on this in NYC). Or is it something more intangible, like the general “vibe” on the street, the expressions on the faces of residents and visitors as they take in the vibrance of the corridor while going about their daily errands? 

There are a few things I’ve always generally understood about the value of BID services: 

• Certain types of businesses tend to inherently benefit more from BID services. It’s just inevitable. Businesses like restaurants, bars, and retail stores see more benefit from traditional BID services – like events, marketing, and holiday lights – which aim to drive foot traffic in a commercial corridor.  

• However — perhaps as a counterargument to the above statement — BIDs are also like gym memberships. You get out what you put in. If the BID staff is reaching out to you once a week asking what challenges your business is seeing, and you never respond, chances are you’re not going to get your problems resolved. 

• ANY type of business can benefit from the advocacy services BIDs provide, regardless of whether they are retail, services, or a funeral home. If I’m a bassoon repair business whose customers are driving in from the outer boroughs and Long Island, and there’s a proposed initiative that is going to eliminate parking in the area around my business, the BID could support me by advocating against that initiative (for a successful example of BIDs doing this, look no further than de Blasio’s short-lived Clear Curbs pilot). 

But, putting this diatribe aside, if for arguments sake we were to say that it is in fact possible for each property within a BID to pay in proportion to the value it receives from BID services — the assessment formula is the blunt tool we use to create that equity. 

The first step in creating an assessment formula is to determine WHICH properties are deriving value from BID services, and to approach the creation of your formula accordingly. Is this a BID focused on a commercially dense corridor, and is the purpose of the BID formation mainly to support local businesses? Well, it’s likely that you will only be assessing commercial and mixed-use properties, not residential. 

Or, are you looking at forming a BID in a mixed-use neighborhood, and is the BID intended to support the upkeep and maintenance of public spaces, enjoyed by residents and business customers alike? In this case, you likely want to consider an assessment on residential properties.* 

The next challenge we encounter is that we only have a few metrics in our “assessment formula creation toolkit” for achieving this idea of equity. These metrics include frontage, lot size, commercial square footage (CSF), and assessed value (AV). We also have a few other fun things we can play with, like base fees and corner fees. We can create different classes of property, based on property size or type (some BIDs have a special class for “parking,” for example). We can also look at combinations of metrics. Assessment formula metrics should respond to the characteristics of the property itself, not of its commercial tenant or its property owner — these are things that can change quite frequently. 

Here is a high-level overview of how you might consider using some of these metrics, and potential pitfalls: 

• Generally, frontage makes sense for homogenous, low-density districts where all of the commercial activity takes place on the ground floor. However, if your commercial corridor looks like more of a blob than a linear strip, you may need to define your frontage value (frontage on a certain street? The longest side of the building?) 

• CSF and AV make sense for high-density districts, where significant commercial activity takes place above the ground floor. 

• A base fee will bring everyone closer to the middle, and ensure that properties pay a minimum. Some BID services (like sanitation) are directly proportional to the size of a property, while other BID services (like marketing) are not such a direct correlation. So without a base fee, the smallest properties might be getting a better deal, especially if there is a huge disparity between your largest and smallest properties. 

• AV is a popular metric because it attempts to capture the ability of a property to generate revenue. If you want to protect older properties and former industrial uses, you might consider using AV. However, AV can also be quite volatile. During the pandemic, BIDs saw massive changes to the AVs of properties in their districts. 

• Thinking about using commercial square footage? Seems easy enough, however, not all CSF is created equal. In fact, DOB data carves out CSF into several distinct categories, including retail, office, garage, storage, factory, and the ever-elusive “other.” Should storage pay the same rate as retail? Then again, how much of a headache do you want to create for your executive director, who has to parse through all these different uses and confirm that the data reported by DOB is in fact the actual use of the space? 

• Fun Fact: the most popular combination of metrics is AV and frontage! 

Here are my cardinal rules for creating an assessment formula:

Think about what your district will look like in 10 years. 

Is there a planned upzoning? Is there a future in which much more of your assessable space exists above the ground floor? Districts change over many years! A district that was completely homogenous with only two-story mixed-use buildings in 1986 may not look like that in 2025! For example, the addition of Barclays Center along Flatbush Avenue added tons of commercial square footage to the previously homogenous North Flatbush Avenue BID. Over long periods of time, BIDs should consider amending their district plans and changing their assessment formulas to better capture the commercial space in the district. Are you a BID that’s thinking about revising your assessment formula? Give us a shout, we’d love to discuss! 

Simple is generally always better. This is something that Michael Melamed, Godfather of BID assessment formulas at NYC Small Business Services, has instilled in me over many years of working together on BID formations. If you err on the side of something that can be easily explained, business and property owners will be less likely to think you’re trying to pull one over on them. I find that frontage can be useful for that, because it’s easily and directly correlated to sanitation services, which is often a BID’s number one expense – your building has 20 feet of frontage, you get 20 feet of sanitation. The moment you create a special carve-out or exemption for one category of property, everyone else wants their carve-out.**

YOU ARE NEVER GOING TO MAKE EVERYONE HAPPY. Let’s say it together now. And as much as our human desire to people-please dictates that we want to find a formula that works perfectly for every single property in the BID’s geography, it just ain’t gonna happen. BID formation and expansion require support from 51% of the properties within the BID’s geography, so I’d recommend focusing on that metric as opposed to the elusive 100% property owner happiness.  

Want to chat assessment formulas? I love to talk about this stuff! Hit me up at theo@perch-advisors.com! 

*A long-winded note on residential assessments: 

New York State BID law allows for the assessment of residential properties, something that may feel out of line with the name “BUSINESS improvement district,” but which in fact really makes a lot of sense in some cases. This is something that many of the earliest BIDs embraced (Union Square, Grand Street, North Flatbush, Metro Tech). It fell out of trend during the Bloomberg era, but seems to be coming back into trend. Why? Well, if I might venture a guess: commercial spaces are getting smaller! More often, commercial retail storefronts are showrooms for a much bigger online inventory. Much more commercial commerce is happening online, and much more business is being conducted in peoples’ homes. As the line between home and business starts to blur, we don’t need as much office space, because people are working from home. And if people are spending more time in their homes, they’re likely more concerned about the conditions on their streets, and more likely to desire an entity that will help keep those streets clean. 

BIDs are starting to think creatively about how to brand themselves in a way that goes beyond business. They’re calling themselves “neighborhood improvement districts” “partnerships” “alliances” or just “improvement districts.” Organizations are also thinking creatively about how to use the concept of a BID to fund a variety of services that are essential to quality of life in NYC, but which the City simply cannot keep up with. 

If you are considering a residential assessment, you need to think about which services benefit businesses, which services benefit residents, and which services benefit both. You may even consider roughly pricing out these services at the levels you feel are appropriate, and then using that to gauge what residential properties pay in proportion to commercial properties. The North Flatbush Avenue BID has an innovative way of approaching this (though annoying for the executive director, and I can speak of this firsthand since it's my colleague James Ellis) — the BID assumes that residents and business owners alike benefit from sanitation, streetscape, and beautification, and that only businesses benefit from advocacy and marketing. Therefore, each year the BID ED takes the budget breakdown for these categories and applies it to the assessment formula. So residential properties pay only for sanitation, streetscape and beautification, and commercial/ mixed use properties pay for everything. 

You also need to consider who is at the table. If your BID formation is driven by businesses and commercial property owners and you have NO residential property owners involved, you may want to consider having some conversations before slapping on a residential assessment. 

**every rule has a counter rule. BID formations — and assessment formulas — are also political. When forming a BID, you must collect 51% support from the number of properties in the district, and support from 51% of the total AV of the district. If you need to get your largest property owners on board otherwise the BID will fail, perhaps you might consider creating a special class for the largest properties. Another reason you might do that is – as stated above – some BID services (like sanitation) are directly proportional to lot size, while other BID services (like marketing) are not a direct correlation. Be careful though, as you don’t want to create the perception that the smaller properties are paying more than their share!