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Quarterly: Spring 2020 - Jessica Tims

Business Improvement District (BID) Oversight Audit


By Jessica Tims

When Economic Development was announced as the topic for the ALGA Quarterly, I immediately recalled the highs and lows of my first audit with the City of Long Beach. Our Business Improvement District (BID) Oversight Audit was a large project, which involved soliciting the voices of many different stakeholders and resulted in recommendations that helped to improve the City’s oversight of the BID program. This article will highlight our audit findings in hopes that other audit shops are encouraged to conduct a review of their city’s business improvement districts.

What is a BID?

A BID is a defined area within a City, usually with concentrated dining or shopping, where business or property owners pay an additional tax to fund benefits specific to the district. To create a BID, business or property owners must reach a majority vote to be taxed. In Long Beach, there are 10 BID organizations and three BID types that are determined by how they are funded:

  1. Property and Business Improvement Areas (PBIA) are funded by business owners that pay the assessment fee along with their business license tax.
  2. Property and Business Improvement Districts (PBID) are funded by property owners who pay assessment fees along with their property tax.
  3. Tourism Business Improvement Areas (TBIA) are specifically funded by hotel businesses which pay assessment fees along with hotel occupancy tax.

Each BID is operated by a non-profit group that communicates with business and property owners to determine how assessment fees (taxes) will be used in their boundary. BIDs often provide services that local governments are not able to perform due to lack of staff time or budget restrictions. BIDs centralize resources to provide physical and economical benefits such as added security, sidewalk cleaning, and community events to promote local shops. For example, the downtown Long Beach BID employs staff to power wash high traffic areas and dispose of trash left on the sidewalks. In one of the shopping districts, the BID organizes an Annual Christmas Parade, attracting thousands of visitors to the area every year.

Why Are BIDs Important to Economic Development?

The Long Beach Economic Development Department oversees the BID program by collecting assessment fees and passing funds onto the non-profit BID operators, enforcing state law requirements, and overseeing contract agreements with each non-profit BID operator. The BIDs are often seen as an extension of the City. Long Beach has included BIDs in their Economic Blueprint to support business expansion, improve business retention, and attract new businesses to area.

The City of Long Beach BID program brings in approximately $17 million in annual assessment fees. Even the City pays $630,000 in annual fees as a property owner in some of the districts. The figure illustrates how assessment revenue is collected and disbursed.

Audit Scope and Methodology

As illustrated, the City is at the center of the BID program and it was important for the audit to confirm that the program was being run as intended. Businesses expressed an interest in knowing how their taxes were being spent. We also received tips through our Fraud Hotline specific to the BID program. Our audit scope focused on the City’s oversight of the BID program and we included all 10 non-profit BID operators in our test work to ensure that we understood the unique relationships between the City and each business corridor. As you can imagine, the downtown corridor has different needs for residents and businesses compared to businesses in the industrial zone of Long Beach. These diverse needs created a wide variety of relationships within the BID program and City staff were tasked with enforcing requirements across all BID organizations.

Audit Findings and Recommendations

During the audit, non-profit BID operators felt well-supported by the City due to the City’s focus on the customer service aspects of program oversight. City staff were available at meetings to answer questions and acted as a liaison to City services. However, the audit determined a need for improved oversight of the more technical aspects of the BID program. Our findings addressed the following questions:

  1. Are all BID members paying their assessment fees and are payment amounts accurate?
    During walk throughs of the business corridors, we identified multiple businesses in operation that were not paying BID assessment fees. After analyzing payment data, we found that the City owed $64,000 in past assessment funds to two BIDs and some fee structures were set up incorrectly in the City’s business license system. This caused incorrect fees to be charged.
  2. Did the City pass along all assessment fees to the BIDs?
    The Department was not tracking payments which resulted in late and missing payments to multiple BID organizations. We helped BIDs recoup funds that would have otherwise been missed and recommended that staff start tracking payments to ensure that all owed revenue is passed onto the BID operators in a timely manner.
  3. Were BIDs following city and state law requirements?
    California state law requires BIDs to submit annual reports, but the audit found that the submitted reports did not always comply with specific requirements. Reports varied in content and design, and required information was not always included. Furthermore, BID operators were either not aware that City agreements existed or were not knowledgeable of their contents because the City did not enforce the terms. As a result, agreements were extremely outdated and included processes that were no longer applicable to the current program.

To address these oversight weaknesses, our audit team focused on recommendations to streamline the oversight process and ensure compliance across all BID organizations. Recommendations included updating agreements to reflect current processes, creating templates for required reports to ensure compliance with city agreements and state law, track assessment fee payments and disbursements to ensure accuracy and timeliness, and create a handbook to guide BIDs on the requirements of the program.

You Can Audit Your BID Program Too

The Economic Development Department and the BIDs agreed to all of our recommendations and BIDs continue to be an active part of Long Beach’s business landscape. BIDs participate in small business development efforts, promote businesses to attract customers, and serve as representatives of local business owners. During our benchmark analysis, we identified cities –
big and small – where BIDs are augmenting public services and playing an important role in local economic development. So maybe it’s a good time to audit your municipal BID program to ensure that BID services are adding value and making an impact in your community!

About the Author

Jessica Tims is a Performance Auditor for the City of Long Beach. Jessica holds a Master of Arts degree in Communication Studies from California State University, Long Beach and is a member of the ALGA Publications Committee.