Since World War II, most cities in the United States have lost a substantial share of their businesses to the suburbs, and their tax bases have suffered as a result.1 City governments have adopted a number of strategies to try to counter this long-term trend, including, most recently, the formation of business improvement districts (BIDs). Enabled through state legislation, BIDs are local organizations into which merchants and firms pay mandatory fees in order to supplement the package of public services in their local area. In some measure, BIDs are private local governments.
Described by The Economist magazine as potentially "the best hope of getting parts of America's cash-strapped cities working again," BIDs are generating a great deal of excitement among city governments and urban policymakers around the world. The first BID was established in Toronto in 1970, and BIDs reached the United States a few years later, with the formation of the downtown development district in New Orleans in 1975.2 Since then, [End Page 1] BIDs have spread throughout the United States as well as to New Zealand, South Africa, the United Kingdom, Jamaica, Serbia, and Albania.3 By 1999, there were an estimated 800 BIDs worldwide, more than half of them in the United States.4
A BID is formed when the property owners in a particular neighborhood agree, by majority vote, to levy an additional tax on themselves to finance the provision of neighborhood-specific services, such as security, maintenance, and various forms of marketing. Once established, the city government levies and collects the additional tax, remitting the proceeds to the BID. To be clear, the tax is levied on all properties within the BID boundaries, and all owners are legally responsible for paying it, regardless of their initial support for formation of the BID. Operating as a nonprofit organization, the BID then uses the revenues to provide additional services to the area.
Despite the proliferation of BIDs, very little work has been done to measure their effectiveness. A few papers have studied the impact of BIDs on crime rates, but to our knowledge, no previous research has examined the impact of BIDs on property values within and surrounding the BID boundary.5 Yet using property values to assess the impact of BIDs is quite appealing, since under reasonable conditions, changes in property values should capture the impact of any improvements—not just crime reductions—effected by BIDs. As such, changes in property values represent an excellent gauge of a BID's overall performance. Moreover, no quantitative study to date has compared the effectiveness of different types of BIDs.
Our paper aims to fill this gap by examining the impact of BIDs on commercial property values in New York City. With the largest pool of BIDs in the country, New York is an ideal study site. Its fifty-five BIDs encompass a broad range of budget sizes, services, and locations. This large and diverse set of BIDs, together with the city's tremendous size and diversity of neighborhoods, allows us to examine the impact of BIDs in very different types of areas, including both very high-density office districts and more suburban-style retail strips. Thus we can gain some insight into the underlying mechanisms through which BIDs influence property values and the circumstances under which they may be a useful tool for local economic development. Further, the diversity of BID and neighborhood types offers the opportunity to examine [End Page 2] the robustness of our findings and gauge the extent to which the lessons learned can be generalized and applied to other cities and circumstances.
The rest of the paper is organized as follows. The first section provides a...