Are Special Service Districts a Boon or a Bane?


America’s cities have been under fiscal pressure for an extended period of time. To cope with this, and better manage assets, they’ve increasingly turned to various forms of special purpose districts or entities for service delivery. Traditional independent service districts such as sewer districts or transit districts were often designed to circumvent bonding limits or to deliver services regionally, so were larger in scale. These newer service districts are much smaller in scope. They consist of two basic components:

  1. A private sector, usually non-profit management agency that operates a public asset or delivers services under contract to the city in a form of public-private partnership.
  2. Special purpose funding sources to finance this entity’s activities. These funds can include private donations, proceeds raised from Tax Increment Financing (usually for capital purposes), and taxes raised from so-called Business Improvement Districts (or BIDs, with special property taxes collected from businesses in a given area on a semi-voluntary basis, generally after a super-majority of property owners vote to agree to impose the tax).

Examples of these special service districts abound. One of the most famous is the Central Park Conservancy, which manages Central Park in New York under contract to the city.  The conservancy was founded in 1980 to raise funds to restore Central Park.  It received funds from the city budget, but also does significant private fundraising as well, for both capital and operating purposes.

Another well-known example in New York is the Bryant Park Corporation, which runs Bryant Park in Manhattan.  Once known as “Needle Park” because it was taken over by drug users and deals, today Bryant Park is a lavish showplace right down to fresh cut flowers in its marble restrooms.  Bryant Park is only 9.6 acres, but has an annual budget of $7 million. As Bryant Park Corporation CEO Dan Biederman once noted, that is more than the entire $4.3 million parks budget of the city of Pittsburgh.  This cash is raised from a BID, sponsorships, and commercial concessions in the district.

A different type of entity is the Chicago Loop Alliance.  As with similar groups in many cities, Chicago uses the Alliance as a downtown management agency, responsible for marketing, beautification, public art, events, etc. in downtown Chicago. It’s backed by local businesses, especially retailers, but also receives funding from a BID (known as a Special Service Area (SSA) in Chicago).

As a final example, when the city of Indianapolis built the eight mile downtown Indy Cultural Trail, a non-profit called Indianapolis Cultural Trail, Inc. was created maintain and promote it. The trail was the brainchild of Central Indiana Community Foundation President Brian Payne. To ensure that the trail would be well maintained over the long term in an era of tight budgets, he included a maintenance endowment in the original private fundraising to build it.  Additionally, ICT, Inc. raises private funding to supplement this.

These four examples are different in various ways, but something they obviously all have in common is that they serve prosperous areas or are focused on showplace type amenities. While not all such districts around the country are quite so upscale, in general they tend to be most prominent and effective in central business districts or wealthier neighborhoods.

These special service districts are part of a trend towards privatized government in America. Given the state of Central and Bryant Parks when their respective organizations where formed, obviously those two have been a success. Many of these districts are very well run because they depend at least in part on private sector cash raising and because as private entities they are free from many cumbersome government rules.

On the other hand, it’s not hard to see these as perpetuating the move towards two-tier municipal services, in which wealthier areas receive higher services levels than elsewhere. In effect, techniques like BIDs enable relatively thriving areas to purchase better levels of service for themselves without having to help finance similar services elsewhere.  That’s not necessarily a good thing.  For example, New York City has been criticized in some quarters for a lack of investment in outer borough parks.  State Senator Daniel Squadron of Brooklyn said in AM New York, “Large conservancies get millions every year from private donors. But the parks that find it hardest to get that support are the ones that need it the most.” He wants to force the Central Park Conservancy to pass long 20% of its donations to smaller parks.

However, it isn’t always bad if a central business district, clearly a unique area in a city, has different services delivered there. Its dense concentration of employment and visitors almost necessitates it.  The same is true for special regional attractions. Central Park truly is unique.

In fact, the move towards privatized services in wealthier areas could be a good thing for the rest of the city if it is used to free up funds for use where there isn’t as much private capital available.  In this case a city could look to move parks, street cleaning, and other items “off the books” via special service districts in areas that can afford to fund such services largely by themselves. The city would then concentrate public funds in poorer or middle class areas. The tradeoff would be that the wealthier areas might be allowed to purchase higher quality services for themselves, but that would be structured in a way that let service quality be raised for others.

On the other hand, it’s not hard to see how this could evolve as a mechanism for “strategic abandonment” as well.  In this case the city would cut general service levels then allowing wealthier areas to buy them back.  Critics have charged that special service districts are exactly the legal mechanism that will be used to implement planned shrinkage in Detroit.

In short, how this plays out will depend greatly on the strategic intent (or neglect) of city leaders. But regardless, in an era of financial extremis for cities, the trend towards more privatized government and special service districts is sure to continue.  The key is for the public to demand that these deals be structured as win-wins that don’t just benefit the already thriving areas of the city, but enable investments in struggling areas that are often overlooked.

Aaron M. Renn is an independent writer on urban affairs and the founder of Telestrian, a data analysis and mapping tool. He writes at The Urbanophile.

Bryant Park photo by Jean-Christophe BENOIST

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What is there not to like about this?

Better-off locales paying for their own amenities.....!!

Heck, I wish we could wind back the incidence, in some countries and cities, of better-off locales getting their amenities paid for by "the region" or the central government.......!!

Subsidies to commuter rail systems that serve CBD's are the classic example.

You can bet, in every region where "amalgamation" and "regional planning powers" are being sought, the fat CBD vested interests will be making a grab for free money from the region's taxpayers and motorists, and seeking "city centre first" urban planning that will boost them at the expense of the general welfare. Even anti-sprawl planning itself is a massive centre-boosting ploy, even before the "city centre first" infrastructure and amenity planning and spending is commenced.

It is encouraging if any new "super city" ends up with wise voters electing a "suburbs and drivers first" mayor and council, but this is sadly rare. The local mainstream media is usually firmly in the pockets of the big property rentiers, and "smart growth" mayors are promoted as secular saints.