Unveiling hidden districts: assessing the adoption patterns of Business Improvement Districts in California.

The first column of Table 6, reporting the raw percentages, shows that the oldest cities are the most likely to adopt BIDs. The remaining columns of the table present marginal probabilities from a probit model controlling for three measures of heterogeneity--that of poverty, education and family income--and the full set of controls from the previous tables. (21) The result continues to hold even when a variety of controls are added: if a city was established before 1890, it has a somewhat larger than 50 percent greater likelihood of adopting a BID relative to cities established after 1950 (the omitted group). Cities established between 1890 and 1910 are roughly 40 percent more likely to adopt BIDs than the newest cities, and cities established between 1910 and 1950 are between 35 and 40 percent more likely to do so. Note also that the pattern of BID adoption increases with incorporation year, rather than singling out any particular vintage of city; this suggests that BIDs are not a response to one particular vintage of construction.

CONCLUSIONS

The survey evidence presented here, the first to systematically document adoption patterns of special assessment districts by city, shows that BIDs are widespread among larger cities in California, and prevalent but not extremely frequent among all cities in the four largest Southern California counties. In broad terms, these results tell us that BID adoption has become an increasingly frequent mechanism for the provision of local public goods and, thus, that the consequences of BID adoption--the quality of public goods they provide, and their impact on the distribution of public goods--are worthy of further study. The widespread prevalence of BIDs also suggests that the entire class of special assessment districts may have an importance not yet documented in the literature.

Contrasting supply- and demand-side explanations for BID adoption at the city level, I find that heterogeneity is, at best, an infrequent explanation for BID adoption. However, a city's year of incorporation is persistently significantly associated with BID adoption, consistent with BIDs resolving a collective action problem endemic to older commercial neighborhoods. This market failure result speaks clearly to a role for public policy in resolving issues of urban decline.

More broadly, the evidence presented in this paper suggests that special assessment districts are plentiful enough to break the link between Tiebout sorting on taxes and public goods and the municipal boundary. In the present case, BIDs allow merchants and commercial property owners a tax and public goods choice not available from the city. This extra choice could plausibly allow cities to retain firms that would otherwise have left. In addition, the fact that half of larger cities have BIDs strongly hints that the special assessment district form may play an important role either now or in the future in the provision of local public goods not just for firms, but also for residents.

APPENDIX: COVARIATES

Racial Shares

* share African American

* share Hispanic

* share Asian

* Source: Census of Population and Housing, 1980, 1990 and 2000, accessed from UCLA and ICPSR

Household Characteristics

* mean household size

* share of households with children

* share of single-mother-headed households

* population share 65 or older

* share with high school education

* share with bachelor "s degree

* Source: Census of Population and Housing, 1980, 1990 and 2000, accessed from UCLA and ICPSR

Income

* median household income

* mean family income

* Source: Census of Population and Housing, 1980, 1990 and 2000, accessed from UCLA and ICPSR

Construction and Moving

* share of residential construction pre-1940

* share of owners who have moved in the last ten years

* share of homes constructed in the last ten years

* Source: Census of Population and Housing, 1980, 1990 and 2000, accessed from UCLA and ICPSR

Business Characteristics

* retail sales per capita

* total sales per capita

* city government expenditure per capita

* Source: City and County Data Books, 1988, 1994 and 2000, accessed via the University of Virginia; contain information from the 1982, 1987 and 1997 economic censuses

Crime

* offenses per capita

* clearance rate

* Source: FBI Uniform Crime Reports, 1980, 1990, 2000, accessed via ICPSR

Institutional Characteristics

* year of incorporation

* whether council has at-large members

* whether city operates under homerule

* whether or not city uses mayor-council form of government

* Source: 1987 Census of Governments, accessed from Census

Acknowledgments

I am grateful to Tara Syed for research assistance, and to the advice and support of Janet Currie, Jean-Laurent Rosenthal, Naomi Lamoreaux, Paul Ong and Sandy Black at UCLA, to new colleagues Maxim Sinitsyn, Mary MacKinnon, Jenny Hunt, Dee Sutthiphisal, Daniel Parent, William Watson, and Francisco Alvarez-Cuadrado, to the Public Economics group at the CeMent workshop, to the February 2006 Critical Issues Symposium at the DeVoe Moore Center, and to an editor and two anonymous referees. I am also deeply indebted to the many municipal officials who helped me assemble the dataset and without whose cooperation this project would have been impossible. This work was supported in part by an NBER Non-Profit Dissertation Fellowship, by a grant from the Lincoln Institute for Land Policy, and by funds from McGill University.

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