Details of the Revised Business Improvement District Regulations Businesses located within the boundary of the Downtown Overland Park Business Improvement District (BID) pay an annual BID fee. A volunteer board of downtown business owners and property owners, known as the BID Advisory Board, makes recommendations to the City Council on the rate structure for BID fees and on the way the BID fees should be assessed and collected. All of the fees collected through the BID process are forwarded to the Downtown Overland Park Partnership (DOPP) and are used to fund a variety of activities that promote the downtown, recruit new businesses, and attract people to the downtown area. On average, BID fees account for approximately 40 percent of the total DOPP budget. The remainder of the DOPP revenue comes from direct grants from the City of Overland Park, sponsorships fees and event proceeds. After studying a variety of options over the past year, the BID Advisory Board proposed and the City Council adopted both a revised BID fee structure and a revised assessment and collection process. These changes are designed to accomplish two goals: (1) to make the BID fee structure more fairly represent the benefit that businesses receive from DOPP activities; and (2) to simplify and streamline the process so it is easier to understand and easier to administrate. The changes are designed to be revenue neutral some businesses would pay a little more and some would pay a little less, but the total revenue will not change significantly. The city council and the BID Advisory Board are constrained in how BID fees can be calculated by Kansas state law and by the type of information that can be readily collected about businesses in the downtown area. Given those constraints, there is no perfect system that would exactly match the BID fee to the benefits each business feels that they receive. The Advisory Board believes, however, that the fee structure changes are an improvement over the prior system. The purpose of this summary is to explain the changes that have been adopted. 1. Revised BID Tiers The Business Improvement District is currently divided into two tiers (often referred to as Tier 1- Core and Tier 2-Fringe) and the rates charged businesses in each tier are slightly different. The idea is that businesses in the heart of the downtown area benefit more from DOPP activities than do businesses on the periphery of downtown and so should pay somewhat higher fees. The adopted changes divide the downtown into four tiers so that there will now be a greater difference between what a business at the center of downtown pays and what a business at the edge of downtown pays. The layout of the four tiers was based on three factors: (1) how visible is a location to people as they travel in and out of the downtown? (2) how accessible is a location to pedestrians once they are in the downtown? and (3) how likely are people to mentally associate a particular location with their image of the downtown area? The colored portion of the map below shows the four tiers (the bold black lines show the previous two tiers). 1 December 2012
The properties in Tier 1 all have direct frontage on 79 th, 80 th or Santa Fe which means that they have very high visibility to people traveling in and out of the downtown. They are also within easy walking distance of downtown events and clearly associated with the downtown area. The properties in Tier 2 are somewhat less visible but still easily accessible to pedestrians. Tiers 3 and 4 are further away from the main attractions of downtown and thus tend to be less accessible to pedestrians and less clearly associated with the downtown area. 2. BID Rate Structure The adopted rate structure that determines the fee charged to a particular business is still based primarily on business floor area but it has been redesigned to achieve two separate objectives. First, the proposed rate structure reflects the four proposed tiers. There is a substantially greater 2 December 2012
difference between the rate for a business in Tier 1 and a business in Tier 4 than there is currently between businesses in Tier 1-Core and Tier 2-Fringe. Second, the difference in the fees charged to a business with a large amount of floor area and a business with a small amount of floor area has been reduced. The rationale is that many of the advertising and promotional activities of DOPP benefit small businesses to nearly the same extent as large businesses. Thus, while large businesses still pay significantly more, the difference has been reduced. Organizations that operate as a not-for-profit corporation would continue to be exempted from the BID fee. The new formula for determining BID fees is shown below for each of the four tiers, along with the formula for the two previous tiers. Tier 1: $80 base fee + $0.16/sf floor area fee maximum of $1,100 Tier 2: $70 base fee + $0.14/sf floor area fee maximum of $1,000 Tier 3: $60 base fee + $0.12/sf floor area fee maximum of $900 Tier 4: $50 base fee + $0.10/sf floor area fee maximum of $800 Previous Formula: Tier 1 (Core): $0.19/sf minimum of $126 and maximum of $1,200 Tier 2 (Fringe): $0.17/sf minimum of $115 and maximum of $1,100 Note: sf means square feet of business floor area For example, a business with 2,000 square feet of floor area in Tier 1 will be charged a fee of $400 under the new rate structure ($80 + (16 x 2,000)), while it would have paid $380 under the previous rate structure. As a second example, a business with 2,000 square feet of floor area in Tier 3 will be charged a fee of $280 under the new rate structure ($60 + (12 x 2,000)), while it would have paid $340 under the previous rate structure. Under the previous system, a business with 6,000 square feet of floor area would pay a BID fee that was roughly 9 times greater than a business with 500 square feet of floor area. Under the new system, the difference between the two fees would be a factor of approximately 6.5. Additional examples are shown in the table below: Business Floor Area 500 sf 1000 sf 3000 sf 6000 sf Old Tier 1 126 190 570 1140 Old Tier 2 115 170 510 1020 New Tier 1 160 240 560 1040 New Tier 2 140 210 490 910 New Tier 3 120 180 420 780 New Tier 4 100 150 350 650 Note that the base fee of the new system is a little different from the minimum fee of the previous system. Under the previous system, all businesses under about 670 square feet of floor area paid the same amount (the minimum fee). Under the new system, there will be a difference between a business of 200 square feet and one with 500 square feet of $30 to $48 depending upon the tier. 3 December 2012
3. Expanding Who is Subject to the BID Fee Under the previous process, the BID fee was paid by (1) downtown businesses, and (2) downtown building owners with vacant commercial space. The new regulations expand this list by adding two additional categories of business. The first category is the owners of vacant commercial land being held for sale or eventual redevelopment (or land that is being developed but is not yet occupied). The second additional group is the owners of multi-family residential projects (10 or more units/rooms under one ownership) within the BID area. The rationale behind the concept of a business improvement district is that those businesses that are most likely to benefit from promotional, marketing and event activities should help pay for those activities. Given that assumption, the Board felt that the owners of vacant property and multi-family residential property also received a benefit and so should be included in the businesses that pay a BID fee. The stronger the downtown is as a district, the easier is should be to sell or redevelop vacant land and the easier it should be to lease apartments or retirement housing. In the case of both of the new categories, the fee will be based on land area so that a larger property will pay more than a small property. More specifically, multiplying the land area times 2% yields a number that is treated as an equivalent to business floor area. That number is then used in the same tier-based formula that is used for all other businesses and properties. 4. Defining the Floor Area Subject to BID Fees This may be more of a clarification than an actual change, but it is important that there be a clear definition of business floor area so that a similar fee is paid by businesses of similar size. The new regulations define the amount of floor area used to calculate the BID fee to be basically equal to a business s gross leasable area, with the exception that basements and attics not designed or used for access by the public are not included. It does include, however, above ground storage areas, workrooms and utility areas that are under the control of a specific business. For multi-tenant buildings, business floor area would also exclude common areas that are shared by multiple businesses such as foyers, hallways and stairways. Thus, a tenant in a multi-tenant building would pay a fee based on the floor area under their direct control. Property owners would pay a BID fee for all floor area which could reasonably be leased but which is currently vacant or used for private purposes, again excluding common areas such as hallways. This approach to defining the floor area that is used as the basis for the BID fee is generally consistent with past practice, but a clearer definition should lessen any confusion. The city staff has been using data from the County Appraiser s office and aerial photography to verify building size so that floor area data is more consistent from business to business. 4 December 2012
5. Defining One Business versus Separate Businesses This is another example of a clarification rather than a significant change. Since the City does not have a business license or a similar means of tracking each business entity, the meaning of business for the BID fee is more equivalent to business location. All businesses under common ownership and located on the same property will be considered a single business and receive a single bill. A business owner that has multiple locations in downtown (separated by streets or parcels owned by someone else) will be treated as multiple businesses and receive multiple bills. However, business owners will have the option to divide a single space into two or more parts and pay multiple fees if they want multiple aspects of their business to have distinct name recognition in DOPP s promotional efforts. For building owners with vacant space, all vacant space on the same property will be added together and used as the basis for a single bill. The city staff has built a database of downtown properties containing the leasable floor area of each property and the leased area occupied by each tenant. Each year, the difference between the amount of floor area leased to tenants and the total leasable area will be assumed to be vacant space that will be billed to the property owner. 6. Simplified Billing Process and Dates The general process for BID bills remains unchanged but it has been simplified so that the City sends out fewer revised bills and fewer reminder notices. BID bills will continue to be sent out on or about December 1 st and will be due immediately. Bills that are not paid by January 15 th are considered past due and subject to an automatic late fee of 25 percent. The December 1 to January 15 date range for on-time payment is designed to allow businesses to decide which tax year they wish to use for the fee payment. If there is an error in the billing statement, the new system contains an administrative review process designed to quickly correct the error and issue a revised bill. In this situation, businesses and property owners would have 30 days to pay the corrected bill before it would be considered past due. Businesses continue to have the option of dividing the BID bill into multiple payments. To elect this option, businesses would have to pay 50 percent (or more) of the bill by January 15 th. Businesses could pay installments on the remainder of the BID fee at any time up to June 1 st. Any unpaid balance of the BID fee will be billed around May 1 st (as a reminder to the business) and become past due if not paid by June 1 st. Businesses that open after December 1 st will be sent a bill on or before May 1 st for the 2 nd half of the annual fee. Businesses that open after June 1 st will not be billed until the next annual billing cycle on December 1 st. Similarly, property owners who have space that becomes vacant after December 1 st but before June 1 st will be sent a bill for the 2 nd half of the year unless the previous tenant had paid the BID billing for the entire year. Bills that are more than 30 days past due will be subject to the city s fee collection and ticketing process which basically remains unchanged. Finally, the city plans to make an e-payment option available so that BID bills can be paid electronically online. 5 December 2012