Tourism Business Improvement Districts – new collaborative model or just privatizing the governance of public space?

Tourism Business Improvement Districts – new collaborative model or just privatizing the governance of public space?

Geographically, tourism is developing in uneven patterns. Some destinations are thriving, while others are lacking behind. Some areas may have potential, but even then, the stimuli to exploit those potentials are insufficient, and investors are reluctant to act. The development cycle of tourist destinations can imply that after a period of success and prosperity, an destination will decline again and will need a systematic rejuvenation.

Business Improvement Districts (BIDs) is a governance concept that was “invented” in Canada in the 1960’s as a response to dramatic downward spirals of urban centers with substantial neglect of buildings and infrastructures, rising crime levels and loss of attractiveness. The idea is to create funding for rapid and targeted urban improvements and promotions. Over the years, the concept has become well-known in particularly North America and later to some extent in other parts of the world. More recently, the BID ideas have been modified to address needs to revitalize touristic destinations and resorts – Tourism Business Improvement Districts, TBIDs.

TBIDs are basically expressions of governance structures and mechanisms. In more general terms, it is worthwhile emphasizing that governance is also subjects of innovation, and such innovations include changes in content and methods of rulemaking, rulesetting and rule implementation. They are innovations in the way that actors make something happen and the way that they change incentives. Governance innovations can embody new approaches for institutions to be built and modified, and they can include new arrangements that rearticulate the state-civil relationship, thereby repositioning the meaning of citizenship (Swyngedoduw, 2005).

Mammoth Lakes in California is a small community with less than 10,000 permanent inhabitants. Mammoth Lakes’ economy is primarily tourism-based. It is a top ski destination in California. There are numerous rental units in Mammoth Lakes and the lodging industry generates the majority of the economy of the place. Winter extreme sports are particularly important, but Mammoth Lakes also caters for tourism in the summer, serving people who visit to hike and fish.

Mammoth Lakes works with the TBID concept. A TBID is a voluntary association of local businesses which volunteer to levy a “bed tax” upon themselves. In Mammoth assessments are provided from hotels, restaurants, retail units and ski service operators. In the case of Mammoth Lakes, the funds are used to raise the destination profile, work for the quality of life in the area, improve transportation infrastructures and attract strategic events. Evaluations of the Mammoth Lakes TBID determines that the initiative has helped to increase the promotional effects of the destination.

In 2013, the council approved the TBID for a five year period, after a petition process supported by more than 50 % of the business owners. The TBID was approved by the Town Council. The Town Council collects the assessments, but still it is important for the TBID to emphasize that the Town Council in no way gets hands on the funds. The stability of the funding to be spent is a key argument for the contributions. It is a target that all enterprises contribute, and considerable pressure is put on them by the TBID to do so.

”The Mammoth Lakes Tourism Business Improvement District Management District Plan is the governing document behind the development, management and oversight of the business assessment.  The plan contains information on the District boundaries, what business are included, what rate each segment pays, who collects the funds, who oversee the marketing efforts and how Mammoth Lakes Tourism anticipates using those funds. The purpose of the TBID is to drive visitation and revenue specifically to those business segments who are involved in raising funds through the TBID assessment.” (Website text from Mammoth Lakes)

The Town Council has identified Mammoth Lakes Tourism, a California non-profit corporation, as the organization which serves as the Owner’s Association for the Mammoth Lakes Tourism Business Improvement District. The Mammoth Lakes Tourism board of directors represents the various assessed businesses, and the board consists of minimum the following representatives:

  • 1 director selected by the Town Council
  • 1 director representing Mammoth Mountain Ski Area
  • 1 director representing the Mammoth Lakes Chamber of Commerce
  • 2 directors representing assessed lodging businesses
  • 1 director representing an assessed retail or restaurant business
  • 1 director at-large with an interest in tourism.

According to the annual reports from Mammoth Lakes TBID, the funding is mainly spend on promotional activities, and those enterprises contributing also enjoys a priority in the promotional programs. The TBID thereby attempts to avoid the tendency of free-riding that characterizes many DMOs, and which may undermine the efficiency of the promotional activities.

Across the many TBIDs and from a tourism business point of view, the typical motivations for business stakeholders to put a pressure on governments to allow and accommodate for such constellations are:

  • They provide increased and more stable funding  for promotional purposes, and they are not dependent on sometimes restricted and decreasing public budgets
  • The objectives and activities are designed, created and managed by the business community and the business leaders who choose to pay the assessments, not “bureaucrats”
  • Funds raised cannot be diverted to governments to pay for other public services
  • The concept eliminates some of the free free-riding among particularly smaller business enterprises, particularly if assessment is compulsory.

Examinations of the BIDs and the TBIDs tend to show good returns from the investments. However, critics underline also that counterfactual aspects are not always addressed: whether the development would have taken place also without the TBID, or whether other types of organizations could have managed to the same or better levels.

While Mammoth Lake TBID is mainly concerned with promotional activities, other BIDs and TBIDs agree with the local governments to take over and administer far more comprehensive tasks. BIDs have also been implemented in such city centers that were emptied for activities as an effect of suburban sprawl.  For example the Downtown Helena in Montana works with not only city and destination branding, but is in charge of the management of public space, with the aim of promoting historic preservation and context-sensitive design and capitalizing from the historical assets.

Some BIDs have become genuine property developers, taking on board  – and profiting from – brownfield developments, for example along harbor fronts. A physical decline and dissolution of urban space and beach areas and the related social and economic problems facilitated the emergence of BIDs. BIDs are often by leading business actors launched as an absolutely “last chance” to create benefits for citizens and businesses alike.

However, there have been numerous concerns about the basics of Business Improvement Districts and the implementations in specific contexts. First and foremost critics notice that the democratically elected governments through the implementation of TBIDs accept to outsource decision making to new governing bodies. These bodies mainly consist of business representatives, and in reality mostly the larger and more powerful of them. In this process the transparency may suffer, and the distance from normal citizens to the urban governors is likely to become much longer. Citizens and groups of citizen who do not approve of development plans end up with a reduction of possibilities to make their opinion heard trough the normal democratically elected channels. Even if BIDs claim to benefit whole communities, the external and democratic control of the endeavor is likely to become more difficult, when embodied in privatized or semi-privatized formats.

When they operate as in-situ city policymakers and administrators, the BIDs may come up with extremely visible results in terms of better kept outdoor environments, nice street furniture, well-function parking areas, control over littering in streets, beaches and parks, etc. The coordinated investments through a BID can raise the aesthetic appearance of the environments, when derelict buildings are refurbished. However, the critics point to the fact that these benefits often come at a steep price. The places usually become more uniform, as less profitable (original) business owners and entrepreneurs cannot pay higher rents in the improved areas. In terms of tourism, this may compromise the variety of services and vibrancy of the place, when only chain outlets can survive, and artists, small food providers and less standard entertainment offers are squeezed out. Some of the BID’s work de facto as real estate developers alongside the administrative or promotional tasks, and the transparency of the opportunity creation and cash flows tend to suffer. In the more extreme situations BIDs employ their own security and surveillance systems, paralleling the public police departments and setting up own behavioral rules that may deviate from the society outside the boundaries of the area. It may be safer, but sometimes through the violation of civil rights.

As a matter of definition, BIDs are to some extent detached from the “normal” society. A BID becomes a quasi-public entity, an autonomously operating body. There is a risk that it contributes further to the territorial segregation: socially, economically and culturally. When “real” local public authorities give up possibilities to collect taxes and redistribute funds across geographical space and social purpose, they also limit their own long-term possibilities to prevent spatially bounded social and economic problems.

BID’s are put in place to stimulate private investments, and in many cases such effects are seen as a direct or indirect effect of the focus on the area. There is a belief that the positive effect trickles down, but as a principle embedded in the concept, benefits will be contained mainly within the boundaries. There is a distinct knowledge gap concerning the wider spin-off effects inside and outside the BDIs. Commentators conclude that unequivocally, BIDs represent neoliberal ideas, and that they are part of an agenda which, with all means, legitimizes and facilitates the possibilities to make profit.

The partnership formats and the regulatory models in BIDs come in many variants. In the best variants, the BIDs can, when transparently implemented and with firm public supervision, lead to the stimulus of a multitude of economic and social activities without risking that democratically elected bodies lose authority and legitimacy. In the worst cases, of which there are many around world, the BIDs contribute to a commoditization of space that erodes geographical and social cohesion. The best models in terms of tourism are not easy to determine. Research of BIDs urge public authorities to assess carefully alternatives to the outsourcing and privatization of city management.  Based on studies, they recommend extreme care and full transparency when they establish governance models of BID.

Further reading

Carta, M., & Ronsivalle, D. (2016). The Fluid City Paradigm. Regeneration as an Urban Renewal Strategy. Switzerland: Springer International Publishing.

Cook, I. R. (2008). Mobilising urban policies: The policy transfer of US Business Improvement Districts to England and Wales. Urban Studies, 45(4), 773-795.

Mak, J. (2016). Creating business improvement districts to raise stable funding for destination marketing and promotion. Working Paper 2016-2,The Economic Research Organization at the University of Hawaii.

Steel, M., & Symes, M. (2005). The privatisation of public space? The American experience of Business Improvement Districts and their relationship to local governance. Local Government Studies, 31(3), 321-334.

Swyngedouw, E. (2005). Governance innovation and the citizen: the Janus face of governance-beyond-the-state. Urban studies, 42(11), 1991-2006.

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