Special Assessments & Development Finance

Overview

Special Assessments are a core part of the development finance toolbox. Several variations of special assessment district financing exist and every state offers at least one type of Special Assessment financing to its communities. There are two main types of special assessment districts: business and neighborhood districts, and government districts.

Business and Neighborhood districts are run by a local nonprofit entity. Property owners within these districts voluntarily impose a tax to fund a set of agreed-upon services and improvements within the district. These types of districts take on several names; A few common ones include the Business Improvement District (BID), Community Improvement District (CID), Special Improvement District (SID), Neighborhood Improvement District (NID), and Community Development Authority (CDA).

Government districts work in the same manner as business and neighborhood types, but are initiated by the local government. These types of districts usually focus on improving infrastructure. Examples of government districts include the Transportation Improvement District (TID), Special Services District (SSD), Community Facilities District (CFD), Special Assessment District (SAD), and Community Development District (CDD).

How They Work

Special Assessment Districts work by adding (“assessing”) an additional tax on top of the existing property or sales taxes for property owners and/or businesses within the district. This additional pool of tax revenue is then used to finance whatever improvement(s) the district was designed to do. In order to create a Special Assessment District, a majority of property owners and/or businesses within the proposed district must agree to levy the additional assessment on top of their existing taxes.

Common Types of Special Assessments

Special Improvement District (SID)
A Special Improvement District is the most basic kind of special assessment. These districts are areas in which additional fees and/or taxes are collected to fund specific improvements within the area. Every state differs slightly, but in general, property owners within the district must come together and petition the local government to create the district.

Business Improvement District (BID)
A Business Improvement District is an area which levies an additional tax on top of existing taxes in order to fund improvements to the area. As the name would suggest, BIDs are typically created in business-heavy parts of towns to help promote commercial activity by funding improvements in the district. They also usually function as independent non-profits rather than government entities.

Transportation Improvement District (TID)
Transportation Improvement Districts are zones in which additional taxes are captured from property owners in order to fund public transportation projects. These transportation projects often raise the value of nearby properties, thereby incentivizing property owners to pay the assessment to fund the beneficial public transit improvements.

Neighborhood Improvement District (NID)
A Neighborhood Improvement District is a zone which collects state and local taxes and uses that money to fund developments in the zone. The legislation authorizing these districts varies in each state, but typically pay the debt on bonds that were issued to fund improvements within the zone. These zones are often created in residential-heavy or historic neighborhoods.

Case Studies

Capital Crossroads SID
This district covers 360 acres of downtown Columbus, Ohio. The budget is set forth based on the estimated costs for the agreed-upon services, and the assessment is calculated based on property values and front footage in order to meet the budget. Services provided by the district include beautification, trash and graffiti removal, anti-panhandling, homeless outreach, safety patrols, and an umbrella service - among other things. The SID also recently began offering free unlimited public transportation access to all businesses within the district, which amounts to roughly 45,000 workers. Since 2006, the district has helped foster $2 billion in investments and $548 million in construction projects.

Dulles Corridor Metrorail Project
The Northern Virginia area near Washington, D.C. is projected to experience population growth of 45% over the next 25 years and a 60% increase in employment. The region is home to the Dulles Corridor Metrorail Project, which has been funded through various state and federal grants and loans. Although some funds were available, the transit authority did not have the capital necessary to fully fund the entire construction cost. Subsequently, the businesses and landowners in Tysons Corner, Virginia formed a special assessment district to fund the local share of construction during phases 1 and 2 of the project. On top of normal property taxes, the assessment was an additional 22 cents per $100 of assessed value, up to $400 million. Thanks in part to this funding mechanism, the project is expected to be completed in 2020.

Allentown, PA Neighborhood Improvement Zone
The Allentown Neighborhood Improvement Zone (NIZ), created in 2009, is a 128-acre tract of downtown and riverfront land in Allentown, Pennsylvania. All of the taxes collected in the district (except city and school district taxes) can go toward servicing debt on any financed improvements in the district. The district’s financing mechanism has spurred roughly $600 million in investments since its creation. In 2017, the Allentown NIZ won a Global Award for Excellence from the Urban Land Institute for reversing the city’s decline and helping it become the fastest growing city in Pennsylvania.