30 Oct 2018

Improving Business Improvement Districts in Japan

Japan has been looking at the concept of business improvement districts (BIDs) for at least the last 20 years, and JLGC New York has been extensively involved in supporting that effort to provide better service to local business communities and promote their revitalization.

That is one reason we were interested to see the revision of the national-level Local Revitalization Law passed in February 2018 and now being implemented. Most fundamentally, the revision provides for a system similar to the one used here whereby local governments are allowed to levy a surcharge on businesses in certain designated areas to support the activities of a nonprofit group working for the betterment of that area.

Up until now, Japanese local governments had been experimenting with something like the system we are familiar with here in the US. However, revenue could only be raised by soliciting voluntary contributions, which constrained their fundraising ability, produced unstable annual revenue streams, and led to free-rider problems. The hope is that this change will address each of these issues.

The process basically involves:
1. Submission of a Local Revitalization Plan by a municipal government to the Cabinet Office of the Prime Minister of Japan for approval.
2. Submission of a plan to the municipal government (the council / assembly), drawn up by what they call an “area management group” (basically, an incorporated BID) detailing their area of operations, activities, objectives, and beneficiaries of this effort. This plan must have been agreed to by a two-thirds majority of not only the beneficiaries (businesses) within the area cited but also comprising two-thirds of the total revenue expected to be raised from these beneficiaries.
3. Certification of this plan by the municipal assembly and the mayor.
4. Establishment of a local law by the municipal assembly detailing how the amount of surcharge to be levied will be determined and how it will be collected.
5. Collection of the surcharge by the municipal government from the beneficiaries in the prescribed area.
6. Transfer of these proceeds to the area management group to pay for their activities.

The definition of “beneficiary” includes businesses as well as property owners, making it somewhat different from the system in New York City, where the assessment is laid solely on the property owners (though they may recoup this expense from their tenants).

The two-thirds rule is structured to avoid a situation where numerous small businesses force a plan on one or more major businesses that would be left paying for most of the activity whether they agree to it or not.

Many local groups reportedly also have not bothered to delineate their physical or geographic areas of activity up to now, so this new law requires them to do that. They must also be officially incorporated nonprofit bodies.

No plan may extend more than five years, so the group must seek new approval for their planned activities at least that often.

The plan can be cut off at any time if a third or more of the beneficiaries vote to end it.

The groups must follow laws governing things like transparency and the creation of boards, although these differ from the US model. For one thing, there do not appear to be any ex officio seats on the boards, but the mayor has authority to directly order the group to report on its financials and activity.

Local governments in Japan have been creating these area management groups for years on their own, but stable funding and a uniform set of guidelines for their creation and operation remained issues. The new law would also potentially give the national government more authority to involve itself in their activities and funding.

The creation of BIDs along the lines of the American model is one more way Japan is working to find ways to provide necessary public services more economically and effectively. JLGC New York looks forward to continuing to support this work.

Matthew Gillam
October 2018

Bryant Park is one of the oldest and most successful examples of urban renewal through a BID mechanism.