Taking Matters into Your Own Hands - an overview of City Improvement Districts (CID)

Driving the streets of Johannesburg, one often bears witness to failing infrastructure, to garbage left on sidewalks, to sidewalks looking overgrown and public parks looking less than inviting.

It’s a constant disappointment for “Joburger’s” who pay their rates and taxes, who contribute to the economy but who see public areas falling into disarray.

Service delivery seems to be the bane of many South African’s existence, living in Johannesburg or not. In fact, it’s a constant reason for strikes, especially in informal settlements where local municipalities fear to tread – at least that’s how it appears at face value.

The severe lack of service delivery is a topic often discussed at dinner parties and nights out with friends – when will this area or that area be properly maintained? What will happen to the value of our properties if the area is in shambles? Whose duty is it to look after the state of a particular area?

Sure, we can all look towards the government and utter words of distress and disappointment – we would be within our rights to do so, mind you. But our complaints and our concerns often fall on deaf ears, which leaves those who have a modicum of house pride to seek alternatives. To look to their neighbours instead – shall we take matters into our own hands?

Of course, we are all entitled to maintain our own pavements, especially where the entrance of our home is located. But what about upgrades to parks and other public spaces? What about upgrading the Wi-Fi within an entire local? What about creating “smart” areas, or areas that are all interconnected. What about basic upgrades to communal areas? How do we go about upgrading a space, beyond what is normally undertaken by local municipalities?

What if we all want more than just basic service?

The CID enters the room and there’s suddenly a hush in the crowd. Who or what is a CID?

The City Improvement District (CID)

A City Improvement District (CID) also known as a Special Ratings Area (SRA) is a non-profit organisation operating within a defined geographic area within which property owners agree to pay a levy for supplementary and complimentary services set to enhance the physical and social environment of the area (City Improvement).

The money collected for the CID is a resolute, mandatory levy based on the land value of the individual stands. The CID levy can only be spent in the specific CID area. The levy can be thought of as a “top-up” service charge that is paid according to an approved business plan. It’s important to note that the services provided by the CID are supplementary to those provided by the local municipality who should (hopefully) continue to provide normal services.

The CID is a management tool that seeks to enhance property values. It can be seen as a system of co-operation and cost-sharing among private sector interests and a way of sustaining funds applied to all benefiting properties. It is based on an assessment of those businesses and is authorised by national, provincial or city law. The CID will also define the roles and responsibilities of both the CID and the local government.

The CID is managed through a Section 21 company and is directed through a board of elected business and property representatives from the CID area.

The approach of a CID is holistic is nature, meaning every need is assessed on a hierarchal basis. For instance, any issue that may be negatively impacting an area are investigated and dealt with on an integrated basis by the property owners and stakeholders within the area.

Once the CID is set-up, a management body is established in the form of a Section 21 company. This company appoints a manager, through which the CID is managed. Annual activities and budgets are developed by the CID management company, which provides a full set of monthly management accounts overseen by the board. This ensures that the CID is directly accountable to those in the community, paying the levy.

The complimentary services, which are often taken on by the CID include: 

• web-based communication and information systems connecting all businesses in the area; 
• business attraction; business retention, and
• branding and marketing the CID precinct area or events management to attract more people to the CID area.

How are CIDs incorporated?

Formation and operation of city improvement districts are done as follows - 

• The geographic boundaries of the improvement districts have to be established first.
• All property owners and major tenants within a defined area must be identified and exposed to the proposed intervention.
• A referendum has to be held and a pre-determined majority must be achieved in order to legally establish a CID.
• Whilst the application to the local authority to establish a CID may be made by 25%; of property owners, final approval will not be considered unless more than 50% of relevant property owners are in agreement.
• Once a district is authorised, 100% of property owners within a district have to contribute financially.
• Once legally constituted the improvement district authorises the council to levy an additional tax on improvement district members, who are required to pay them just as they have to pay normal rates and taxes.
• The council collects the levy on behalf of the CID and pays the money received directly over to the improvement district without deduction. The CID may give agency status to an approved agency to collect levies on its behalf.
• Each district has its own board of directors elected from the contributors and they effectively control the district within the terms of their original improvement district business plan.
• The board usually appoints a specialist urban management company to manage the day-to-day operations within the district.
• The services to be provided by the improvement district reflect the actual needs of the area and are negotiated with the local authority.
• An agreement as to the level to which the local authority will be providing services out of the normal rates base has to be negotiated.
• The improvement district is established for an initial period of three years but its life can often continue indefinitely unless members move for material changes to the original business plan (Gauteng Precinct Management Association)

Legislation related to CIDs

On 30 September 2015 the Supreme Court of Appeal delivered a judgment in the case of Randburg Management District vs West Dunes Properties, dealing with the legality of levies imposed under the Gauteng City Improvement Districts Act 12 of 1997 (the CID Act), which provides for the imposition of levies on rateable immovable properties situated within a city improvement district.

The decision by The Supreme Court of Appeal bought into question the legal status of City Improvement Districts (CIDs) in South Africa.

The following decision was handed down – 

“Its ultimate conclusions relevant to the issues raised in this appeal were the following:

‘77.1 It has not been proven that the Randburg CID was formed in compliance with Sections 2 and 4 of the CID Act.

77.2 It has not been proven that the imposition of increased levies, from 2004 onwards [was valid].

77.3 The decisions of the [Randburg CID management board], from 11 September 2008 to increase levies are ultra vires its powers and invalid, regardless of whatever status the levies imposed prior thereto might have enjoyed.

77.4 [Erf 1978] was at all times throughout the era of the Rating Ordinance until 1 July 2008, exempt from rates because it qualified in terms of section 5(1)(d), and accordingly, could not lawfully have been subjected to any levy in respect of the CID.”

The ruling inspired stakeholders to call for a re-evaluation of the South African legislative and regulatory context for Legislated Management Districts.

Most, if not all, CIDs operate as a voluntary initiative. And from the above decision it’s clear that a voluntary initiative has no standing or legislative backing, and thus is reliant on the goodwill and consistency of its constituent property owners to remain viable. Thus, it has serious risks to sustainability.

The City of Johannesburg (COJ) took the decision in June 2016 that Management Districts should be legislated under Section 22 of the Municipal Property Rates Act, 2004 (Special Rating Areas) and are therefore establishing a new Special Rating Area By-Law and Special Rating Area Policy.

In terms of the provisions of Section 22 of the Local Government: Municipal Property Rates Act 6 of 2004, Municipality may by Resolution of its Council determine an area within that municipality as a special rating area and levy an additional rate on property in that area for the purpose of raising funds for improving or upgrading that area. In this regard, the city has adopted a draft Special Rating Area By-Law, and a draft Special Rating Area Policy on which public comment is being sought.

There’s no doubt that CID’s offer a way to upgrade areas based on what is needed or desired most. As an independent body operating in conjunction with local municipalities, CIDs are perfectly poised to manage the CID area and are thus not only an innovative but altruistic way to ensure that communities are able to upgrade their spaces in a way that invites communities to explore the area in peace. CIDs are also a wonderful way to upgrade services in a way that invites investment in other initiatives that could very well benefit communities in need.

The question is – when will your area embrace the CID cache?

If you have any questions about the information we have set out above or have a personal issue which you want to discuss with us, please don’t hesitate to contact us at NVDB Attorneys. 

We are a law firm that considers honesty to be core to our business. We are a law firm that will provide you with clear advice and smart strategies - always keeping your best interests at heart!

(Sources used and to whom we give thanks – City of Cape Town; Rosebank; Gauteng Precinct Management Association and City Improvement).

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