by Chuck Hoven
(Plain Press, August 2017) For at least a decade, the City of Cleveland has had a policy of not giving away the Cleveland Metropolitan School District’s portion of the property tax when giving a commercial tax abatement or providing Tax Increment Financing (TIF) for a development project. Cleveland City Council should stick with that policy and reject the NuCLEus Project request for a 30-year Tax Increment Financing deal that includes the school district’s portion of the property tax.
The Cleveland School Board should also reject this attempt to get them to provide cover to Cleveland City Council for this dramatic change in city policy by refusing to accept $18 million up front from the developer offered if they approve of this deal. While the Cleveland Metropolitan School District risks not getting anything from the project if Cleveland City Council goes ahead and approves the entire TIF requested by developer Stark Enterprises, to do anything but reject this proposal would set a bad precedent, possibly resulting in other developers coming to the City with their eyes on the school district’s tax dollars.
At the first of several public meetings to discuss the NuCLEus Project held at Max Hayes High School on July 29th, Cleveland Metropolitan School District Chief Executive Officer Eric Gordon, explained that the School Board is asking for public input on the proposal from Stark Enterprises and will vote on the proposal in August. Cleveland City Council will take up the issue in September. Regardless of what the Cleveland Metropolitan School Board decides, Cleveland City Council could decide to offer the TIF to the Stark Enterprises, including the school district’s portion of the taxes.
Gordon says Stark Enterprises says the new building they want to build at E. 9th and Huron would cost $542 million to build, but would only have a likely market value of $250 million when completed. Gordon estimates the school district’s portion of the property tax for a $250 million building over a 30-year period proposed for the TIF would be $121 million (about $4 million per year). Given that the school district’s portion of the property tax is around 63% of the total TIF, it would mean that the entire TIF would amount to, roughly, $192 million which would go to the developer. Stark Enterprises would then use the total TIF toward paying their mortgage on the development. The TIF would cover over 35% of the total project cost.
In exchange for the school district’s portion of the property tax — $121 million over 30 years — the developer has offered $18 million, up front, to the Cleveland Metropolitan School District. Gordon says the only way the school district could get sufficient value from that deal would be if the $18 million were placed in its capital improvement fund and the district successfully applied to the state to match 66% of the cost of construction funded by the dollars. If successful, this would mean acquiring an additional match of $36 million from the State of Ohio and make $54 million available for building new schools. Gordon says this would pay for one new high school (about $45 million) and one new K-8 school ($9 million), or multiple K-8 schools. However, there are risks that the State will not approve the additional buildings based on population projections, or funding for the state program would be discontinued.
While developers threaten not to build if they do not receive the TIF, Cleveland City Council should call their bluff, especially when it concerns the tax dollars that would accrue to the Cleveland Metropolitan School District. The school district needs operating funds if there is to be any hope of improving the quality of schools. Gordon said when the last levy, issue 108 was passed, projections were that it would bring in $80 million in property tax revenue each year for the Cleveland Metropolitan School District. Instead, the actual amount the school district is receiving is $65 million per year.
In an era of continuing threats of funding cuts from the State of Ohio and the Federal Government, the Cleveland Metropolitan School District cannot afford to start a trend of giveaways of future tax revenue. Any City Council member that agrees to such a give-away should be run out of office. It took many years of battling with past city administrations and city councils to stop the practice of tax abatement or Tax Increment Financing that included the Cleveland Metropolitan School District’s portion of the property tax. There should be no tolerance for an Administration or City Council decision to reverse that policy. If Stark Enterprises can’t pay taxes to the schools, there is no reason to allow them to build in Cleveland.
Editor’s Note: Clevelanders wishing to offer input on the NuCLEus Project can do so in an online survey at: ClevelandMetroSchools.org/nuCLEus,or by attending a public meeting. Additional public meetings are scheduled, including one at New Tech West, 11801 Worthington Ave (a few blocks South of Halloran Park – off W. 117th) on Thursday, August 3rd at 6 p.m.