Opportunity Zone increases interest of developers and realtors in neighborhood

by Chuck Hoven

(Plain Press, November 2019)        What wasn’t emphasized at the Ohio City Community Conversations Community Building Meeting or the Ward 14 Planning 101 meeting covered elsewhere in this issue of the Plain Press is that a good deal of the increased interest of developers and realtors to invest in Near West Side neighborhoods involves the placement of ten census tracts in the Ohio City, Clark Fulton, Brooklyn Centre and Tremont neighborhoods into the W. 25^th MetroHealth Corridor Opportunity Zone.

NEWS ANALYSIS

The Opportunity Zones were created as part of the 2017 Federal Tax Cuts and Jobs Act in December of 2017. Those investing profits from capital gains in the Opportunity Zones are allowed to defer paying taxes on the capital gains. The law provides incentives to keep the investment in the Opportunity Zone over a ten-year period. The reductions in the amount of capital gains taxes owed on value of the investment are reduced to zero if the investor waits at least 10 years before selling.

The MetroHealth Corridor Opportunity Zone is the only Opportunity Zone on the West Side of Cleveland. A collaborative group calling itself OpporunityCLE is in charge of marketing the Opportunity Zones in Cuyahoga County. According to a March 21, 2019 press release titled “Opportunity is knocking” OpportunityCLE has launched an “investment prospectus, digital portal and website aimed at attracting local and national investment into Greater Cleveland’s Opportunity Zones.”

The partners in the collaborative are: The City of Cleveland, Cuyahoga County, Greater Cleveland Partnership, Cleveland Development Advisors, the Fund for Our Economic Future and the Cuyahoga Land Bank.

According to OpportunityCLE, there are eleven Opportunity Zones in Cuyahoga County with a total of 64 census tracts. 48 of the census tracts are in the City of Cleveland. Of those tracts, 10 are on the Near West Side located in the MetroHealth Corridor Opportunity Zone.

In order to qualify, a census tract must have at least a 20% poverty rate or be adjacent to a census tract with at least a 20% poverty rate.

OpportunityCLE offered some data on the ten census tracts in the MetroHealth Corridor Opportunity Zone. Below is the data they offered with some added descriptions of census tract boundaries:

Census tract 1036 lies in the Ohio City neighborhood in the area between Franklin Blvd on the North, Lorain Avenue on the South, Randall Avenue on the West and W. 25^th on the East. The tract is .1 of a square mile. It has 3,324 residents. The median age of residents is 43.8 years. The median household income is $41,694. The poverty rate is 31.1%. The median home value is $206,900.

Census Tract 1039 lies in both the area served by Ohio City Inc and Metro West Community Development Organization. It stretches from Lorain Avenue on the North to a Southern Boundary that jags from Seymour to W. 32^nd and down W. 32^nd to Clark Avenue. Fulton Road is the Western Boundary and W. 25^th is the Eastern Boundary. The census tract is roughly .4 of a square mile. The population of the census tract is 2,148 people. The median age of the population is 31.3 years. The median household income in the census tract is $24,464. The poverty rate is 41.7%. The median home value is $66,300.

Census Tract 1041 is served by Tremont West Development Corporation (TWDC). The area covered by the census tract stretches from Lorain and Abbey Avenues on the North to Clark Avenue on the South. With W. 25^th as the Western boundary and Scranton forming most of the Eastern boundary. The tract covers .3 of a square mile. The population is listed as 1,007 people. The median age is 35.7 years. The median household income is $14,089. The poverty rate is 45.3%. The median home value is $83,800.

Census Tract 1042 is in the Tremont neighborhood. The tract is .6 of a square mile and contains 1,094 people. The median age of those living in the census tract is listed as 29.8 years. The median household income is $36,111. The poverty rate is 28.4% and the Median Home Value is $189,100.

Census Tract 1043 is also in the Tremont neighborhood. It is .2 of a square mile and has a population of 1,180 people. The median age is 30.8 years and the median household income is $77,500. The poverty rate is 15.5%, and the Median Home Value is $312,700.

Census Tract 1044 is in the Tremont neighborhood. It is .4 of a square mile. Has a population of 1,195 people. The median age is 36.8 years. The median household income is $40,625. The poverty rate is 32.7%. The median home value is $112.700.

Census Tract 1046 is in both the Clark Fulton neighborhood served by Metro West and in an area east of W. 25^th served by TWDC. The tract is bounded by Clark Avenue on the North and Scranton Avenue on the East. The western boundary goes from W. 32^nd to Meyer, Meyer to W. 25^th, W. 25^th to Trowbridge and Trowbridge to Scranton. The size of the tract is .1 of a mile. The population living there is listed as 1,100 people with a median age of 35.5 years. The median household income is $17, 232. The poverty rate is 40.1% and the median home value is $66,500.

Census Tract 1048 is located in the Tremont neighborhood. It includes parts of the industrial flats and Steelyard Commons as well as a neighborhood south of Clark and East of Scranton. The area is 1.3 square miles. The population is 1,918. The median age is 29.9 years. The median household income is $30,284. The poverty rate is 39.1%. and the median home value is $56,200.

Census Tract 1049 lies largely in the Clark Fulton and Brooklyn Centre neighborhoods with Meyer Avenue serving as the northern boundary and I-71 serving as the Southern boundary. On the west it is bounded by Fulton to Daisy to W. 32nd. On the east the boundary is W. 25^th to Trowbridge, Trowbridge to Scranton and Scranton to I-71. It is .2 of a square mile, and has a population of 2,409 people. The median age is 30.2 years. The median household income is $25,255 and the poverty rate is 45.6%. The median home value is $61,400.

Census Tract 1055 lies in the Brooklyn Centre neighborhood. The tract is west of W. 25^th Street and has portions of the neighborhood both north and south of I-71 included in its boundaries. The census tract is .2 of a square mile. It has a population of 2,116 people. The median age is 29.2 years. The median household income is $24,818. The poverty rate is 36.9%. The median home value is $59,000.

Impact on Schools

While there is much talk from planners about equity in development. The greatest equalizing factor is education. If the City of Cleveland continues its policy of 15 year tax abatements in the neighborhoods along the MetroHealth Opportunity Zone, a whole generation of Cleveland children will go from Kindergarten to 12^th Grade without a dime from Opportunity Zone investments going toward more teachers to reduce class sizes, more special education teachers to provide proper educational assistance to students with Individual Education Plans, and more support staff and extracurricular programs in the schools.

While Cleveland Planning Director Freddie Collier says the schools need to find another source of income other than local property taxes, as of now there is no other source that is likely to grow. The State of Ohio funding is remaining flat and the City of Cleveland is unlikely to forgo any of its payroll tax revenue to reimburse the school system for the loss of property tax revenue due to the tax abatements.

How much property tax revenue does the Cleveland Metropolitan School District forego because of the City of Cleveland’s tax abatement? At its October 22^nd School Board meeting at John Marshall High School, the Cleveland Metropolitan School District (CMSD) released its five-year budget projections. Included in the report was CMSD’s Property Tax Abatement Tracking, which measures property tax abatement’s impact on the school district.

In the 2019 calendar year, the value of the school district’s portion of commercial property tax abatements was $20,165,400. The value of the school district’s portion of the residential tax abatements was $67,178,100. The total impact on the school district from abatements for 2019 was $87,343,500.

CMSD says that it projects that local property taxes will account for 30.3% of its general fund revenue in the 2019-2020 school year. Local property tax revenue in the 2019-2020 school year is projected to be $225.4 million.

Are longtime homeowners paying more in property taxes due to the tax abatements given to new homeowners or homeowners who substantially rehab their houses? The answer is yes. The costs manifest themselves in two ways.

First, when home values are assessed, the county has been increasing costs to existing homeowners in part due to the increased value of new and rehabbed homes in the same neighborhood. Residents report the valuation of their homes going up substantially due to the county’s reappraisal. Indeed, the school system’s report says, “Our assessed valuation increased to $5.3 billion from $4.8 billion, a 10% increase, as a result of last year’s reappraisal.”

The second way that residents are paying more is through increased amounts asked for in tax levies due to the tax abatements.  The CMSD four-year 15 mill levy is set to expire on December 31, 2020. CMSD estimates that if the levy is not renewed by voters the district will lose $67 million a year in revenue. The amount of revenue the district is currently losing due to tax abatements is $87,343,500 – over $20 million more than it projects to receive from the 15 -mill levy. While the school district can use all the resources it can muster, these figures indicate that longtime taxpayers are being asked to pay a substantial amount while generally wealthier new residents are not contributing in a way that could make a substantial difference for Cleveland’s children.

Impact on City

CMSD is not the only entity that benefits from property taxes. The City of Cleveland, the Cleveland Public Library System, and Cuyahoga Community College are among the additional beneficiaries of the tax.

With more development projected from the Opportunity Zones, all these entities and the CMSD should be reaping additional revenue from property taxes.

In the press release from OpportunityCLE, Joe Roman, President of Greater Cleveland Partnership said in March of 2019, “The floodgates are about to open regarding investment in Opportunity Zones and we are gearing up to aggressively compete for investments in Cuyahoga County projects. This program has the potential to raise hundreds of millions of dollars for catalytic urban development opportunities here, stimulating growth and job creation in Cleveland and surrounding communities.”

It would be a shame if all that development occurred and Cleveland’s children were still being shortchanged in the classroom, and the City of Cleveland still had shortages of police officers to respond to resident calls.

How long will the city go on with its failed development policy that shortchanges school children on education, and shortchanges residents on services in the name of offering incentives to developers and new residents? Are we to believe that property tax abatement is so important to new residents that they would not want to live in the city without it? What happens when it runs out? Despite years of abatements, we are still losing population – largely due to lack of educational opportunities and safety concerns of residents. It will take increased revenue to remedy these issues and collecting property tax from all residents and businesses will help to make that happen.

Protections for Residents

The OpportunityCLE team has a theme printed in its press release “Doing well by doing good.” It says, “At its core, the team’s intention is to bring attention to projects that are not only attractive financial investments, but also provide positive social impacts, including jobs, training, education, quality affordable housing, increased access to broadband, public transportation and healthy living environments.”

While these goals are noble, residents fear they may not be around to enjoy the neighborhoods where these improvements occur. Some protections need to be put in place to protect low-and-moderate income renters and longtime homeowners from overnight doubling or tripling of their rents or property taxes.

OpportunityCLE is promoting Cleveland as a place where investors will get 11.5% return on their investments – higher than projected in almost every major city in the country. At the same time, the President of Cleveland Development Advisors, the real estate financing affiliate of the Greater Cleveland Partnership Yvette Ittu says, “We believe there is a large segment of socially-committed investors who would be attracted to successful projects that yield significant social improvements.”

Let’s hope those socially conscience investors are willing to pay property taxes on the properties they invest in so Cleveland’s children and residents can benefit. The press release from OpportunityCLE says, “There is an estimated $6 trillion in unrealized capital gains in the U.S. – a huge pot of equity that would benefit from the tax breaks offered to investors in Opportunity Zones.” Surely among the owners of those $6 trillion dollars in capital gains are individuals willing to spare a few dollars in profit to assure Cleveland’s children get a better education and its residents get a timely response when they call the police.