Working group and public meetings to review current tax abatement policy and incentives for developers

by Bruce Checefsky

(Plain Press, December 2019)           Councilman Kerry McCormack believes Cleveland’s tax abatement policy and incentives for developers need reform, so he organized a working group to review the existing program and recommend changes. While committed to keeping the tax abatement program, McCormack would like to see tax revisions that conform to the changing demographics of Cleveland. Current tax incentive policies are set to expire in 2022.

Ward 15 Councilman Matt Zone, along with Councilman McCormack, supports targeted development strategies as a way to invest in struggling neighborhoods. Other members of the working group which have been meeting since last summer include Reinvestment Fund, PFM Group Consulting, and the Greater Ohio Policy Center which will work with Leverage Development and Neighborhood Connections to conduct the policy review. Freddy Collier, Director of Cleveland City Planning Commission and Cory Riordan, Executive Director at Tremont West Development Corporation, along with several Ohio City residents, have also attended the meetings.

The city’s economic development incentive program dates to 1977, when Mayor Ralph Perk gave tax abatement for a $50 million headquarters at East Ninth Street and Euclid Avenue to National City Bank, now a part of PNC Bank, according to Crain’s Cleveland. While studies indicate that site selection criteria do not show financial incentives to be the major factors in business retention or expansion, the Journal of the American Planning Association reports that only 7% of firms considered incentives as a critical location factor. Billions of dollars of abated tax revenue for the City of Cleveland has been lost since the late 70’s.

The City of Cleveland’s Residential Tax Abatement program is the temporary elimination of 100% of the increase in real estate property tax that results from certain eligible improvements on eligible residential/housing projects. It is available to stimulate investment in new development or redevelopment of residential housing in the City of Cleveland. The length or term of abatement is 15 years at 100% of the dollar amount by which the eligible new construction or remodeling activities increased the assessed market value of the property.

The City of Cleveland has been declared an Enterprise Zone and allows for Tax Abatements in all neighborhoods, except Downtown, giving way for investors and developers to make more money and create opportunity in an otherwise declining urban environment.

“When I started at City Council three and half years ago, the conversation around balanced growth had already been happening in the community. We saw a lot of new development in the neighborhoods and for a city that’s lost half of its population that is not necessarily a bad thing,” said McCormack. “What became very clear to me is that the city was selling Land Bank lots for $200 to build $400,000 homes. Is this the best public policy we have?”

The City of Cleveland’s Land Reutilization (Land Bank) Program hasn’t been successful in developing middle market housing. In response to the problem, Councilman McCormack froze the sale of Land Bank properties until a plan for developing more affordable housing is put into place. Despite the Land Bank failure, Tax Abatement as a tool for incentive investment has been very successful at spurring growth, according to Councilman McCormack.

“We’ve come to the point where the Tax Abatement policy has to evolve,” said McCormack. “That’s just smart policy. Tremont and Ohio City are not the same neighborhoods that existed twenty or thirty years ago. Our economic tools for housing shouldn’t be the same tools we used back then.”

After meeting with the Land Bank, Enterprise, Cleveland Housing Network, Neighborhood Housing Services, Cleveland Neighborhood Progress, MetroWest Development and other community development corporations, Councilman McCormack brought the conversation to the Mayor’s “Red Room”. He realized that he needed to frame the conversation with concrete data on housing sales and displacement. The Cleveland Foundation provided funds to hire Reinvestment Fund from Columbus, a company founded in 1985 to identify the best investment approaches for improving the quality and value of local real estate markets and, in turn, strengthening communities, to take a closer look at the economic development data.

Displacement pressure is just one of several results of economic incentives like tax abatement programs especially in Ohio City, Tremont, and Gordon Square. The data reveals overall the city continues to decline but there are hot spots mainly on the near west side. Red lining and systemic racism contribute to the Cleveland’s decline when it comes to housing initiatives.

“There are areas of the city where the soil isn’t fertile for investment in growth,” McCormack said. “That is the real cancer.  The problem is appraisals, red lining or ability of existing homeowners to get a mortgage. Tax abatement is needed but it’s not the problem. It’s more about foundational economic inequities.”

“County appraisers need to understand neighborhoods like Slavic Village and Hough when assessing values. New construction homes are critical for financing of new housing investment for areas of the city that don’t have a private market.”

Councilman McCormack does not advocate for removal of the current tax abatement program. He would rather see the abatement program tailored and nuanced to fit new or subsidized housing. When it comes to new single-family housing, he supports the abatement but not for homes in the $350,000 – $450,000 range.

Educating the public on tax abatement policies and tools for market rate development in the high-pressure areas might help change the public perception that tax abatement results in rising property taxes for longtime homeowners.

“People feel overtaxed and don’t understand abatement policy,” said John Plecnik, Associate Professor of Law at Cleveland State University. Professor Plecnik is an expert on tax abatement policy and currently serves as Vice President of Council & Councilman-at-Large for the City of Willoughby Hills.

“They’re missing the point,” he said. “You offer abatement to bring opportunity to the city.”

Some critics of the program argue that rising property values and increased taxes are a result of the tax abatement program. Councilman McCormack feels that’s a flawed argument.

“We know that when you have tax abatement, you’re abating the improvements on the land. You’re still paying the tax value on the land. We hemorrhage money taking care of derelict properties in the City of Cleveland. We can increase the value of the property by increasing the value of the structure,” said McCormack.

“Tons of money will be poured into the city coffers once those properties are off abatement. We have to be smart with the abatement tool. Overall, property taxes have increased in places like Ohio City and Tremont. Does it make sense for the market reinvestment to stay at 15-year at 100%? I would argue no.”

Kaela Geschke, Community Network Manager at Neighborhood Connections, established in 2003 by the Cleveland Foundation, and one of the largest community building programs in the country that invests in resident-led projects in Cleveland and East Cleveland, is lead administrator for community involvement on the residential tax abatement policy discussion. Neighborhood Connections is responsible for the community engagement component of the study initiated to help people develop skills, so they could advocate for themselves.

Neighborhood Connections has trained 12 facilitators to learn about tax abatement policy and current research, and develop facilitation skills, which will be used doing interviews with residents across the city. Listening sessions are schedule in various locations in November and December. Facilitators will be on hand to listen and ask questions, which will include the effects of tax abatement policy on the community and what residents would like to see in the future.

Once the community information is consolidated, Neighborhood Connections will write a chapter for the final report devoted to resident voices. Their report will be included with the overall study presented to Cleveland City Council in January 2020.

“This is an opportunity to share information and compare Cleveland to other cities. I hope residents feel they are heard, and their experiences are taken seriously. We’re optimistic that our work can be used in other polices as they come up for renewal and influence overall equitable community strategy for citizens to step up and have their voices heard on a city level,” said Geschke. “We will hold two large community follow-up meetings after the report is released in late January 2020 and invite the public to come up with solutions together.”

Neighborhood Connections final report will be available on their website for public review. For more information call Neighborhood Connections at 216-361-0042 or link to http://w.neighborhoodgrants.org

“We’re all about transparency,” added Geschke. “We want people to be heard.”

Listening Sessions: Tax Abatement Policy

• 11/18 from 6-8PM @Life Skills Center, 13407 Kinsman Rd.
• 11/19 from 6-8PM @ASIA Inc. 3631 Perkins Avenue, Suite 2A-W
• 11/25 from 6-8PM @Julia de Burgos Cultural Arts Center, 2800 Archwood Ave.
• 11/26 from 6-8PM @Mary Queen of Peace, Parish Center Upper Hall, 4127 Pearl Rd.
• 12/3 from 6-8PM @Neighborhood Housing Services, 5700 Broadway Ave.
• 12/4 from 6-8PM @Gunning Rec. Center, 16700 Puritas Ave.
• 12/10 from 6-8PM @3rd Space Action Lab, 1464 E 105th St.
• 12/11 from 6-8PM @Cornucopia Place, 7201 Kinsman Rd. Suite 103b
• 12/12 from 6-8PM @LGBT Center of Greater Cleveland, 6705 Detroit Ave.
• 12/17 from 6-8PM @Urban Community School Gathering Room, 4909 Lorain Ave.
• 12/18 from 6-8PM @Pilgrim Church, 2592 W. 14th St.