Listening Sessions: Residents express concerns about Tax Abatement Policy

by Bruce Checefsky      

(Plain Press, January 2020)    Residential property tax abatement is an economic development policy that many people in Cleveland find confusing. Who benefits the most from tax abatement? Why raise residential property taxes 200% to 300% in some cases to compensate for an economic policy centered on tax abatement? Why can’t the county and city governments come together to find a solution to the decline in population without squeezing out longtime residents?

NEWS ANALYSIS

These and other questions were on the minds of Cleveland residents during a city-wide listening session organized by Neighborhood Connections and held in eleven different locations throughout the city including Life Skills Center, Julia de Burgos Cultural Arts Center, Neighborhood Housing Services, 3rd Space Action Lab, LGBT Center of Greater Cleveland, and Pilgrim Church, among others. 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 Listening Sessions: Tax Abatement Policy.

Ed George, a volunteer with Neighborhoods Connection, horseshoed the half dozen residents of Kamm’s Corner neighborhood into a tight circle at the Gunning Recreation Center. Everyone was introduced before the discussion quickly shifted to residential tax abatement and the obvious inequities in the recent property assessment process. George reminded residents that any information collected during the meeting would remain anonymous when consolidated into the final report to be submitted to Council in late January 2020.

“We want to protect your personal information like property values, taxes, and improvements,” George said. “I also want to make sure everyone is heard tonight.”

In the late 1980’s, the city of Cleveland began offering residential property tax abatement in an effort to reduce urban blight, attract new home owners, and build upon the momentum established by the construction of the Rock & Roll Hall of Fame, Progressive Field (Jacobs Field), Rocket Mortgage FieldHouse (Gund Arena), and FirstEnergy Stadium. But population continued to decline despite a policy that favored a ten-year property tax abatement, applied to 75 percent the value of new construction. The terms were extended to fifteen years for 100 percent of the value of new residences several years later where it currently holds today. By 2020, Cleveland’s population is expected to decline by more than 25% since 1987 when the residential tax abatement program was first enacted. Clearly, something is not working.

The City of Cleveland’s Residential Tax Abatement program generally applies to new construction of single-family or two-family dwellings, or multifamily investor-owned properties; rehabilitation of residential multifamily structures; and rehabilitation of single-family and two-family dwellings. The Cuyahoga County Fiscal Office determines the abatement amount based on the type of improvements, including the addition of living area; gutting and renovating a home or apartment building; converting all or part of a nonresidential building to a residential use; building new or enlarging a garage; adding a new bathroom or toilet; adding a new porch; installing a shower; installing an indoor fireplace; or finishing an attic, second floor, or bedroom with paneling, plaster or plasterboard.  Improvements which do not apply to residential property tax abatement include new roof, siding repair, window addition or repair, porch repair, sidewalks, kitchen remodel, replacing mechanicals like water heater, furnace, or any electrical wiring repairs. (for a full list link to: http://www.city.cleveland.oh.us/CityofCleveland/Home/Government/CityAgencies/CommunityDevelopment/TaxAbatement)

The research provided by Neighborhood Connections so far has shown that the greatest concentration in tax abatement between 2004 and 2018 was in neighborhoods surrounding downtown and the west side of the city creating displacement risk ratio, essentially forcing residents who can no longer afford to live there to sell their homes and move. Statistically speaking, displacement risk ratio represents 3% of the city population located in Detroit Shoreway, Ohio City, Downtown, Northern Tremont, and west of Case Western University. Housing insecurity is especially high in these areas. With an additional 35% of the city considered stable, predominately on the west side, over 58% of the city is declining, predominately on the east side including the Mount Pleasant, Fairfax, South Broadway, and Kinsman neighborhoods.

“You can go back and look at the history of redlining in Cuyahoga County and Cleveland and literally take that map from 1930 and overlay on today’s map. We’re dealing with huge structural racism issues with roots that go back generations,” George said. “We see that playing out now.”

Redlining is the systematic denial of various services to residents of racially associated neighborhoods or communities through selectively raising of prices. In Cleveland redline maps show how loan officers, appraisers and real-estate professionals evaluated mortgage-lending risk by explicitly excluding African Americans and other minority groups from receiving home loans.

Open redlining, as a practice, was outlawed in the 1968 Fair Housing Act, but the strategy persists today by investors when selecting sites for development. Bank loans are still notoriously difficult to get in these areas. Instead of investing in education, job training, infrastructure and innovation, the residential tax abatement policy, as an economic strategy, drives up property values especially in the housing insecure sections of the city, and leaves the existing community with fewer affordable housing options. Mount Pleasant, Fairfax, South Broadway, and Kinsman are left out of tax abatement opportunities because of systemic racism and redlining left over from the 1930’s, some critics of the program argue.

Nick Aylward, a resident of West Park, asked, “As we look at the current policy, is there an opportunity to evaluate who’s benefiting from tax abatement?”

George had no clear answer.

“Developers benefit the most from tax abatement,” said Michele Anderson, a 33-year veteran real estate sales agent at Cleveland-based Progressive Urban Real Estate in a telephone interview with the Plain Press. Anderson is a Historic House Specialist, Member of OAR and CABOR, and longtime Westside city resident. “Developers can charge more money for the property not reflected in the tax value. Home buyers can also save hundreds of dollars a month on deferred taxes.”

“When the tax abatement expires, properties sell more slowly,” she added. “Everybody knows they’ll be paying a lot more in taxes if they live there.”

A week later, on the second floor of the LGBT Community Center on Detroit Ave, handmade silkscreened posters with Act Now and other slogans hung from a makeshift clothesline that zigzagged across the room. The Marvelettes’1961 hit song ‘Please Mr. Postman’ played in the background while a dozen neighborhood residents shuffled in from the cold night to find a seat.

Attendees were split into two smaller working groups. Among the questions asked was whether anyone knew if developers and real estate companies were involved with supporting the election campaigns of City Council members who favored extending the tax abatement policy.

A review of Ohio Campaign Finance Report provided by the Cuyahoga County Board of Elections revealed that between 2016-2018, Ward 3 Councilman Kerry McCormack received campaign contributions from several major real estate developers including Snavely Group; Forest City Enterprise, Inc.; B.R. Knez Construction; Geis Construction; Brickhaus Partners; GBX Group; Private Equity Real Estate; Coakley Real Estate; and others.

Cleveland’s Ward 3 has the highest quantity and density of tax-abated properties, according to research provided by Neighborhood Connections.

Jim Cutrone has witnessed the ebbs and flow of redevelopment in his neighborhood on West 76th Street since the late 1980’s and wanted to know about past damages caused to Cleveland Metropolitan School District by the tax abatement. “There’s serious damage being done by this policy,” he said. “Just look at the public schools. What’s the plan to abate the damage that’s already done?”

“Raid the state’s rainy-day fund to offset the funds we’re giving away,” said Linda Warren, Senior Vice-President of Placemaking for Cleveland Neighborhood Progress, a non-profit intermediary supporting the redevelopment of Cleveland’s neighborhoods. Warren is also a long-time resident of Detroit Shoreway for more than 35 years.

In 2018, Ohio budget officials added more than $657.5 million in the state’s savings account to amass nearly $2.7 billion in rainy day funds by cutting Medicaid spending by $200 million, including a $75 million reduction for hospitals, among other cuts to the state budget, according to several published reports.

At the final meeting of a two-month, 11 community listening sessions sweep through Cleveland, more than 30 residents of Tremont crowded into the basement of Pilgrim Church on West 14th Street to air their concerns on tax abatement. Holiday decorations lined the hallways and walls. Sugar cookies, water, and soft drinks were served. Folding tables were spread across the room and residents split into three groups. Kaela Geschke, community network manager for wealth + racial equity initiatives at Neighborhood Connections, and two volunteers working with Geschke led the breakout discussions. The mood was cautious optimism.

Adam Waldbaum and Lynn Murray support extending the tax abatement policy but with a caveat.

“Tax abatement helped build certain neighborhoods like Ohio City and Tremont,” Murray said. “How can we extend that to other areas of the city?”

“We need to keep tax abatement,” added Waldbaum, a real estate developer. “But we should also make certain people who have lived in the community all of their lives can continue to live here without worrying about whether they can afford higher property taxes or not.”

At a table across the room, Seronica Powell wasn’t so sure the current policy is working. “I’ve lived in Duck Island for 16 years. I don’t see myself living here much longer. I bought a home on the east side where its less expensive. Tax abatement needs to support medium and low-income families not just high-income families.”

Geschke reflected on the meetings following a 12-hour workday.  “We heard a lot of people worried about their property taxes going up,” she said. “People overall have not suggested we get rid of the current policy but want to see a policy that reflects income levels.”

Henry Senyak, Chairperson Lincoln Heights Block Club, stood and watched as the tables and chairs were folded and residents zipped up their winter coats and filed out from Pilgrim Church.

“BULLSHIT!” he said. “And make sure you use capital letters.”