Cleveland’s approach to community development should put people before developers’ profits

by Chuck Hoven

Plain Press, May 2022             The City of Cleveland’s tax abatement program is coming up for renewal at the end of May. For many years, the City has used tax abatement as a means of attracting new residents and improving its housing stock as part of its community development effort. It is time to seriously examine the use of tax abatement as a community development tool.

COMMENTARY

      When focusing on community development, we need to ask about the population of Cleveland, and what part of that population most needs the services and protection of City government. It seems the most obvious population is families with children, especially those families living below or just above the poverty line.

     In meeting the needs of this population, our community development corporations and our City of Cleveland government have utterly failed since the beginning of the federally funded Community Development Block Grant program. We have wasted millions of dollars in block grant funding without tackling its primary purpose – to help move people out of poverty. 

     Over the years, in addition to misspending the block grant funds, the City of Cleveland has taken to giving 15-year 100% property tax abatements to all new residential development and on the value of improvements made in residential rehabilitation projects.

     When tax abatements were first proposed in Cleveland, Cleveland’s Planning Director Norm Krumholz vehemently opposed the idea. Krumholz, the father of equity planning and mentor to many as a professor at the Cleveland State University College of Urban Affairs, said that once you start giving abatements it will be like pandora’s box. All the developers will want an abatement. Janice Cogger, who worked with Krumholz in the City of Cleveland Planning Department and later at Cleveland State University, recalling Krumholz’s warning, noted that the tax abatement program was very limited when it started. It was just used to lure developers to areas declared slum and blight.

     True to Krumholz’s warning, the program has expanded significantly over the past 40 years. According to the Cleveland Tax Abatement Study published in July of 2020, in 2018 foregone revenue because of property tax abatements that would have gone to the City of Cleveland amounted to about $4 million. In the same year foregone revenue that would have gone to the Cleveland Municipal School District amounted to about $15 million. Other entities that receive a portion of the property tax revenue include Cuyahoga County, the Cleveland Public Library System and the Metroparks.

     The study also notes that 65% of the people that received tax abatement reported they would have moved to Cleveland without the abatement. Some said they may have purchased a smaller house or a house in a different neighborhood. The study also notes that the revenue from increased payroll taxes that result from tax abatements does not equal even the City of Cleveland’s $4 million per year in property tax loss, much less the millions that are foregone by other government entities that are recipients of property tax revenue.

      The current system of giving abatements to developers does not result in safe, affordable housing for residents whose family income falls below the poverty line. It does the opposite – it takes resources from this population.

     In keeping this tax abatement policy in place, developers have too much influence over our political leaders and community development corporations in Cleveland. Some development organizations derive significant income from development fees. Our politicians receive significant amounts of campaign contributions from developers and those in the building trades. In 1997 when the Cleveland Teachers Union tried to end tax abatement, which they saw as draining significant resources from the Cleveland Municipal School District, the leaders of local community development corporations and Cleveland City Council members opposed the teachers’ efforts.

     One goal of community development in the City of Cleveland should be to maximize its property tax revenue. This revenue will not only support city and county services, but it will also add significant revenue to the Cleveland Metropolitan School District, the Cleveland Public Library system and to the Metroparks, which are all institutions that help make life better for Cleveland families with children.

     We need to ween our development corporations and our City Council members from feeding at the developers’ trough. We need them to focus on human scale development that is oriented to helping lift families out of poverty. We need to end tax abatements in Cleveland and start collecting property taxes from all the new and rehabilitated properties in our city. Cleveland’s tax abatement policy is up for review this May. Residents should let their City Council member know their thoughts about whether to continue the program.

     How would we ween development corporations from depending on revenue from developers? Instead of development corporations deriving revenue from developers’ fees, the City could provide development corporations with revenue from its share of the property tax. This is revenue that could be used to help low-income residents rehabilitate their houses and make their homes lead safe. The current system of giving abatements to developers does not result in safe, affordable housing for the residents of the city of Cleveland whose family income falls below the poverty line.

     More property taxes paid from new developments would also assure that our school system has the resources to offer a wide variety of programs to students from Pre-k to grade 12. The taxes would also help libraries secure robust resources and to reach out to residents with more programs for children and adults. The taxes will allow the Metroparks to continue to maintain high quality parks and trails. Property tax payments will also allow the City and County to provide services that compare to those of any suburb.

     The city of Cleveland houses many large public and nonprofit facilities that pay no property tax at all. While the City of Cleveland benefits from the payroll tax from employees of these facilities, the schools, libraries and Metroparks do not receive any revenue. If the City is truly committed to developing its people, a portion of the payroll tax from these facilities should be set aside for the schools, libraries, Metroparks or for programs that directly benefit families with children.

     How would you measure the performance of community development organizations using this policy of putting people before profits? One way would be to record the number of students in the neighborhood that graduate from high school, successfully complete some post-secondary-school educational or skill building program, and then choose to stay in the city of Cleveland.

     It is guaranteed that the lifetime contribution to the city of Cleveland of a successful Cleveland student will be more than any multiplier effect from development dollars attracted to the city of Cleveland by tax abatements. If Cleveland’s tax abatement policy were so successful, we would not have the highest poverty rate of any big city in the United States.

     By investing in our children, and by providing high quality City and County services, we will not only improve the lifetime earnings of Cleveland residents, but we will also encourage people to want to live in Cleveland because of the quality of its schools and the quality of services it offers. Instead, residents are always told there is not enough money to provide the service levels they would like to see. However, there is always enough money to subsidize developers.

     Our children cannot wait 15-years to benefit from property taxes from new development in Cleveland. It is time to put an end to Cleveland’s tax abatement program.