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Cleveland City Council weighs proposals to change Cleveland’s tax abatement policy

PHOTO BY CHUCK HOVEN

Monday, May 16, 2022; Cleveland City Council Meeting, Cleveland City Hall, 601 Lakeside Avenue: During the Public Comment period at the Cleveland City Council Meeting, Ward 4 resident David Beach addresses Cleveland City Council on the issue of the reauthorization of the City’s residential tax abatement program.  Speaking of the Justin Bibb administration’s proposed tax abatement policy, Beach says, “while the proposed legislation includes some reforms, it does not go nearly far enough to fix a fundamentally unfair and inequitable system.”

Cleveland City Council weighs proposals to change Cleveland’s tax abatement policy

by Chuck Hoven

     With a June 4th deadline looming to reauthorize the City of Cleveland’s residential tax abatement program, people came forward to address the issue of tax abatement at both the May 16 Cleveland City Council meeting and at City Council’s Development, Planning and Sustainability Committee meeting on the following day.

     At the City Council meeting, during the Public Comment period, two residents spoke on the issue of tax abatement and the changes proposed by the Justin Bibb Administration.

     Ward 4 resident David Beach, a writer and activist working on environmental and urban planning issues for the past 40 years, said, “while the proposed legislation includes some reforms, it does not go nearly far enough to fix a fundamentally unfair and inequitable system.”

     Beach noted, “Increasingly tax abatements are subsidizing multi-unit, market-rate buildings in a few high-priced neighborhoods. The effect is to widen the gap between wealthier neighborhoods and the rest of the city – increasing economic and racial disparities.

     “And to make matters worse, it’s not even clear that abatements are needed to make these new developments work economically.

     “Of course, developers will always claim that they can’t build without tax abatements. But according to one survey of households that received abatement, 65% said they would have bought in Cleveland without it.”

     Beach went on to ask some questions about moral issues of fairness that were not being addressed by the proposed tax abatement policy. 

     “So, if you are a senior citizen on a fixed income or you are struggling to work low-wage jobs to pay your bills, how can you think it’s fair that the comparatively wealthy people moving into the new development next door can live there tax-free for 15 years?

     “What do you think when tax abatements enable high-cost developments around you and cause your property taxes or rent to increase?

     “And what do you think when wealthier residents are exempted from paying property taxes that support the services that low-income people need, such as public schools, libraries, and parks?”

     In his concluding remarks Beach said he could only think of one justification for tax abatement that would be “for projects that expand the supply of permanently affordable housing.” Beach also called for retaining and strengthening the green building requirements tied to the tax abatement policy.

     Ward 15 resident Pat Murray also weighed in with remarks about the proposed tax abatement policy. Murray called for the new tax abatement policy to be fairer and more equitable than the current policy. He called for a shorter renewal period for the tax abatement legislation and a plan for a more robust public discussion of the policy before renewing it again.

     The current residential tax abatement policy allows a 100% 15-year tax abatement for all new residential construction and for the increased value in substantially rehabilitated housing that meets certain standards. When collected, Cleveland residential property taxes are divided in the following percentages: 55% to the schools; 19.59% to Cuyahoga County; 15.27% to the City of Cleveland; 7.56% to the Cleveland Public Library system; and 2.58% to the Metroparks.

     The Justin Bibb Administration’s proposed tax abatement policy creates three Community Reinvestment Areas that together encompass the entire city of Cleveland. The areas meet the guidelines under Section 3735.65 of the Ohio Revised Code for allowing tax abatement.  Each area would allow a different percentage of tax abatement over a 15-year period for market rate one to three family homes and multifamily homes. The Market Rate areas would offer 85% tax abatement; the Middle Market areas would offer 90% tax abatement; and the Opportunity areas would offer 100% tax abatement. The areas are designated by groups of city blocks. The areas designated are such that a Market Rate block sometimes is in the same census tract as an Opportunity Block.

     The proposed policy also caps tax abatement at $350,000 for homes of three units or less. Multifamily market rate developments (four units or more) citywide would receive fifteen-year tax abatement at the percentage for the zone the development is in. But there is no cap on the amount of the abatement, instead the development’s owner would be required to dedicate a percentage of units to affordable housing or pay a fine of $20,000 per unit in lieu of providing affordable housing.

     Housing where all units are determined to be affordable will receive a 15-year 100% abatement throughout the city. Affordable housing is defined as being affordable to households making 80% of the Area Median Income (AMI) (Cleveland-Elyria-Mentor metro area had a median income of $57,228 in 2019). This would define an affordable apartment as $800 a month for a one-bedroom apartment; $971 a month for a two-bedroom apartment; and $1,116 for a three-bedroom apartment.  Developers could reduce the number of 80% of AMA affordable units they are required to build by one unit for every unit they offer at 30% of AMA. At 30% of AMA a one-bedroom apartment would rent for $302; a two-bedroom would rent for $364; and a three-bedroom would rent for $419.

     The City’s proposed tax abatement policy also calls for the termination of tax abatement if the City of Cleveland Housing Officer “finds that the property is not properly maintained or repaired due to the neglect of the owner, or that the property taxes have become delinquent.”

     In over three hours of testimony at City Council’s Development, Planning and Sustainability Committee on May 17th, community activists, developers, community development corporation staff members, City officials, and City Council members debated the merits of various details in the administration’s proposed legislation. Council members also received some written statements with policy proposals.

     Zach Schiller of Policy Matters Ohio called for a “but for” requirement for multi-family projects. Under such a policy, developers would have to demonstrate “why the development would not occur but for an abatement.” Schiller would require financial statements from developers to continue to show a need for the abatement after the project is completed and a mechanism to claw back the abatement if the project shows “’outsized returns.’”

     Schiller’s proposal also considered the “financial impact on the school district.” He noted that “In Columbus, a portion of school tax is paid on an increasing basis during the abatement.”

     A group called A Better Cleveland for All calls for three changes to the tax abatement policy to make it more equitable:

     “Stop giving tax abatements in strong market neighborhoods (such as Ohio City and Tremont) that are already saturated with high end development.

     “Require multi-family projects (buildings with four or more units) to make a portion of units affordable to households making less than Cleveland’s median income (not the median income for the metropolitan area). [Editor’s note: Cleveland’s median household income was $32,053 in 2019]

     “If developers are allowed to pay a fee instead of setting aside affordable units, set the fee high enough to enable affordable units to be built (the proposed legislation sets the fee at $20,000, which is way too low.”

     Several developers testified warning of less development and trouble getting financing if the tax abatement policy were to change.

     Tremont West Development Corporation Executive Director Cory Riordan and Ohio City Incorporated Executive Director Tom McNair both testified in favor of reforming the tax abatement policy. Riordan called for widespread buy in for Community Benefits agreements with multifamily housing developers that would lead to more funds for affordable housing. McNair was also supportive of increased funding for affordable housing.

     Administration officials showed a chart to City Council members that showed if their proposed tax abatement policy had been in effect from 2015 to 2021, Cleveland schools would have received about $44 million more in property tax revenue over that period, and the City of Cleveland would have received just over $10 million in additional tax revenue.

     Ward 13 City Council Member Kris Harsh reacted to the City of Cleveland getting $10 million more over six years in the simulation of the new tax abatement policy. Ignoring the $44 million the schools would get, he said that the $10 million the City would have received is one golf course. He said, “Cleveland runs on income tax.” Harsh also complained that the Middle Market neighborhoods at 90% tax abatement were too close to the Market Rate neighborhoods at 85% tax abatement. He called for allowing 100% tax abatement in both the Middle Market neighborhoods and the Opportunity neighborhoods and lowering the abatement level in Market Rate neighborhoods from the proposed 85%.

     Ward 15 City Council Member Jenny Spencer pointed out some potential problems with the block level ratings of neighborhoods as Market Rate, Middle Market and Opportunity blocks. She said in Ward 15 some of the Opportunity blocks were right next to Market Rate blocks. She said developers could just move one block over and get a full 100% abatement and cause the same displacement pressures that exist in the Market Rate blocks.

     Ward 7 City Council Member Stephanie Howse said that property taxes on a $350,000 house amount to $9,145.25 a year. She wondered whether $9,000 a year would necessarily shift people to live in Cleveland. Howse called for Cleveland to collect data to inform its decisions about tax abatement. Howse said, “Cleveland has an attraction problem. People are choosing to live in other places, and it is not because of tax abatement. You need to ask people the reasons why they are leaving the city of Cleveland. Tax abatement is not it.” Howse questioned whether 100% tax abatement would result in new development in Ward 7. She said, “We have had a policy of 100% tax abatement policy, and still no development.”

     Ward 3 City Council Member Kerry McCormack called for clawing back tax abatements from multi-family housing being used for temporary lodging. He said such use of abated properties is not fair to hotels and the temporary lodging units in his ward have become nuisance party houses.

     City Council President Blaine Griffin asked City of Cleveland Chief of Integrated Development Jeff Epstein if the intended use of tax abatement was to promote homeownership or to increase the renters’ market. Epstein said, “Both.”

     Council President Griffin also called using tax abatement to preserve Cleveland existing housing stock. He called for 100% citywide 15-year tax abatement for the increased value in rehabilitated properties.

     Griffin also called for landlords in multi-family units that qualified for Section 8 to be allowed to count Section 8 voucher units toward their affordable unit quota. This he noted would allow property owners to benefit from a higher rent while still providing units that were affordable to tenants.

Editor’s Note: City Council will not have a meeting on Memorial Day, Monday, May 30th. A special City Council meeting is scheduled for Wednesday May 25thto vote on the tax abatement policy The next regular meeting after the special meeting will be June 6, the last meeting before summer recess.

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