As the expiration of a 20-year-old deal between the City of Cincinnati and Cincinnati Public Schools around tax incentives nears, the battle over those tax breaks and financing districts for developments in some city neighborhoods continues.
The city’s teacher’s union, educational advocates and Cincinnati Public Schools say the abatements and tax increment financing (TIF) districts drain tax revenue from the school district — a claim that the city contests, leading to an apparent stalemate ahead of the expiration of the deal between the two bodies at the end of the year.
Complicating that debate: A proposal to add 15 new TIF districts in the city that council will likely take up later this month, just before the deal expires.
As negotiations continue, another set of arguments around abatements continues as well. Critics say some of the abatements given to developers are unnecessarily generous and should include more stipulations around the city’s need for affordable housing and living wages.
The city’s Department of Community and Economic Development, however, says that the tax incentives are vital for continuing development in a city competing with other hot locales like Nashville and surrounded by suburbs where building is cheaper and easier. In a 60-page report requested by Cincinnati City Council, DCED also posits that the best way to address the city’s considerable affordable housing deficit is by increasing wages and clearing the way for more market-rate housing construction to soak up demand.
DCED argues that the city deploys the incentives as a “last-in” effort for valuable projects that would not happen otherwise — at least, not within the city limits.
“Given our history of disinvestment, investment is not a given,” DCED’s report reads. “Investment cannot be assumed to be part of a ‘new normal.’ In DCED’s experience, every decision involving private capital is made in a competitive environment. Investors of all types and sizes have broad and easily accessible alternative options, including low‐risk and moderate‐return investment vehicles such as the bond market, as well as higher risk investments like stocks and real estate.”
What are Abatements and TIFs?
Community Reinvestment Area (CRA) tax abatements work like this: If a developer builds or renovates on a property, generally their property value will rise and their property taxes will go up. But the CRA tax breaks allow the developers to forego taxes on the improvements they make for a period of time.
TIFs, meanwhile, redirect the increased tax revenues from such improvements in specific neighborhoods into funds that can be used for public projects. Importantly, under what are called project TIFs, developments in or outside TIF districts can be named a “public purpose” and the TIF funds can be funneled back into those projects.
Proponents say these district and project TIFs create funding pools for neighborhood-specific projects that otherwise might not get funding from the city. Skeptics, however, point out that it is hard to glean how much is each of the city’s TIF funds and charge that sometimes, those funds are used for projects not backed by neighborhoods.
Under the current deal between the city and the school district, the city pays CPS $5 million a year to offset tax abatements given to developers to incentivize new projects in the city — a deal reached in the 1990s as part of the development of Cincinnati’s two riverfront stadiums, which are tax abated.
Developers are also required to provide payments in lieu of taxes (PILOTS) on roughly 25 percent of the valuation of their project’s improvements. In return for those payments, the city can offer 15-year property tax abatements on up to 100 percent of the value of improvements or new construction. CPS also gets payments equal to about 27 percent of the revenue going to TIFs.
Without the deal, Ohio Revised Code provides more limited options for the city’s incentive policies: abatements at less than 50 percent for up to 15 years, as well as similar limitations on TIFs.
Last year, the city had $1.6 billion in property value abated via 20 TIF districts and $1.3 billion in property value abated via commercial CRAs, according to city data. Under another provision in the Ohio Revised Code, the city also abates improvements to single-family residential properties, though those abatements aren’t a part of the city’s deal with the school district. Last year, the city had abated another $200 million in property value via that provision.
Ahead of the potentially expiring school district-city agreement and a property valuation reassessment by the Hamilton County Auditor’s Office next year, time could be running out for the current state of play for the tax incentives — a situation that has led to a stampede of new deals for council to approve recently.
Council’s Budget and Finance Committee Dec. 2 got its first look at 10 proposed property tax abatements and five TIF agreements the city’s administration recommended for projects around Cincinnati. Council passed the abatements Dec. 4, but held most of the TIF deals until more details were furnished about the developments. Those details are usually provided in a separate development agreement council approves concurrently with the TIFs, but DCED Director Phil Denning said those development agreements would not be ready until sometime next year.
Denning acknowledged that the prospect of an expiration of the city-district deal and property revaluation factored into the rush to council, but called the deadlines a “secondary” factor.
The abatements in Over-the-Rhine, downtown, Corryville and Lower Price Hill would write off property taxes assessed on 100 percent of the value of improvements made to the properties for between 10 and 15 years, though developers would pay 25 percent of that abated value to CPS and another 15 percent into a fund for either the streetcar or affordable housing. The TIF agreements would funnel money that would have been paid in taxes assessed on improvements made to properties in Avondale, downtown, Over-the-Rhine and Evanston back into the developments.
Abatements and Housing
Councilmember Tamaya Dennard had questions about the value of some of those abatements, and others questioned the timing.
Dennard was the sole member voting against several of the incentives, including one 15-year, 100 percent tax abatement for a property on Walnut Street in northern OTR creating five housing units that will rent between $1,500 and $2,000 a month and another by a small developer on Mohawk Street creating six units with rents between $1,000 and $1,400 a month.
Neither project includes affordable housing, Dennard says, and thus, shouldn’t get city subsidy.
“The argument is, (these properties) are vacant,” Dennard said after her vote against several recent abatement deals for market-rate housing Dec. 4. “But we’re needlessly giving away tax abatements when we don’t have to. And number two, it’s a ripple effect that impacts the surrounding neighborhood. You can’t tell me that an adjacent property owner is going to accept $500 rent when they can get $1,000 or $1,500 rent.”
Other council members, however, have pushed back on the idea that neighborhoods like OTR are struggling with affordability.
“I really do reject the narrative that OTR is gentrifying,” councilmember Chris Seelbach said in a committee meeting Dec. 2, citing the fact that the city has approved deals providing a number of new affordable units recently. “I really reject that OTR is becoming a place where only wealthy people live. As someone who lives there and has lived there, on a daily basis I see people mostly of low incomes that I interact with.”
Census data and recent studies, however, suggest that lower-income people, many of them African American, have left OTR in recent years at the same time rents have risen.
The four Census tracts that make up Over-the-Rhine saw 635 more middle-to-high-income residents move in between 2000 and 2016, while as many as 3,000 low-income residents moved out over time, according to a study from the University of Minnesota Law School’s Institute on Metropolitan Opportunity that was generally skeptical of the narrative that development-driven displacement is occurring in most cities. The neighborhood is still predominantly low income, though by a much lower margin.
The authors of the study call tracts like this “displacement tracts.” It isn’t entirely possible to know why residents left a neighborhood using the study’s data, but its findings are consistent with a 2017 analysis of Census data by CityBeat suggesting that as many as 1,800 predominantly low-income black residents left the neighborhood during a more specific time period between 2010 and 2016, even as the neighborhood’s white population increased by about 200. And a study by Xavier’s Community Building Institute using Census data and real estate listings found that even as middle- and high-income housing has increased, the most affordable housing in OTR decreased by 73 percent from 2000 to 2015, going from 3,235 units to just 869. OTR has also seen a decrease in residents living in the neighborhood who receive rental help from HUD attached to Section 8 vouchers. In 2004, 545 voucher holders lived in OTR. By 2015, that number had dropped to 326, according to HUD data.
The city administration’s balanced development report acknowledges challenges in affordability and suggests a number of possible solutions outside of changing abatement policies, including the potential lift in affordability that could come from more market-rate housing.
But the reality may be somewhat more complicated. While DCED cites a recent study by the W.E. Upjohn Institute for Employment Research showing that market-rate housing construction can drive down housing prices in a region, the Upjohn study contains a repeated caveat that market-rate housing generally does not ease the housing market for very low-income renters.
In Hamilton County, the affordability crunch is manifesting most significantly among those households making under $15,000 a year, according to a study by the Greater Cincinnati Local Initiatives Support Corporation. That study found there are only 28 units of housing available for every 100 households in that income bracket in the county.
The Upjohn study also makes the point that the increases in affordability brought by more market-rate housing will be regional, not necessarily neighborhood-based.
“Because the private market will not provide housing at below marginal cost, market-based strategies may not lower prices in neighborhoods with already very low prices,” the author writes. “Alternative policies that either lower the cost of provision or subsidize incomes are likely necessary to improve affordability in such areas. Another limitation is that I study regional effects, and new buildings could have different effects on their neighborhood, where they may change amenities or demographic composition.”
Elsewhere in its report, DCED does acknowledge that subsidy will be required for housing affordable to the city’s lowest-income residents and makes recommendations for increasing that kind of housing, including expanding the city’s applications for federal Low-Income Housing Tax Credits, marketing the city’s recently-created federal Opportunity Zones for affordable housing development and other measures.
“Newly constructed affordable housing in Cincinnati will always require cash or grant funding in addition to property tax incentives,” DCED’s report reads. “That funding may come from Council, from federal sources, private philanthropy, or other sources, but new funds are the only pathway toward the creation of net new affordable housing units.”
If you ask city officials, they’ll likely agree that the goal is to balance new development and efforts to avoid displacing long-time and predominantly low-income residents in places like OTR and other redeveloping parts of Cincinnati. But asking how best to do that will get you a lot less consensus.
Councilmember David Mann landed somewhere between Dennard and Seelbach in the argument about affordability in neighborhoods like OTR and the role abatements can play. Mann has recently pushed for the creation of the city’s Affordable Housing Trust Fund and the use of taxes on short-term rental properties to fund it.
“It’s a hard balance, and I think all of us anguish about whether, when we get it all done, OTR will be peopled only by folks of higher income and therefore largely not people of color, and what have we done if that’s the case,” he said in council’s Dec. 2 committee meeting. “Fortunately, other things are happening — maybe not enough… but we’re trying to make sure that doesn’t happen.”
Abatements, TIFs and the School District
Meanwhile, as city officials wrangle with the issue of affordability and the role abatements should play, the question of the district’s deal with the city looms large. It expires at the end of this month.
CPS, which is primarily funded via local property taxes, says the district loses millions every year from the city’s abatement and TIF policies. The city, however, has countered that the district actually comes out ahead under the policies because it receives a boost in state funding due to the abated property values. CPS reportedly holds that 33 percent of the revenue collected on abated properties would be necessary to fully compensate the district. The city, however, argues that the true percentage necessary to make the school district whole is 5 percent.
Both sides have their own numbers to buttress their arguments. Which one is correct? The answer is murky.
On one hand, CPS counsel Dan Hoying points out that state funding to school districts will remain static for at least the next two fiscal years, something the Ohio Department of Education confirms. That means cranking back abatements doesn’t do anything to change how much the district will receive in state funding in the near future. And after that time, the state’s controversial funding formula could change.
But has CPS benefited in the past?
“There are so many variables used to calculate funding,” Ohio Department of Education Office of Budget and School Funding Director Aaron Rausch said in an email Dec. 3. “If all of the abated property in Cincinnati was assessed, the district would have higher capacity locally, a lower state share, and less likelihood of increased state funding. It’s difficult to say if the district would have actually received less in state aid, but theoretically, they may have. There are other factors — limits to growth in funding, guarantees to prevent losses in funding, funding somehow tied to prior year funding, and flat funding in (fiscal year 2020 and fiscal year 2021) — that make it difficult to fully understand the impact without doing an analysis specific to Cincinnati.”
That’s exactly what some on Cincinnati City Council — including councilmembers Greg Landsman and David Mann — would like to see. A third-party accounting of the impact of the city’s tax incentives on school revenue is part of a proposal Landsman has put together for CPS and city administration that would keep the district’s compensation at 25 percent for abatements and 27 percent for TIFs, but strike the $5 million yearly payment. The remaining 8 percent that the district wants would instead be funneled into jobs programs and an affordable housing fund under Landsman’s proposal — efforts that would address challenges CPS students face outside the classroom, he points out.
It isn’t clear if the school board or a majority of city council will agree to Landsman’s deal.
Another related proposal by Landsman would direct the city’s administration to reconsider the way it cuts abatement and TIF deals to award points for affordable housing and wages — part of the larger debate about abatements, development and affordability.
Landsman included a number of ideas from DCED’s balanced development report and other suggestions in that proposal. The motion includes suggestions for a development scorecard that considers housing affordability, living wages, local jobs, anti-displacement efforts and minority inclusion goals in city-incentivized development projects and calls for work to increase the number of applications for Low-Income Housing Tax Credits the city files with the Ohio Housing Finance Agency, among other goals.
“We’re taking two steps forward here,” Landsman said of discussions around abatements and TIFs. “One is to say that we’re going to finalize an agreement with our partners in CPS and hold them financially harmless and, secondly, that we’re going to update our TIF and abatement policies so that they reflect our values.”
This article appears in Nov 27 – Dec 10, 2019.