Cincinnati City Council Approves Abatement Agreement with Cincinnati Public Schools

The new deal will compensate CPS at a higher rate for abatements the city grants developers, but eliminates a yearly lump-sump payment, lasts five to seven years instead of 20 and calls for a yearly audit.

click to enlarge Cincinnati City Hall - NICK SWARTSELL
Nick Swartsell
Cincinnati City Hall

After almost a year of debate between multiple parties, Cincinnati City Council today approved a deal between the City of Cincinnati and Cincinnati Public Schools around tax incentives the former can grant to developers. 

The city's last agreement with the district, struck in 1999, expired at the end of last year. 

The new deal will compensate CPS at a higher rate than the previous agreement, but eliminates a yearly lump-sump payment and will last for five to seven years instead of 20. In addition, the new deal preserves contributions to a program that funds affordable housing and neighborhood development and requires a yearly audit, though payments won't be adjusted based on those audits until the five years is up.

"While there have been tense debates along the way, I hope it hasn't been lost that this is a partnership between these two bodies," Council member P.G. Sittenfeld said today. 

Sittenfeld touted the "five years of robust analysis" provided by the audits.

Tax abatements write off the taxes developers would owe the city and district on the increased value of their properties due to development projects like new construction or rehabs. TIFs take money that would have been paid in taxes on property improvements and put them in a special fund to be used for improvements within a district near the development.

Those incentives have been worth millions under the previous 20-year deal the district and the city struck around the construction of the city's two professional sports stadiums on the riverfront. But CPS, which is mostly funded via property taxes, says it has lost millions of dollars due to those abatements and wanted adjustments for more fair compensation. 

Under the previous deal, the city could max out 15-year tax abatements and 30-year tax increment finance districts without going to CPS for approval of each one. In return, the district got $5 million a year to replace property tax payments from the stadiums and 25 percent of the value of tax abatements and 27 percent of the value of funds diverted into TIFs. 

The new deal would axe the $5 million stadium payment — which sunset last year anyway — and increase the payments developers make to the district in lieu of taxes from 25 percent of an abatement to 33 percent. The new deal would end on Dec. 31, 2025. 

Language in the new agreement also protects developer payments to a program called Voluntary Tax Incentive Contribution Agreements, or VTICA, which asks developers to contribute 15 percent of the value of their abatements to a fund that pays for affordable housing development and neighborhood improvements. For developments in downtown and Over-the-Rhine, VTICA helps fund the streetcar.

Negotiations between the city and the district got bogged down in a debate about a complex state funding formula and the effect abatements had on state compensation to the district. The city held that due to the state's funding formula, the district should only get five percent of the value of abatements given to developers. The district held that 33 percent was the right number.

In the end, the city and district agreed to disagree. 

Last month, Mayor John Cranley announced that the district and city administration had come to an agreement that would have given the district the 33 percent number for 10 years without the yearly $5 million payment. That deal, however, hit turbulence in city council over the lack of an audit.

"I think it's great that we're here," Cranley said today. "We didn't get everything we wanted, but CPS has come a long way." 

Cranley, who pushed for an amendment that will allow the city manager to negotiate with CPS to extend the deal up to 10 years, said the deal will save the city roughly $7 million a year.  Sittenfeld suggested a compromise -- seven years -- which council passed.

Not everyone was initially sold on the deal coming before council. 

Councilmember Jeff Pastor wanted the city to pay a pro-rated amount to the district while it tapped a third-party audit in order to find the right number. Pastor argued that it was "bad government" to move forward without knowing the proper percentage that exactly compensates the school district for revenue lost to abatements. 

Pastor voted for the deal today, however.

"It is never a bad thing to compromise," he said.

The district has pushed back against suggestions that another third-party analysis is needed. 

"We will not accept an extended amount of time for a third party to come in," CPS Board President Carolyn Jones said in committee earlier this week. "We have to move forward. We started this process with council almost a year ago. It doesn't help us move forward with our long-term financial plan."

Without the agreement of CPS, the city would be much more constrained in the deals it could offer developers — 50 percent of the value of taxes due on property improvements for 15 years.