With the expiration of a 20-year-old agreement about tax abatements for developers between the City of Cincinnati and Cincinnati Public Schools approaching, the district is mulling what it would like to see from a new deal.
The 1999 tax abatement agreement arose from the 1996 vote to build Paul Brown Stadium and Great American Ball Park on the riverfront. It allows the city greater power in striking deals with commercial property developers when it comes to tax incentives — hefty discounts on property taxes meant to incentivize new development within the city limits.
Those deals have been the subject of increasing scrutiny — and some rancor from critics across the ideological spectrum — in recent years as some say that the city could use the abatements to incentivize things like affordable housing, higher environmental standards and other asks. Without those extra criteria, abatement skeptics say, developers are too easily let off the hook for taxes they should be paying.
Some, however, including those with the city’s Department of Community and Economic Development, have defended the abatement policies, saying they allow the city to compete with other municipalities wooing developers and also give the city the chance to bridge financial gaps for valuable projects that might not otherwise be feasible. Without abatements, supporters including Mayor John Cranley say, there would be no tax dollars coming from some projects at all because those projects wouldn’t exist.
Hamilton County Auditor Dusty Rhodes estimates that about 13 percent of the total value of all property in Cincinnati is currently tax exempt due to various abatements.
Those abatements have a big impact on the school district, which receives much of its money from property tax proceeds. Thus, the city’s tax incentive framework is vital to the district’s financial health and its ability to educate the roughly 36,000 — and growing — students enrolled at CPS.
In a presentation to the Cincinnati Public School Board April 3, CPS General Counsel Dan Hoying, CFO and Treasurer Jennifer Wagner and others detailed how the city’s abatement policies have impacted the district in recent years and recommended how the agreement should change.
Among those recommendations: a shorter term for the next agreement because it is too hard to predict the district and city’s situation over two decades. The city should also recalculate the rate at which it reimburses the district for abatements on a yearly basis and shouldn’t promise to pay for things like crossing guards and nurses as part of its deal. The district should also seek to be compensated for its administrative costs when it comes to tracking abatements and wants to be able to approve any extensions of deals between the city and developers.
“The primary outcome for the district should be that the successor agreement makes the district whole for the property taxes foregone by abatements and exemptions authorized by the city,” Hoying told the board.
That hasn’t always happened, according to the presentation.
Under the agreement between the two, the City of Cincinnati can offer developers of commercial properties (office buildings, retail, industry and any residential development containing more than four units) exemptions on up to the full amount of the appraised value of the improvements — renovations or new construction — a developer makes to a property for up to 15 years. The city can also offer developers the opportunity to roll the money they would have paid in taxes on renovations or new developments into what are called Tax Increment Financing Districts. TIF money can only be used on improvements immediately within those districts, generally increasing the property values within them.
Without the 1999 agreement, the city can only offer 50 percent abatements and 75 percent contributions to TIFs without the school district’s approval under state law. The city may also be liable for 50 percent of income tax revenue over $1 million a new development generates.
In return for the ability to grant those generous abatements, the city agreed to pay CPS $5 million a year for 20 years and to agree to require developers to pay 25 percent of the money they would have paid in taxes — an arrangement called payments in lieu of taxes, or PILOTS — for abatements and 27 percent for TIFs. New housing that costs under $330,000 a unit is exempt from this payment requirement. The city also agreed to pay for school nurses and crossing guards. However, written into the agreement was a clause that stipulated the city could back out of that responsibility without penalty, which it did. Currently, the district spends $1.6 million a year on nurses and $700,000 on crossing guards.
The arrangement has worked out in a narrow sense for CPS in some years, though that has been less common as the pace of abatements the city has given out has accelerated.
In 2012, for example, when the city abated about $71 million in commercial development property value, the district lost about $3.3 million on abatements and TIFs after PILOTS from developers. But it also received that $5 million payment from the city. The district came out ahead again in 2013, though by a slimmer margin.
The next year, the district lost $75,000 even after the city’s payment as the city abated $126 million in property value for commercial developments. In 2015, the district lost almost $1 million that way as the city wrote off $153 million on commercial abatements and $535 million on TIFs. CPS came out less than $200,000 ahead the next year, and in 2017 the district lost $700,000 even after the $5 million payment as the city granted $291 million in commercial abatements and $641 million in TIFs.
Those numbers don’t count another place where CPS loses money that isn’t governed by the 1999 agreement — the bevy of residential abatements the city hands out for single-family homeowners or owners of residential buildings with four units or less.
According to the district, it lost $5.7 million on residential abatements in 2016, $8.3 million in 2017 and $7.4 million in 2018.
Cincinnati City Council sets the terms of those abatements, which have overwhelmingly gone to well-heeled neighborhoods like Hyde Park and Mount Lookout. Some residents in those neighborhoods are opposed to those abatements because they say they incentivize the demolition of historic homes in favor of new construction and a practice called lot-splitting. Council last tweaked the criteria for those abatements in 2017. Currently, a homeowner who makes more than $2,500 in appraised improvements to their property is eligible for an abatement.
The 1999 agreement has no bearing on those abatements, but the district could use the negotiations around the commercial abatements to push council to change its residential policies as well.
It is unclear how the negotiations will proceed, however.
Talks about a new deal kicked off in June last year with a joint meeting of Cincinnati City Council and the Cincinnati Public Schools Board. After that, both the city and CPS picked teams to explore a new agreement further.
The city’s team includes Cincinnati City Solicitor Paula Boggs Muething, Deputy Solicitor Luke Blocher, Senior Assistant Solicitors Kaitlyn Geiger and Billy Weber, Deputy Finance Director Karen Alder, Department of Community and Economic Development Director Phil Denning and Deputy Director Dan Bower.
CPS’ team includes District Treasurer Wagner and counsel Hoying, Assistant Treasurer Brittany Treolo and District Accounts Receivable Supervisor Nathan Tyahur.
Muething told council in January that those teams had met twice — an assertion CPS board members disputed.
“We have had some very productive discussions,” Muething said then. “I would say that we have met to discuss the framework for a new agreement. I think there is general agreement on the framework and the factors to work through. We have had some very productive and informative discussions.”
But members of the Cincinnati Board of Education pushed back on that. Four members of the board said they had no knowledge of any talks about the abatement policies between the city and the school board. The board must give final approval to any agreement, as must Cincinnati City Council.
As the city and district face the expiration of the current abatement deal, political pressure from some corners has been growing around changes to the way the city does development incentives overall.
Late last year, Cincinnati City Council members Tamaya Dennard and Greg Landsman asked the city administration to prepare a report on the feasibility of considering equity initiatives like minority hiring, fair wages, affordable housing and other considerations when striking development deals.
Prior to that, Over-the-Rhine nonprofit Peaslee Neighborhood Center put together a rubric that scores potential developments seeking public subsidies like tax incentives on similar criteria. The group has been presenting that rubric to community councils, which often weigh development proposals first. The Cincinnati Federation of Teachers, CPS’ teachers union, is another group pushing for change to the city-district deal specifically.
Some critics say the process for setting a new agreement thus far hasn’t included public input and engagement, concerns stoked by the suggestion that negotiations between the school and the district are already underway.
Craig Rozen of the Cincinnati Educational Justice Coalition told council in January that the city and district haven’t done enough to engage the public around the negotiations and that grassroots groups have been working to fill the gap. The city has since held some information sessions about its commercial and residential abatement programs.
“In the vacuum of public discussions and opportunities to workshop viable ideas and new practices, community organizations and nonprofits are being forced to fill this void,” Rozen told council.
This article appears in Apr 3-10, 2019.