Cincinnati has given out hundreds of millions of dollars in development tax incentives. Has it been worth it?

After a recent report said the city should change the way it decides which incentives to give, some on Council are wondering if more money should be put toward neighborhood and city development groups.

Jun 15, 2016 at 10:48 am
click to enlarge Major projects like the new General Electric offices at The Banks have received millions in tax incentives from the city. GE will receive an 85 percent abatement on earnings taxes for 15 years through the city. - Nick Swartsell
Nick Swartsell
Major projects like the new General Electric offices at The Banks have received millions in tax incentives from the city. GE will receive an 85 percent abatement on earnings taxes for 15 years through the city.

For decades, Cincinnati was like many American cities: in a tough spot due to falling population, jobs and tax revenues. To combat that, municipalities like the Queen City ramped up a bevy of tax deals to keep and lure employers and developers — and, in turn, residents — to their urban areas.

But a report commissioned by Cincinnati City Council last year and just released by consulting firm HR&A Advisors says the city hasn’t been keeping track of those incentives and should change the way it goes about deciding which ones to give. 

That suggestion comes as Americans have begun moving back into city centers. In this climate, some on Council wonder whether the city should pull back on cutting deals and funnel more money toward neighborhood and city development groups in neglected parts of town instead of private developers and corporations eager to build in white-hot Over-the-Rhine. 

“Is this too much?” Councilman Chris Seelbach asked at a Budget and Finance Committee meeting earlier this month about the 218 tax deals in four key city programs detailed in the report. “Would this company, or this development happen regardless, or if the amount we were giving them back was less? I wish there was a better answer to knowing how to do that.” 

Seelbach and some other Democrats on Council believe a different balance may be better, with more public money going into things like the city’s various community development corporations, which serve individual neighborhoods and are made up of neighborhood residents.

The incentive money doled out by the city often requires a time commitment and a certain number of jobs to be created from companies, but often lacks other strings the city could attach — conditions like so-called Community Benefit Agreements, which require developers to meet specific needs and wishes from residents around a development. 

The incentives given over the past decade are worth hundreds of millions of dollars, far more than the city puts into things like its human services budget and local community development corporations. That has raised questions about whether the city should focus more on those areas instead of working to attract outside companies and developers.

Oscar Bedolla, who heads the city’s Community and Economic Development Department, says the deals are a necessary part of improving the city, offering key competitive ammunition as Cincinnati works to lure employers and residents from other municipalities. Councilman Kevin Flynn agrees with Bedolla. 

“We are in direct competition with other municipalities,” Flynn said in the committee meeting, citing nearby cities like Norwood eager to lure businesses within their borders. “And we’ve lost deals because someone else sweetened the deal by a tenth of a percentage point.” 

The incentives have gone to projects like the long-in-progress Fourth and Race luxury apartments — which will receive millions in city loans and a 30-year property tax abatement — the General Electric offices at The Banks, which received an 85 percent Job Creation Tax Credit over 15 years, numerous projects headed by the Cincinnati Center City Development Corporation and others in the past decade with stated goals of fostering job creation and population growth. 

“Day in and day out, these are the things that help us make our investment decisions,” Bedolla says. “Really, at the core of our local economy are these two things.” 

How much do the incentives bring those benefits, though? Downtown and Over-the-Rhine have seen big changes in the built environment thanks to the incentives, with a number of shiny new developments springing up. But progress in the city as a whole on the fronts Bedolla extolls has been mixed, and, as the recent report details, the city’s efforts to track return on investment for specific projects has been scattershot.

The city’s population has been rising slightly since 2011, hitting 298,165 last year, about 500 more people than the year before. Population is still down from the 331,285 people who lived in Cincinnati in 2000, and the city’s 0.5 percent growth rate is small compared to other cities experiencing an urban boom — Austin, Texas is growing at 3 percent, Denver at 2.4 percent; even regional competitors like Nashville, which grew at 1.5 percent in 2015, and Columbus, which grew 1.2 percent that year, are outpacing Cincinnati.

It’s also difficult to see a return on investment in terms of jobs created. Though incentives brought in about 3,000 new jobs, according to the report, overall jobs in the city fell 14 percent during the study’s 2005-2015 timeframe. Most other cities researched by the study had positive job growth. 

Incentives to companies and developers paid for by taxpayers haven’t come with raises in the average Cincinnatian’s wages, either. The median household income in Cincinnati in 2005 was $36,206, according to the U.S. Census American Community Survey. In 2014, it was $34,002. In many other cities, the median has risen.

Shortcomings in the city’s current tax incentive programs aren’t entirely to blame for these numbers, of course. The period studied encompasses the Great Recession, the worst economic climate in decades. And Cincinnati does better on some measures than some other Ohio cities like Cleveland and Toledo, which continue to see population losses.

The study compared Cincinnati to Cleveland, Louisville, Nashville, Kansas City, Mo. and Richmond, Va., all of which outperformed Cincinnati in job growth, though Cincinnati performed better than Cleveland in population growth.

HR&A suggested five ways the city could improve its incentive programs, most notably by creating a systematic approach to appraising tax deals based on its stated economic goals, a transparent rubric for scoring potential deals. HR&A looked specifically at the four largest incentive programs in dollar values that the city employs: 

• Community Reinvestment Act tax abatements on commercial properties, including multi-family housing developments;

• Job Creation Tax Credits, which give employers breaks on the earnings tax they pay the city;

• Loans and grants for homeownership and rental development;

• So-called Project Tax Increment Financing grants, which put a portion of property tax receipts in special funds for use around particular development projects, mostly parking garages in Cincinnati. 

Community Reinvestment Act abatements are revenue neutral for the city, HR&A points out, since the city’s property tax receipts are fixed at $29 million a year. However, when abatements are awarded, other property owners don't see a drop in their property taxes as they would if the abated properties paid full price.

The job creation tax credits deal with the city’s earning tax, which represents the bulk of the city’s tax receipts. According to HR&A, the city gives up 52 cents of every dollar it gets through companies with job creation tax credit incentives. That’s still positive money, HR&A experts told City Council — but only if the incentive was the only way the company would come to the city. The city has foregone about $9.5 million in earnings taxes by entering into the 18 job creation tax credit incentive agreements it has created since 2005. Each JCTC job costs the city about $4,400 in forgone tax revenue.

Some Council members expressed hope that instituting changes in the incentive system would spread incentives among other neighborhoods. 

“We’ve poured millions of dollars … into Over-the-Rhine,” Councilman Charlie Winburn said. “I would hope now as a result of what we see here that we’ll begin to have a level playing field and start equalizing the economic leadership in other neighborhoods. I can almost guarantee you that the neighborhoods that didn’t apply are the neighborhoods where the poverty is. What we’ve done here is maybe created a class system.”

Bedolla suggested that the disparity — many incentives have been given out to projects in downtown and OTR — comes from the fact that other neighborhoods lack capacity to apply for the deals. That could change with some encouragement, he said.

Seelbach, however, said the answer to that problem could lie elsewhere, a sentiment Councilwoman Yvette Simpson echoed.

“I think it’s more in line with the developers and where they want to invest that they haven’t chosen in big numbers neighborhoods outside downtown and Over-the-Rhine,” Seelbach said. “I think the better process for getting them to do that is not to just come in with a bunch of money and pick some projects, but to better fund our local CDCs (community development corporations) and the port authority, neighborhood organizations that are meant to spur development in their communities.” 

The big shifts in the city’s incentives programs are still in the works, though Bedolla says some parts, including the move toward a more systematized, transparent incentive vetting process, are almost finished. Those changes could come by the end of the year, city administration says. ©