Cincinnati's Coming Tax Abatement Debate

An agreement between Cincinnati's Board of Education and the city around property tax abatements for developers will expire next year, and some critics say it's time to change the way the city cuts those deals

Cincinnati Public School Board - Nick Swartsell
Nick Swartsell
Cincinnati Public School Board

Next year, the city of Cincinnati could change up the way it does property tax abatements on development deals as a 20-year-old agreement between the city and Cincinnati Public Schools expires.

But before that happens, the city, the CPS Board of Education and others will need to wrestle with a number of complicated questions.

The current agreement between the city and the district, struck in 1999, expires at the end of 2019. Some have criticized that framework, which allows the city to deeply abate property taxes on new development and renovations, as being too generous to developers. But some in city administration say those deals are partly responsible for the resurgence in economic development in Cincinnati.

A committee of Cincinnati City Council members — P.G. Sittenfeld, Greg Landsman, Chris Seelbach and Wendell Young — met yesterday with the CPS Board to open discussions on a new deal.

“There are literally millions and millions and millions of dollars at stake, both in continued investment toward the revitalization of our city and for our schools,” Sittenfeld said at the beginning of that meeting, calling it a “whopper” of a topic.

Under the current deal, the city pays CPS $5 million a year up to $100 million to offset tax abatements given to developers to incentivize new projects in the city — a deal reached in 1995 as part of the development of Cincinnati’s two riverfront stadiums, which are tax abated.

CPS can use that money only on capital projects. Some of those developers are also required to provide payments in lieu of taxes (PILOTS) on roughly 25 percent of the valuation of their project — though housing that costs under $330,000 a unit is exempted from that. 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.

Without the deal, the city’s options are more limited: tax abatements at less than 50 percent for up to 15 years, as well as limitations on tax increment financing districts — where tax money is diverted into an account that helps pay for improvements to the area around a property — and payroll tax abatements.

Not everyone likes the current arrangement. Cincinnati Federation of Teachers President Julie Sellers fired off a letter to Sittenfeld this week saying the union is asking for changes.

“Tax abatements may be a useful tool to encourage development in blighted neighborhoods, or during an economic downtown,” Sellers wrote. “But the city’s ongoing grant of lengthy abatements in thriving neighborhoods shortchanges our schools and local services.”

CFT says that even with the $5 million annual payment from the city to the district, CPS is losing about $8.4 million a year on tax abatements. Further, about 20 percent of residential tax abatements end up in Hyde Park and Mount Lookout, two of the city’s wealthiest neighborhoods. Sellers and others say the city needs to change that. The union would like the city to pay the district enough to make up for those abatements, stop abatements in high-income neighborhoods and cut back on the value and duration of many abatements.

Some residents agree.

“Our approach in the past has just been, just give developers everything they want,” Hyde Park resident Sue Mangen, part of activist group the Cincinnati Educational Justice Coalition, said at the meeting yesterday. “Maybe there was a reason for that 20 years ago. We’re not complaining about the positives. But we do need to reevaluate our priorities. If our development over the past 20 years has been so successful, why do we have such a high poverty rate? There’s a disconnect there. I have a tax abatement on my Hyde Park house. I don’t need that. Why are people getting tax abatements who don’t need them?”

But city officials say that the abatements have helped lift Cincinnati out of a period when investment was scarce and residents were leaving. And they continue to help the city compete with peers like Cleveland, St. Louis, Nashville, Columbus, Indianapolis, Charlotte and Pittsburgh and immediate neighbors from Blue Ash to Covington.

“Unquestionably, we can say this agreement is still every day spurring development, growth and generating jobs,” Community and Economic Development Department Director Phil Denning said. Though the agreement hasn’t changed much in the past 19 years, Denning says the department has gotten somewhat more conservative about how it structures abatements.

“We’re becoming as a department more aggressive about how we underwrite these deals,” he says.

Denning pulled out several examples of abatement deals that spurred projects which eventually contributed to CPS.

There are the Machine Flats, a historic building in Camp Washington converted into apartments. Over the last eight years, Denning says, the district received $170,000 in payments instead of the $50,000 it would have received had the building not been renovated. Another example, downtown’s Residence Inn, had a base value for the district of $330,000. After an abated redevelopment, the school board receives $1.1 million instead.

But when pressed, Denning said he didn’t have overall numbers for the return on investment for abatements. That’s been an issue in the past — media reports have shown the city doesn’t always have answers about the results of the more than $250 million in various tax deals, grants and other incentives it has given out over the past decade. Denning promised that data on the number and worth of abatements — as well as their payoffs for the city and district — would be available as the district and city work on a new agreement.

Some on the school board questioned whether the same kinds of abatements needed in the late 1990s — when the city was still bleeding population and jobs — are needed in Cincinnati’s hot real estate market today.

“There was a time when you couldn’t get a bank loan, and you had to borrow against your 401(k) to do a building,” said board member Ryan Messer, who has also renovated buildings in Over-the-Rhine. “But have you thought about changes to reflect how our city has changed?”

Messer also noted the “symbiotic” relationship between schools and development — good schools often draw new residents into a community just as development can.

There are, of course, other complications to consider. CPS also receives money from the state based on a complicated formula that could be tipped one way or another by an adjustment to tax revenues.

Council member David Mann wondered if there was proof that developers needed all the abatements provided to complete projects. And Councilman Greg Landsman wanted to know how much lowering the number and amount of abatements could save taxpayers. The city caps its property tax collections at $29 million, and the various property tax levies feeding into CPS are also limited. Denning said that the abatements spur developments that make the tax discounts worth it, but some council members and school board members were skeptical.

“I appreciate the relevancy and necessity of many of these abatements,” Landsman said. “I do see the necessity of some of them. But if these levies and the city have to generate this amount of money every year and we’re abating certain property owners, that means that everyone else pays a little bit more. If you were to pull back on some of the abatements, that could mean real property tax relief for some property owners.”

It’s a complicated set of questions the city, district and others will need to wrestle with over the next year. Those supporting changes say it’s the perfect time for an adjustment to support CPS’ increasing enrollment — now at 30,000 students — and its 55 school facilities.

“Cincinnati Public is a great district, but there are significant needs,” former Cincinnati City Council candidate Michelle Dillingham, an outspoken education activist, said at yesterday’s meeting. “Our students need all the support they can get. I don’t think anyone is suggesting getting rid of abatements. We’re asking for a more nuanced approach.”

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