OTR, Downtown developers cash in on city's property tax deals

Posted at 6:00 AM, Oct 04, 2017

CINCINNATI -- The trendy restaurants, apartments and new businesses that have popped up throughout Cincinnati during the last decade have not come without cost to the city’s taxpayers.

Cincinnati City Council has signed off on $58 million worth of property tax breaks for developers who build new or renovate existing buildings over the last four years – a nearly tenfold increase over the last decade, according to a WCPO review of city records.

The city has offered these deals to hundreds of businesses, from Over-the-Rhine breweries and Downtown hotels to Oakley office spaces and Walnut Hills apartments. In some cases, the city allows property owners who improve their property to avoid paying up to 75 percent on property improvements for as long as 15 years. Owners still pay taxes in full on the property's old value. 

After years of these tax breaks, council took a step last week to scale them back amid growing complaints that the city has become too generous to developers.

“There’s a lot of concern that we’ve become too free with the granting of abatements,” Vice Mayor David Mann said.

Overall, the total value of exempted properties – including tax-exempted homes or other properties  – in Cincinnati has climbed from $618 million in 2007 to $985 million last year, according to Hamilton County Auditor’s records.

In theory, these tax breaks have enabled developers to take risks in neighborhoods and pull areas such as Over-the-Rhine and Downtown out of slumps.

A majority of the city’s tax deals, which are awarded under the city’s Community Reinvestment Area Commercial Tax Program, have been forged in up-and-coming neighborhoods -- Over-the-Rhine, Downtown, Oakley and CUF, which surrounds the University of Cincinnati’s campus. Of the $58 million worth of exemptions given to commercial properties through the city’s Community Reinvestment Abatement program, nearly $40 million has been in those neighborhoods.

This map illustrates commercial Community Reinvestment Abatements the city agreed to from 2012 to 2016. Data provided by the city of Cincinnati. 

View the interactive map of commercial programs in a new window.

OTR and Downtown, especially, have enjoyed a great renaissance, garnering national media attention with its new restaurants, breweries and restoration of historic buildings.

But the successes in OTR have one key thing in common: More than two dozen addresses in a two-block radius of OTR’s Vine Street benefit from property tax exemptions, according to City Council records.

Yet as these neighborhoods become more popular, should the number of tax exemptions City Hall offers to developers continue?

So far, it shows no signs of slowing. Already this year, council has approved nearly 40 of those tax exemptions.

“The initial idea is there’s no development and you need someone to jumpstart it,” said University of Cincinnati economics professor Michael Jones. “There is a concern that once you open that Pandora’s Box, a lot of companies will say ‘We need tax abatements to keep ourselves here.’”

Property taxes bring in roughly $29 million every year for the city and make up about 7 percent of the city’s annual operating budget. The city hopes that abating new developments will help attract a growing workforce – and, therefore, more income tax to fill Cincinnati’s budget coffers.

“The commercial tax abatement policy is really useful and helps encourage a lot of development in neighborhoods that otherwise would not happen,” said Kevin Wright, the executive director of the Walnut Hills Redevelopment Foundation.

While Wright supports the city’s tax policy, it can create problems for longtime residents who see their property values climb when new businesses open.

“Across the board, most people would say it’s unfair,” Wright said. “The big developer comes in and gets a tax break, but the people who have lived there a long time, don’t get the tax break and see their tax bill go up.” 

‘I want to make sure I stay in my home’

Council has taken steps in recent years to squeeze more money out of businesses that get these lucrative tax write-offs from the city.

Nearly two years ago, city leaders came up with a plan to stabilize the streetcar’s funding when they asked OTR and Downtown businesses that get abatements to kick in 15 percent of their property tax savings to help pay for the transit system.

“We couldn’t have the streetcar without it,” Mann said.

Last week, council passed a new policy that will ask developers who get tax abatements in the city’s 50 other neighborhoods to pay up to 15 percent of their property tax savings to invest in two accounts: one for affordable housing initiatives and another for new neighborhood projects. A nonprofit will oversee the collection those funds.

“This is a way to say, ‘If we’re going to abate, we’re going to make sure we’re going to do some good,’” said Mann, who supported the measure.

Individual neighborhood councils will get to weigh in on how the money that new developments in their area generate is spent. The city plans to use the money it collects for affordable housing to help pay for new, cost-conscious units.

Overall, the money developers contribute to these funds is expected to generate as much as $1.6 million every year, Mann said.

In recent weeks, neighbors have also called on council to use the tax exemptions more aggressively as leverage to get a developer to work with the neighborhood on issues.

Last month, Clifton Heights neighbors asked council to delay a 15-year tax abatement for a 350-unit student housing complex to encourage the developer to downsize the 13-story building.

The developers on the project didn’t change their plan, but still got the tax break.

“The city really betrayed us,” Linda Ziegler, the president of the CUF neighborhood council said in an interview last month. “Here’s this huge thing being built, that nobody wants, by an out-of-town, for-profit corporation – and now we’re going to give them a tax abatement.”

That same day, local tax watchdog and attorney Tim Mara prodded the city to crack down on a Fourth Street landlord whose tenants' garbage cans block the sidewalks for days. The apartment complex, which Mara lives near, benefits from the city’s tax abatement program. City rules require garbage cans be brought in by midnight on the day of trash collection.

“If anyone asks for special help, the least they can do is obey the law on their properties,” Mara said. “I’m not trying to be unkind to these people, I just want the city to twist their arm.”

In Walnut Hills, longtime residents often tell Wright they love the new restaurants and shops that line their streets. Streets feel safer, he said, and more people stroll through the neighborhood to grab a coffee or live in one of the renovated apartments investors fixed up.

The city’s tax abatement program has undoubtedly helped, he added.

“We’re still at a point where developers need these public subsidies to make deals work,” Wright said.

Wright said he would like the city to consider a tax break program for homeowners who have lived in their house for a decade or more. The city of Philadelphia offers similar incentivesto longtime residents.

After all, the compliments he hears on the neighborhood’s upswing are usually followed by another disclosure.

“There’s always, at the end of that sentence, a but -- 'But I want to make sure I stay in my home,’” Wright said.