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When companies miss job projections, tax breaks from Cincinnati continue

Posted: 7:00 AM, Oct 20, 2017
Updated: 2017-10-20 18:34:26-04

CINCINNATI -- What happens when businesses that get generous property tax breaks don’t create as many jobs as they promised they would?

Nothing. 

The city of Cincinnati offers dozens of lucrative tax breaks to developers every year to renovate dilapidated buildings, attract new residents and fuel job growth.

Some developers outperform their forecasts and create dozens -- or even hundreds -- more jobs than they first promised.

But when companies miss the mark and under-deliver on promised jobs, they face no consequence from city leaders. The tax breaks just continue.

A WCPO review of more than 80 property tax deals -- signed between developers and City Council from late 2015 to 2017 – found some businesses also list vague job or salary projections. These tax breaks have been on the rise , an earlier WCPO report found. 

“The developer doesn’t have a reason to be thoughtful about the numbers,” said University of Cincinnati professor Michael Jones, who is an expert on economic incentives.

Jones said if the city were to take back tax breaks, it could scare off future developers.

But, he offered up a simple solution:

“The city simply needs to double-check and say, ‘If you actually deliver on payroll, we will rebate you the money.’ (The exemptions) become purely performance based,” Jones said.

City leaders estimate the nearly 200 businesses that benefited from property tax write-offs over the last decade have created more than 2,600 jobs and kept another 645 jobs in the city.

Of that, 19 businesses created fewer than 75 percent of the jobs they promised when they earned a city-backed tax exemption, according to city records.

No one in City Manager Harry Black’s office made themselves available for an interview for this story. In an email, a city spokesman said the goal of the program isn’t just to create jobs, but to focus on breathing life into “underutilized property.”

While roughly 200 businesses benefit from tax abatements, given out under the city’s Commercial Community Reinvestment Area program, only half have entered the phase of their agreement where they are expected to start delivering jobs.

Under the program, businesses continue to pay some property taxes – including a payment to the city’s schools – but escape payment on their improved property values for up to 12 years.
WCPO examined each of the nearly 80 tax abatement deals city council agreed to during the last two years.

The findings included:

  • Developers who promised to create three full-time jobs to oversee six apartment units.
  • 3CDC, a nonprofit development agency, projected a space being developed for a future restaurant would pay 12 full-time employees average salaries of $65,000 a year. A tenant was not specified when city leaders approved the deal. “That one probably slipped by me, or I would have asked those questions,” Cincinnati City Councilman Kevin Flynn said in an interview while reviewing these deals. “I am concerned when I see those kind of numbers, that seem unrealistic.” 
  • A developer who promised to create a commercial space in Walnut Hills and create 10 full-time jobs each with an average salary of $104,000. A tenant was not identified. 
  • A developer who projected three full-time jobs would be created to oversee seven apartment units.
  • Five separate exemptions, granted to different developers, who predicted dozens of full-time permanent jobs yet had no tenants. Four of those developers predicted the unidentified tenants would pay annual salaries of $50,000.

“As a developer, you’re always trying to put the best shine on your table that you can,” Flynn added. “It’s up to our professionals to push back.”

But the city relies on developers to provide job projection numbers in tax abatement deals, a spokesman told WCPO in an email.

It’s not impossible that a six-unit apartment complex might employee three full-time workers or a commercial space would create jobs paying $100,000 or more – but it’s a big stretch, said Jones, the economic professor.

The city should also create tighter rules for developers who ask for a tax abatement without knowing what tenant will occupy the building, Jones said.

“If you don’t know what’s going to be coming into this location, the city should have a standard that says: You have to use the median salary,” Jones said. “To assume (you’re) going to get a $100,000 worker in there is, frankly, a real stretch.”

Several developers contacted for this story did not return requests for comment.

A spokesman with 3CDC said in an email that the agency uses past developments to predict the number of new jobs that projects might create. 

“We look at the number of jobs created per square foot, based on our prior experience with restaurant, retail and office tenants in the commercial spaces we have developed and maintain,” said Joe Rudemiller, the senior communications manager for 3CDC.

Developer John Blatchford, who was granted a tax exemption for the construction of a six-unit apartment building in Over-the-Rhine that will employ three full-time workers who will earn $50,000 yearly, said the job estimate he gave the city is conservative.

“This, combined with the building next door … will be part of Kunsthous, which are co-living houses and include regular programming, regular cleaning, family dinners, etc.,” Blatchford wrote in an email. “We are also exploring how all of the space can be used to provide for other public/private commercial use.”

But new apartments can also benefit the city in more ways than just jobs, Flynn said.

Developers who renovate apartments can help turn crumbling buildings into desirable housing in troubled neighborhoods or bring people from outside of the city into these apartments units – generating new income tax revenue for Cincinnati, Flynn said.

“That’s the analysis I’m going through, as a Cincinnati City Council member,” Flynn said. “If I’m attracting residents into an area, this area still needs help – yeah, they still need these abatements.”

WCPO’s review also found more than 70 businesses actually created more jobs than first promised when Cincinnati City Council approved their tax breaks.

Take, for example, the two friends who approached the city for a tax exemption three years ago for their brewery in an empty Over-the-Rhine warehouse. They hoped as many as 60 people would work full-time to brew and serve beer.

That brewery, known as Rhinegeist, employs roughly 230 full-time workers today.

“Our initial projections were as humble as our initial expectations for the entire business, which were pretty immediately surpassed in every front – from jobs to the amount of people stepping into the taproom,” said Rhinegeist co-founder Bob Bonder.

The city exempted 75 percent of taxes on improvements made to Rhinegeist’s brewery for 10 years, which allowed Bonder to hire more employees.

Bonder said his team has kept everything from T-shirt design to distribution of canned beer in-house, leading to dozens more jobs than he first expected.

“Something like that goes a long way. It was definitely a help in those cash-strapped, early days,” Bonder said. “It gives you more cash, flexibility to put into equipment and, particularly, people.”