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Concern over Cincinnati tax abatement policy could result in big changes for taxpayers, developers

'A lot of us are seeing our taxes go up'
Posted at 5:00 AM, Sep 05, 2019
and last updated 2019-09-05 18:23:51-04

CINCINNATI — John Tree calls his thriving vegetable patch one of Cincinnati’s “best-kept secrets” on his rustic lot in Mt. Auburn.

But the secret is out on his city view. Developers are snapping up lots all around him to build luxury homes, and they’re using city tax abatements to do it.

The result: Tree now pays more in property taxes on his 74-year-old house than owners of the posh homes taking root around him.

“We’ve overbuilt, over-incentivized, and now it’s time to draw the reigns back some,” he told WCPO.

Tree is part of a growing backlash against tax abatements, a government tool that has helped to finance billions of dollars in new housing and commercial developments in Cincinnati since the 2008 recession.

Hamilton County Auditor Dusty Rhodes warns that the market value of tax-exempt property has grown at a much faster rate than the value of taxable property over the last 25 years, with tax-exempt property comprising nearly a quarter of the county’s total valuation by 2017.

“The abatement thing is like a snowball going down a mountain,” Rhodes said. “It’s growing and there’s no interest in saying no now.”

The view from John Tree's Mt. Auburn street.

“We’ll get to a point where we’ll have more properties exempt and abated than we will not,” added Michelle Dillingham, coordinator for the Cincinnati Educational Justice Coalition that argues abatements are hurting Cincinnati Public Schools. “Because some aren’t paying their fair share, the rest of us are paying more. A lot of us are seeing our taxes go up.”

Some efforts are underway to discuss potential changes in the city’s abatement policy:

  • The Cincinnati Educational Justice Coalition hosted a series of community forums to raise awareness about what abatements mean to the school district and to property owners that don’t receive them -- and what the expiration of those abatement deals will mean for property owners that do.
  • Cincinnati Public Schools and the city of Cincinnati are trying to negotiate a new abatement agreement before their current 20-year agreement expires in December.
  • And the Property Tax Working Group is working to review the city of Cincinnati’s Tax Abatement Program and make recommendations to help keep vulnerable residents in their homes and communities while development occurs around them.

“Right now I think we have a cookie-cutter tax abatement program that doesn’t fit all 52 neighborhoods,” said Cincinnati Vice Mayor Chris Smitherman, who co-chairs the Property Tax Working Group with Carol Gibbs, the CEO of the Mt. Auburn Community Development Corp. “I don’t believe all tax abatements are bad, but how do we tailor the program while respecting the state and their rules in ways that don’t exacerbate other issues?”

There’s a lot at stake.

The future of Cincinnati’s tax abatement program won't just affect the tax bills of city property owners. It will also determine how Cincinnati Public Schools are funded and how much residents pay for the Hamilton County levies that help fund everything from the Cincinnati Zoo & Botanical Garden to services for children in foster care, senior citizens and people with developmental disabilities.

‘Just not sustainable’

Homeowners have been on the front lines of the fight to change the city’s tax abatement policies, and Dillingham said it’s easy to understand why.

“These residential abatements appear to be sort of arbitrary,” she said.

That leads to problems like the one in Mt. Auburn, where owners of older, less-valuable homes end up paying more in taxes than their wealthier neighbors.

Tree, for example, paid $4,100 in 2019 taxes on his home, which is valued at $29,420, according to Hamilton County records.

Owners of a nearby home valued at $767,560 paid only $2,100 because the city granted a 15-year abatement for the house to encourage new construction.

John Tree

Tree asked WCPO not to reveal the location of his home or his legal name because of privacy concerns. John Tree is the name he goes by publicly. Hamilton County records show his rising taxes have little to do with his one-bedroom home. His land value has increased five fold since 2008 to $155,580.

“That’s just not sustainable,” Tree said. “Nobody can keep paying higher and higher taxes every year.”

Tree’s neighbor, Katie Hofmann, said some developers are using questionable tactics to gain control of coveted properties.

“We have a particular company, I think, who is doing all these anonymous complaints about people and forcing them basically to leave,” Hofmann said. “They can buy up their house cheap and put a half-million-dollar house (in its place). Yeah, that’s happening. It’s happening.”

She declined to name the developer or provide further details.

‘It takes a toll’

Renters are also feeling the pain as developers use abatements to convert aging apartment buildings into sparkling new condos in Walnut Hills, Over-the-Rhine and Northside.

“My apartment got turned into a condo,” Mona Jenkins told dozens of concerned citizens at a “Call to Action” event in Madisonville five months ago. Jenkins said she works for the Greater Cincinnati Homeless Coalition but she experienced homelessness when her apartment building near Peebles Corner was redeveloped.

“I could no longer afford my housing,” Jenkins said. “The bank manager in my building could no longer afford her housing. The hotel manager in my building could no longer afford his housing … this is not only happening in Walnut Hills. It’s happening in Price Hill. It’s happening in Avondale.”

Mona Jenkins

In an interview after the event, Jenkins said the impact of displacement goes beyond the cost of relocating.

“Personally, it’s affected me health-wise,” she said. “A lot of children in the neighborhood have had to leave the neighborhood, so they were attending school, had to switch schools and it affects their ability to perform in the schools, right? Their social-emotional wellbeing. And now they have to make new friends, so it takes a toll.”

Mt. Auburn’s Gibbs approached Smitherman about concerns that vulnerable residents could be displaced during neighborhood redevelopment, and he proposed the creation of the Property Tax Working Group as a result.

Her initial idea was to try to coordinate with other big cities in Ohio to change state laws around property taxes that haven’t been examined for decades. It became clear pretty quickly, though, that the working group would need to examine the city’s abatement strategy, she said.

The group will host a meeting on Sept. 19 at the Centennial II office building to hear from a panel of people who have used tax abatements for development and then a big, public meeting on Sept. 24 at United Way of Greater Cincinnati’s offices.

“We want to hear from what I’m calling the good, the bad and the ugly,” Gibbs said. “We really want to look at all of this and decide if there needs to be some kind of conversation in terms of City Council. We need to start talking about this.”

Christopher Smitherman
Vice Mayor Christopher Smitherman

Smitherman said he thinks City Council would be willing to make changes to the city’s Tax Abatement Program.

But he also thinks it’s important to have a comprehensive plan rather than introducing lots of ideas to address different facets of the issue, he said.

One of the biggest areas of concern is the displacement of residents who have limited incomes, those who are elderly and those who have disabilities.

‘The market had failed’

Local business leaders are skeptical about any attempts to unravel a tax-abatement policy, which they view as an unbridled success.

“In the past 20 years, we’ve reversed population declines and benefited from renewed investment in the city of Cincinnati,” said Brendon Cull, chief operating officer of the Cincinnati USA Regional Chamber. “It would be a mistake to do anything that might put more drag on our ability to create jobs, attract new development and grow as a city.”

The Model Group has developed nearly $600 million in Cincinnati real estate in the last 20 years, and most of it could not have happened without tax abatements, said Chief Operating Officer Bobby Maly.

Bobby Maly, CEO, Model Group

“There’s a reason that the buildings sat vacant for decades,” Maly said in an interview at the company’s new headquarters near Findlay Market.

The $23 million Race Street project, called Market Square, turned a 14-building cluster into 23 apartments, 14 condos, two office spaces and a block full of street-level retail.

“The market had failed,” Maly said. “People could not renovate the buildings. The costs were greater than the revenue that they could justify, so the tax abatements allow us to shrink that gap.”

Although he wouldn’t want the city to scrap tax abatements, Maly said he thinks the local economy has improved enough to tinker with the policy. He’d like to see more flexibility, so projects that need subsidies the most can get them. He also questions whether the city should offer abatements of up to 15 years for buildings with LEED-certified energy efficiencies.

"There are projects that are happening that probably work without abatement,” he said. “If those are happening, we should not be giving abatement to those projects."

‘Full funding’ for schools

The Cincinnati Educational Justice Coalition is most worried about how the city’s abatement program affects Cincinnati Public Schools.

A 1999 agreement between the city and school district has governed how commercial tax abatements are handled in the city for the past 20 years. Under the terms of that agreement, city officials have broad authority to grant abatements on a variety of economic development projects.

In exchange, the city has paid Cincinnati Public Schools $5 million per year to make up for the tax money that the school district would have received if the abatements didn’t exist.

The city also promised to pay for school nurses and crossing guards, but that hasn’t happened for the entire term of the deal. The school district estimates those costs to be about $2 million per year, said Lauren Worley, the school district’s chief communications and engagement officer.

Lawyers for the city and school district have been working for months to broker a new deal.

Dillingham argues that Cincinnati’s public schools have been “sabotaged for years by policy makers who failed to fully fund them.”

“Public education funding and policy is anti-poor, elitist, racist, and we are here to demand the full funding of public education for all our children,” she said at a school board hearing about the issue on May 8.

Michelle Dillingham at a Cincinnati Public Schools hearing on May 8, 2019.

Her coalition recommended then that any payment made to the school district as part of a new abatement agreement be at least $15 million per year.

The school district has offered a more nuanced approach.

In a June 24 resolution, the Cincinnati Board of Education proposed replacing the city’s annual payment with “a higher percentage contribution from developers who benefit from the abatements.”

Currently, commercial tax abatements require a 25% “payment in lieu of taxes” from developers to replace what the district would lose from commercial abatements.

Further complicating matters, the district estimates it now loses about $7 million a year in “foregone taxes” from residential tax abatements not covered it the 1999 agreement.

The June 24 resolution said the new agreement should “consider the negative impacts that all abatements, including residential CRAs,” have on the district. It also says: “City-wide abatements should be avoided and the agreement should hold the board harmless for residential abatements in areas of the city where abatement incentives are not necessary based on current market conditions.”

To pay for all that, has proposed increasing developer contributions on commercial abatements to a percentage that’s calculated annually to make the district whole.

“Moving forward, CPS' resolution contemplates that the developers tax would be the fixed rate tax divided by the total tax millage,” Worley said. “CPS calculates that percent of real estate taxes owed for our fixed rate millage to keep us whole would be 33 percent for 2018 taxes.”

A letter dated Aug. 29, 2019 from Cincinnati Mayor John Cranley to members of the school board said the city is committed to ensuring that the school district “be made whole” but did not suggest specifics on how that could be done.

The Cincinnati USA Regional Chamber, Cincinnati Business Committee and Cincinnati Regional Business Committee offered in May to hire someone to help the city and school district reach a deal.

School board members rejected the idea during the May 8 hearing, raising concerns that anyone hired by business leaders might be more concerned with what’s best for developers rather than what’s best for schools.

‘Unwind the thing’

Little progress appears to have been made since then, but Worley said she’s “confident” the school district and city can reach a deal.

“The next step is the city has identified its lead negotiators, and the school district has identified its lead negotiators, and they need to meet,” she said.

“It’s good for the city, and it’s good for the school district to have an agreement," Worley continued. "And the most important people that it’s good for are the 36,000 kids that attend our schools and the thousands of property tax payers in this city. We owe it to them to get it done.”

Smitherman said the Property Tax Working Group is determined to make recommendations, too, but he doesn’t think the city and school district are anywhere close to a deal.

For his part, Rhodes wonders if they can get there.

See what tax levies would cost property owners

He said city officials have asked him about the possibility of carving out exemptions for senior citizens who have lived in their homes for years and are worried about being displaced.

But the more people who don’t have to pay taxes, he said, the bigger burden it creates for the property owners that do because countywide levies are designed to collect a specific dollar amount each year.

“If you do that, you’re going to raise taxes on everybody else,” he said. “If you’re going to carve out an exemption for taxes, somebody’s got to pay it.”

Rhodes suggested that the city “back down” the abatement policy as a whole, offering nine-year abatement deals next year, eight-year deals the year after that, and so on.

“Unwind the thing gradually,” he said. “That’s one way to do it that would be least harmful to the least number of people.”

Whatever City Council ultimately decides to do, chances are it won’t be a permanent fix.

“I think we’re on the right track. I’m in agreement that modifications need to be made. But what I don’t want to do is modify something and then create another problem,” Smitherman said. “And remember that economic recessions are cyclical. We could be right back here 10 years from now saying we need to alter this some.”

If that happens, it wouldn’t be a sign that City Council had made the wrong decision, he said, it would simply reflect the fact that economic conditions change.

“It’s a council determination,” he said. “We make the rules. We can change the rules.”

John Tree's Mt. Auburn garden.

More information about Cincinnati's Property Tax Working Group is available online.

Information about the Cincinnati Educational Justice Coalition is available online, too.

Dan Monk is a business and I-Team reporter for WCPO. To reach him, email Follow him on Twitter @DanMonk9.

Lucy May writes about the people, places and issues that define our region – to celebrate what makes the Tri-State great and shine a spotlight on issues we need to address. To reach Lucy, email Follow her on Twitter @LucyMayCincy.