Tax Freebies Continue Despite Economic Disaster Here

What's the problem with tax abatements, tax exemptions and tax incremental financing (TIF), all incentives that reduce property taxes?

Why shouldn't Cleveland give developers as much property tax relief as they want? After all, developers are producing something in return. They are producing what should result in economic development, right? Making jobs. Revving up economic activity, right?

There has been an argument about this issue in comments to a couple of items I've written here for RealNEO -- particularly on the Wolstein East Bank Flats project. The stalled project is loaded with freebies:

- Tax abatement results in taxes being forgiven for a period of time at a certain rate;

- Tax exemption means the property NEVER pays property taxes. However, in all cases the land upon which the property is located does pay taxes. Typically the rate paid on the land is the rate before the development. However, Gateway’s property taxes on land did increase because County Auditor Tim McCormack ruled it became more valuable;

- Tax incremental finance works this way: A developer will rehab or construct new buildings. The developer will pay taxes on its project at the same as others pay.

However, the TIF taxes evade the purposes provided by normal payment of property taxes.

In Cleveland, the taxes on TIF properties - rather than going to support the schools, County, City and city libraries in Cleveland - will be used otherwise. The taxes will be used for some aspect of private development. TIF taxes evade the normal channels.

Typically, I’ve been told that Cleveland schools get some 60 percent of property taxes paid on Cleveland property. That’s not exactly correct.

Here’s how property taxes in the City of Cleveland alone presently works, according to Bryan Dunn, budget analyst for Cleveland at the County Auditor’s office:

- Commercial and Industrial property taxes are broken down in the following manner: Of the total taxes collected, Cleveland schools get 55.12 percent; Cuyahoga County gets 21.24 percent; the city itself gets 15.68 percent; and finally city libraries get 7.96 percent.

- Residential property is broken down differently. Of the taxes collected, Cleveland schools get 44.89 percent; Cuyahoga County gets 25.97 percent; the city itself gets 19.61 percent and city library system gets 9.53 percent.

When taxes are abated, the flow of revenue to these governing bodies stops. The money goes elsewhere. Typically, into the pocket of a developer or its tenant. Or some of both.

The problem with all these tax subsidies is that others have to pick up the slack of lost tax revenue. The Cleveland schools, of course, take the biggest hit. You’ll notice that on Saturday the Plain Dealer reported the Cleveland School of the Arts will have to lay off instructors. Reason: lack of money.

Cleveland, with its downtown and many non-profit facilities (as Gateway), loses the most revenue. This is quite unfair since most of these facilities and institutions serve the entire region.

Typically, the projects that receive these extra tax benefits are further subsidized by other financial incentives from all levels of government, including the state and federal.

This gives developers with new projects a double advantage that those businesses that are not new usually cannot get. So a new retail or housing outlet gets preferential treatment that older retail buildings or housing don’t get.

In fact, they may have to make up the difference. That puts them at a double disadvantage.

For instance, in the proposed Wolstein project both tax abatement and TIF abatement are bestowed. That’s not enough. There are added incentives - low interest loans by the Port Authority ($11-million value), by the city ($6 million value), parking revenue bonds (estimated at $8.5 million value) and on and on.

The Wolstein project will enjoy a TIF estimated to divert $11.1 million and tax abatement at 100 percent for 15 years for some 300 housing units. The city put no price tag on how much revenue it will lose on these abatements.

For a full treatment of subsidies for the Wolstein project, click here.

These to me are give-aways that should not be necessary. The city has enough problems providing needed services without throwing money into private businesses. This kind of welfare should stop.

Why? Here’s the catch. Despite the subsidies and the forgiven taxes, the city will be obligated to provide all the city services it provides elsewhere.

Everything will need to be provided from EMS service and fire and police protection to garbage collection, from building inspections (hopefully honestly) to street sweeping and snow removal. All the range of other services provided by other entities of government – schools, RTA, County – will also have to respond to serve this project.

Indeed, because this will attract a higher income clientele – both as workers and residents – my guess is that services will be better than what ordinary citizens get in the rest of the city.

You can walk in the Gateway and Warehouse districts and you will see pricy curbing you don’t see in neighborhoods. Paving stones not seen in ordinary part of the city.

The city cannot afford to continue to abate the property taxes of new construction to the detriment of older neighborhoods and existing downtown buildings. City revenue needs demand that everyone pay his or her fair share.

If business can demand these added incentives, why not homeowners? Wouldn’t it increase economic activity if the homeowner could decide not to pay a portion of his or her property taxes and use the savings for a new porch, roof, sidewalk or even garden? Why should those maintaining their properties not get the same treatment?

That doesn’t sound feasible to you? Well, maybe that’s the way to think about the wholesale tax forgiving going on in Cleveland for many years now.

It’s a matter of values. Our values have been out of whack. We keep enriching new development. We keep expediting the death of existing development.

We are wasteful to our own demise. Politicians serve those with wealth. It is to the dire detriment of the community.

You would think that the desperate situation we’ve gotten ourselves into would have us thinking differently. However, I see us on the same disastrous course.

Freebies continue to be demanded by the wealthy. The rest of us seem to have no leverage to stop it. This despite evidence it is not working to the benefit of almost all of us. We see it in the continuing steep decline in Cleveland.

Wolstein Picks Up $1.4 Million at Stalled Flats Project

The Wolstein East Bank project is in limbo but that hasn’t stopped the City of Cleveland from feeding Scott Wolstein $1.4 million for land for a future walkway and park along the Cuyahoga River in the Flats.

The city, via two government grants, has paid Wolstein $1,417,000 for less than a half acre of land, according to a document made available to me by the city.

The Wolstein Group and Fairmount Properties – the developers - have been promised tens of millions of dollars in government subsidies in legislation passed during a hurried City Council session in May of 2006. Council President Martin Sweeney gave members a 57-page document one working day before the legislation was passed.

It’s so easy to get money from government that I don’t know why there isn’t more development in Cleveland. Oh yeah, there’s no market for it.

That doesn’t stop the flow of freebies to developers, however.

Nothing has been built at the Wolstein development although there is work being done – all government infrastructure construction. The project itself is stalled.

Developers Diversified Realty Corp., Wolstein’s main firm, has been having financial difficulties dealing with debt. It was reported this week that German investors have bought some 30 percent of the firm’s stock.

Officials in Mayor Frank Jackson’s administration say that the city will build a park there someday. No price has been determined, they said.

However, a funding source is known. City general obligation bonds will be used to finance the work along with diverted taxes from Wolstein’s project via a TIF (Tax Incremental Financing) deal – if it is ever built. The TIF takes property taxes from the development that ordinarily would go to the Cleveland schools (about 60 percent), county, city and city libraries and uses them instead for the city park.

The $1.4 million all goes to Wolstein developers. The cost of a walkway along the river and the park is unknown at this time, according to City Planning Director Bob Brown.

On the west side of the Flats private owners have provided public walkways without cost to the city.

The only work being done at the Flats development is government funded sewer and electrical work.

In a Feb. 5 letter, Daryl Rush, director of the city’s Dept of Community Development thank the National Oceanic and Atmospheric Administration (NOAA) and the Ohio Department of Natural Resources ODNR) for funds to pay for the .4647 acres. The area runs along the Cuyahoga River. NOAA and ODNR each contributed $708,500.

Rush said in his February letter that the land had been acquired.

This will primarily serve residents of Wolstein’s project, if he ever builds the $230 million mixed use development of retail, commercial, office and for-sale and rental housing.

Don’t hold your breath.

You may remember the long list of government subsidies promised by various levels of government for the Wolstein project.

If you don’t, here are some of the freebies legislated for Wolstein:

- The Cleveland-Cuyahoga County Port Authority will provide $11 million in loans.

- City of Cleveland will provide $6 million in Core City loans.

- Cleveland Public Power will provide $3.4 million in free services.

- Cleveland Water Division will provide $740,000 in infrastructure costs.

- City of Cleveland will provide another $1 million in general obligation bonds.

- The County, City & Cleveland Schools will forgo $11,140,000 in property taxes under the TIF program.

- Cuyahoga County will provide $1 million in subsidies.

- The State of Ohio will provide a grant of $3 million for “environmental remediation,” matched by a loan from the County of $1 million.

- Tax exempt Parking Revenue Bonds estimated at $8,540,000 will be repaid from city parking facility revenues.

- Tax exempt infrastructure bonds estimated to be $9 million are secured by annual payments by the Northeast Ohio Regional Sewer District.

- The sum of approximately $4,550,000 will be made available through the Federal Highway Administration.

- The federal government has appropriated and the city shall obtain and make available when required for eligibility project costs a grand of $1.4 million from the U. S. Dept. of Commerce National Oceanic Atmosphere Administration. (MARK THIS DONE!)

- All rental and condominium units (some 300) will be tax abated at 100 percent for 15 years. No cost estimate given.

- The city agrees to enact legislation as necessary to amend and extend the CRA residential tax abatement program to assure that all residential improvements are available at the full 15 years at 100 percent. No cost given.

- The Greater Cleveland Regional Transit Authority (RTA)) will construct a transit station on the RTA Waterfront Rail Line for the project “… all at no cost or expense” the Wolstein’s project. No cost figure given.

This is too disgusting and I’m tired of typing. If you want to read the entire list of these give-aways, I suggest you go here.

Are some worried about Socialism? Hell, wealthy developers have a franchise of it right here in Cleveland.

"Opportunity" Pee Dee & Terry Egger

Do you recognize propaganda when you see it? The Plain Dealer had a perfect display of it in a recent issue of the newspaper.

The Pee Dee has fallen in love with the so-called “Opportunity Corridor.” It is a proposed roadway that will slide people through poverty areas to University Circle from I-490 and East 55th Street. The drivers won’t have to see much as they speed along the proposed $350 million project. An overly expensive bypass, don’t you think?

“Few road projects hold so much promise for so many people,” wrote Karen Farkas. What data revealed that gem of a statement? The story doesn’t say. That’s because it’s made up by our local propagandists from the business community.

“The Opportunity Corridor, a proposed 2-3/4 mile parkway extending from where Interstate 490 ends at East 55th Street to East 105th Street, could lead to economic development,” the story says. Well, at least she used “could,” not “would.” But again, nothing to back it up.

It also “could” lead to community development for “neighborhoods ravaged by unemployment and foreclosure,” the article says. Again, nothing to back it up. And highly doubtful.

Indeed, it “could” lead to a heavy expenditure of public money to satisfy a small self-interested elite that’s well-connected. In fact, it will.

Corruption doesn’t always mean a politician or building inspector taking a pittance of a bribe. Corruption comes in many forms.

And selling this as a project to help poor people is as sick as it gets.

The article calls a private committee set up by the Greater Cleveland Partnership (our Chamber of Commerce) as an “independent committee.” Hardly independent. It’s set up by business leaders. Nothing more, nothing less.

She does at least quote one Council member who gives an honest assessment for the moment. Councilwoman Phyllis Cleveland is quoted, “In my community they say it is an ‘Opportunity for whom?’” She serves Ward 5, once headed by Mayor Frank Jackson. I remember Jackson raising questions about this road at least five years ago. He now supports it with funding.

The key to remember, however, is that the reporter’s boss, Terry Egger, Pee Dee publisher and president, is co-chairing the Opportunity Corridor committee.

You want to please the boss. Or at least you don’t want to put your thumb in his eye. That’s how propaganda gets sped along.

Maybe Egger should keep himself in the telling-the-news business rather than in the creating-the-news business.

There will never be honest reporting about the PR-named “Opportunity Corridor,” especially when the paper’s boss is so intimately involved.

Terry, stay in the news business. Leave the propaganda to the Greater Cleveland Partnership and its partners. They take pride in doing it.

From Cool Cleveland contributor Roldo Bartimole roldoATroadrunner.com
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