Study looks at tax abatement in Cleveland

Cleveland housing market still fragile, tax incentives concentrated to certain areas

By Susan Tebben

The housing market collapse of 2008 still impacts Cleveland’s residential areas, and the onset of a pandemic has presented its own set of problems, according to a recent analysis.

A study of the benefits of tax abatement in the city showed a still-fragile housing market and declining home prices, with the risk of displacement still on the minds of certain communities in the area.

The study was published this month, but started in the summer of 2019, when the city’s Office of Community Development and Equitable Community Development Working Group commissioned a look at the historic usage of the tax abatement program there.

Tax abatements are exemptions, reductions or subsidies given to companies on new construction or improvements, to incentivize building in a certain area. Companies or owners still have to pay property taxes on the existing value.

Through study of the market, along with interviews, focus groups and community meetings, the study found that Cleveland’s tax abatements have been concentrated in fewer places, and about 85% of abatements being used for large multi-family developments.

Ohio City, Tremont, Detroit-Shoreway and University Circle all saw a concentration of abatements.

The Cleveland Metropolitan School District (CMSD) is impacted by the abatements even more than the city itself, the study argued, because property taxes represented 31.8% of the general revenue for the district in 2018, the primary source of local monies.

Between 2012 and 2018, the average yearly property tax that was abated was $14.4 million. With expiring abatement, the school district could see a new influx of local funding from those coming back to the tax rolls without subsidies or exemptions.

“By 2035, the additional property tax revenue will increase to $6.3 million, $23.8 million, and $6.5 million per year for the city, CMSD, and county, respectively, assuming a 100% collection rate,” according to the study.

The housing market is still considered fragile because of a slow gain in home prices, “limited mortgage activity, substantial investor activity, and with many households struggling to make ends meet,” the study stated.

“Despite these challenges, there are a limited number of areas in the city where home prices have been increasing in recent years, raising concerns among some residents related to potential threats of displacement,” the authors of the study wrote.

While the study didn’t find a “consistent relationship” between tax abatements and displacement, those that participated in interviews and focus groups said they supported protections for “long-term residents” from displacement.

“Ohio will need to advance policy options to protect residents from different threats of displacement, such as increasing property taxes, increasing rents, foreclosure, eviction, or unsafe housing conditions,” the study authors wrote.

Among the recommendations the study made based on the collected data was more abatement opportunities for green construction that “both retains existing residents and helps attract new residents to the city.”

The analysis team also recommended capping single family tax abatement at $300,000 and establishing a framework for community benefits agreements in areas at risk of displacement, and improved transparency in the abatement process.

“The housing market in Cleveland remains very challenged, and any system to adjust the tax abatement geographically should be carefully calibrated to the level of strength in the housing market,” the study stated.

The COVID-19 crisis will affect the 10-year plan for housing and investment, but the analysis team said the findings of their analysis represent data they had before the pandemic began its impact.

The analysis was conducted by national financial study organization Reinvestment Fund, the Greater Ohio Policy Center, consulting and asset management group PFM, Leverage Point Development and grant program Neighborhood Connections.

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… This story is provided by Ohio Capital Journal, a part of States Newsroom, a national 501 (c)(3) nonprofit. See the original story here.