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Proposed changes to Cleveland's tax abatement program aim to increase equity in new investment

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Posted at 4:40 PM, May 10, 2022

CLEVELAND — Mayor Justin Bibb’s administration along with Cleveland City Council President Blaine Griffin unveiled Monday the proposed changes to the city’s much-discussed property tax abatement policy. Although some core principles of the policy will remain unchanged, the proposed revisions provide a more tailored approach to tax abatements in an effort to drive growth in under-invested neighborhoods.

Under the current property tax abatement policy, the city has relied on a ‘one-size-fits-all’ approach to spur new residential development projects or the renovation of existing housing units. The program allows property owners and developers to reduce or eliminate the increase in property taxes that have come as a result of the renovation of existing housing units or the creation of new housing units. The abatement spans 15 years.

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According to the proposal, the level of property tax abatement offered to qualifying projects would be tied to the general health of the surrounding market. The proposed legislation denotes three market classifications; market rate, the strongest of the three designations where less abatement is needed; middle markets, which require a higher level of abatement but are moderately healthy and, lastly, opportunity markets which require a full 100% abatement.

Under the proposed legislation, the tax abatement in market-rate areas would be capped at 85%. Middle markets would be capped at 90% abatement.

“We need to change the model from a one-size-fits-all to a more diverse tool to drive development in the city of Cleveland,” said Griffin. “[The current tax abatement policy] has worked in some areas, but it has not worked in areas that have experienced a tremendous amount of disinvestment, abandonment and other things.”

The legislation is the result of research and analysis dating back to 2018, including new data that was released late last month by the Equitable Community Development working group, a consortium of non-profits and housing policy experts.

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The research shows that while abatement is still a necessity, the city’s housing market still has not entirely recovered from the Great Recession and new construction is still lagging behind Cleveland’s peer cities. Additionally, the research shows that much of the abatement activity as of late has concentrated in stronger, higher-priced markets such as Detroit-Shoreway, Ohio City, Little Italy, University Circle, and Tremont.

“We really are listening to the developer community but we’re also listening to the advocacy community so that we can come up with a very good policy that we can be proud of in the city of Cleveland,” Griffin said. “We just want to make it equitable so that all the communities across the city of Cleveland can benefit from the investments that some of these prime neighborhoods in the city of Cleveland have received.”

In a new release sent out Tuesday afternoon, Bibb said the updated abatement policy is aimed at addressing economic inequity, particularly when it comes to housing development.

“Residential tax abatement is just one of many tools we will be using to incentivize equitable development in all corners of our city,” Bibb said. “These changes recognize that our policy must promote growth while addressing growing inequity in our neighborhoods.”

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Another key component of the proposed legislation concerns affordable housing. Under the proposal, affordable housing units would still retain their 100% abatement status.

“We need more affordable housing units. We believe this could help drive that but we also want to make sure we maintain our competitiveness,” Griffin said.

Officials said the updated policy, which would take effect on June 1, 2023, if approved, places a cap on for-sale housing, meaning only the taxable value increase on the first $350,000 of the sale value will be abated. The policy will also require developers of apartment buildings to either include a set number of affordable housing units within their proposal or contribute to the city’s affordable housing trust fund, which is a pool of money developers can use for affordable housing projects.

The proposal would include a grandfathering period extending to one year for developers that are currently relying on the existing program. The current abatement program expires on June 4.