Cleveland City Council approves overhaul of residential tax abatement policy

CLEVELAND, Ohio – Cleveland Mayor Justin Bibb’s overhaul of the city’s residential tax abatement policy underwent several hefty changes before ultimately winning unanimous City Council approval on Wednesday.

Council’s final version maintains some of Bibb’s original plan and somewhat keeps intact his goal of tailoring tax incentives on a neighborhood-by-neighborhood basis. But in other respects, council did away with that tailored approach.

“This may not be the perfect piece of legislation, but I come from the school of thought that I won’t let the perfect be the enemy of the good,” said Council President Blaine Griffin said Monday, adding, “Everybody might not have gotten all that they wanted, but everybody did get something that they asked for.”

Council was pressed to approve the changes by Monday night’s meeting, its last scheduled meeting prior to the current policy’s June 4 expiration date. But after adopting a series of last-minute changes late into Monday evening, the final legislation contained discrepancies that didn’t accurately reflect council’s amendments – errors that prompted council to skip the Monday vote, fix the document and call a special meeting Wednesday afternoon to approve it.

Cleveland’s tax abatement policy has long allowed developers and homeowners to defer for 15 years any increased property taxes they’d otherwise have to pay as a result of new construction or the remodeling of existing homes.

The existing policy, in effect for over a decade, granted a blanket 100% abatement for any qualifying projects. It has contributed to a construction boom in hot housing markets like downtown, the Near West Side and University Circle. But it failed to draw similar investments elsewhere in the city, particularly in East Side neighborhoods with high poverty rates.

Bibb sought to toss that “one-size-fits-all” approach in favor of one that would grant greater tax relief to neighborhoods with the weakest housing markets (100%), less tax relief in hotter markets (85%), and some tax relief in markets considered in-between (90%).

Council maintained that graduated approach for the construction of new multi-family buildings comprised of four or more units, and for the construction of new one-, two- or three- family homes in the strongest real estate markets.

But in every other case, including when individual homes or apartment buildings are renovated in any neighborhood, council reverted to the current policy of offering 100% abatement for 15 years. Among other reasons, members said they wanted to encourage rehabilitation over new construction, given that much of Cleveland’s aging housing stock is in need of repairs. In “middle” neighborhoods, such as Lee-Harvard and Old Brooklyn, council boosted abatement to 100% for new home construction, so developers wouldn’t just flock to the weak-market areas adjacent to the hottest markets.

Even so, Bibb’s tiered approach will go forward for what many consider to be the most consequential use of tax abatement: the new construction of large, multi-family apartment buildings, like those that have shot up in Ohio City in recent years.

Council also stuck with several other key aspects of Bibb’s abatement plan, which aims to bring more development to areas of the city long suffering from lack of investment.

One example: Abatement will be capped between $350,000 and $450,000 of home value, depending on the neighborhood, meaning a million-dollar renovation of a single-family home would still result in some increased tax payments to the city.

Another example: Large apartment buildings will be eligible for up to 100% abatement, no matter their location, as long as they make some units affordable, as opposed to market-rate. If developers don’t want to include affordable units, they’ll have to pay $20,000 for every unit they forego into a trust fund, which the city will tap for affordable housing programs.

As proposed by Bibb, “affordable” units would be those that a family earning 80% of area median income could afford (roughly $970 for a one-bedroom). However, council tweaked that provision, upping the threshold to 100% of area median income (just over $1,000 for a one-bedroom). The logic behind the change stemmed from concerns that the original threshold would prompt developers to pay into the trust fund rather than fulfilling the goal of increasing the supply of affordable homes.

Councilwoman Jenny Spencer was the only member on Monday to raise objections to the change, saying most Clevelanders already couldn’t afford the lower price point.

“Increasing it is going in wrong direction. If we’re worried about [developers] only paying fees [into the trust fund], we should increase the fees,” she said.

Spencer was also the lone council member to object to another council change, which pushed back the effective date of the policy by six months. She said Cleveland should have changed the tax abatement policy years ago, so pushing it back further would only delay urgently needed changes intended to foster more equitable development.

Now, the new incentives will go into effect in 18 months, rather than the originally proposed one-year timeline. The change was driven by rising construction costs due to inflation, and the hope that the economy would mellow-out somewhat over that extended timeframe.

Other changes made Monday include tweaks to the areas designated as strong, middle and weak housing markets, and new aging-in-place incentives, which would offer 100% abatement for homes specifically designed for older Clevelanders.

City officials also added the ability to revoke tax relief if units are used as AirBnBs or other short-term rentals, and for rental homeowners that fail to certify their properties as lead-safe.