Since 2004, the City of Cleveland has used tax abatements to encourage developers, builders, and homeowners to build and substantially rehabilitate housing in the City. In late July 2020, Mayor Jackson and Cleveland City Council released an analysis of the city’s tax abatement program.
The study was led by nationally-recognized Reinvestment Fund, with assistance from Greater Ohio Policy Center, PFM Group Consulting, Neighborhood Connections and Leverage Point Development.
The study—overseen by the Department of Community Development and the Equitable Community Development Working Group, a multi-sector advisory group—was undertaken to better understand the historic usage of the tax abatement program, the value the program generated for the City, and to recommend potential adjustments to the program.
The study’s key findings include:
The housing market remains fragile, but with a few areas of emerging strength.
Tax abatements have become increasingly concentrated in fewer places and increasingly used for large multi-family developments.
There is no consistent relationship between tax abatements and residential displacement.
Tax abatements were associated with substantial economic activity in Cleveland.
The study’s recommendations are:
Recommendation #1: Cleveland should continue to offer a tax abatement for residential properties tied to green construction standards. Among study participants there was near-universal agreement that the abatement is still a productive tool for encouraging new development that both retains existing residents and helps attract new residents to the city.
Recommendation #2: Cap the maximum abated value for single family abatements at $300,000. Setting the cap at $300,000 per housing unit would continue to provide tax relief for most households— 99% of single family homes sold in Cleveland between 2017 and 2018 were for less than $300,000, although 23% of abated parcels in 2017 and 2018 sold for more $300,000.
Recommendation #3: Implement a “but-for” requirement for market rate multi-family total development costs assessed above $5 million. A “but-for” test requires a determination that the activity that qualifies for an abatement would not occur without the tax abatement incentive.
Recommendation #4: Establish a framework for community benefits agreements (CBAs) for developers of multi-family market rate projects in block groups experiencing high displacement pressure. CBAs are signed contracts between the City (or community development corporation) and real estate developers that require the developer to provide specific amenities and/or mitigations to the local community or neighborhood where they are engaged in development activity.
Recommendation #5: Develop a specific housing market displacement pressure threshold where the City would trigger adjustments to the tax abatement time period and percentage by block group.
Recommendation #6: Implement process improvements to enhance transparency and streamline the application timelines.