If you put your hard earned money in a high-risk investment like commercial real estate development, would you forgo any possible rate of return? “No, no. We don’t want anything for ourselves. We just love handing out money.”
Crazy, huh? Doesn’t take a PhD in Economics to figure that one out.
And yet that’s exactly what City Council has decided year after year since 2001. Why? Apparently our votes come cheap in Cincinnati. The $17.50 credited to the average household due to the property tax rollback – “the cost of a couple of pizzas” to borrow late Councilmember David Crowley’s famous line – is how much it costs to buy them.
As Chris Wetterich of the Cincinnati Business Courier pointed out in last week’s cover story, this policy has cost the city $94 million since 2001 – while we squabbled over deficits, worried about pension obligations, and had to figure out if we could afford to repair potholes and pick up our trash. Referring to the progressive nature of the property tax system, Chris reminds us, “Those with the most pay the most, so the vast majority of the savings goes to the city’s largest property taxpayers, those who own commercial buildings and land.”
But that’s not the worst of it. The Investment Adviser in me is totally furious that the city invests huge amounts of money in high risk real estate and then refuses to accept any appreciation in income that results from those investments. You can be sure every time our Development Department guesses wrong – the recent brew-ha-ha over the $300,000 bad debt to Mahogany’s comes to mind – taxpayers feel the full brunt of the loss. Yet for some inexplicable, goofball logic when our development decisions result in gains to income, our leaders refuse to take the money.
Because officials have repeatedly voted not to take any more than this arbitrary $28,800,000 nobody cares about growing our property tax valuations (the total combined value of built assets). Consequently we’ve witnessed drastic declines in our biggest, most expensive commercial property values for property tax purposes in the central business district without anybody even asking why and more and more abatement of big, expensive development projects. In a single decade, the ratio of revenue from commercial and residential property owners to fund our public schools (who do care about valuations – very much) has gone from 50%-50% to 40%-60% and the very taxpayers the city is supposedly trying to help are obviously picking up a bigger and bigger share of the financial burden for basic services in this city.
According to Chris, “As of May, the city had approved 120 commercial abatements through its Community Reinvestment Area tax break program. The city is abating $258 million in property value and forgoing $1.5 million in property taxes for operations. Those dollar figures do not include nearly half of the 120 abatements, that start in 2013, 2014, 2015 and 2016 whose values have not yet been determined. The city did not provide a similar estimate for residential properties, but the city has abated or placed in TIF districts nearly $860 million worth of property, according to Hamilton County Auditor Dusty Rhodes’ office.” (Note: The abatement for Queen City Square alone is more than $326,000,000, so these figures need more clarification – but you can be certain it’s a ton of money.)
Luckily there’s some common sense on current Council.
The policy is absurd,” said Vice Mayor Mann. “Property values go up in part because of inflation. The cost of everything goes up, including the costs of government. It’s a way to make sure government is always falling behind.”
The property tax rollback is going to come up again for a vote in January. Let’s make sure we let our elected representatives know that it’s time to discontinue an insane policy that has hurt the very people it is supposed to help.