Hey, Everybody – John Cranley wrote me an email!

Dear Ms. Holwadel:

Thank you for writing me about the Oakley Station Parking Garage.  I have received a few emails on this subject and I’d like to take a moment to clear up some misconceptions about the project and share with you why I support it. . . .The garage is a 383-space garage and will cost $6.2 million to construct. The developer, Vandercar Holdings, is contributing the land, valued at $700,000.  The developer will have an option to purchase the garage from the City for the cost of construction, less depreciation. The developer will lease and manage the garage for 35 years and has the option to purchase the garage at the end of the 35-year term for $1, when it is fully depreciated.

That’s true, Mayor, except that the land has to be in the city’s name or it can’t qualify for the 35-year property tax-exemption that comes with Tax-Increment Financing, tax payments that would usually be made to fund basic services but will now be used to pay for this garage.  What’s the dollar value of the tax exemption to the developer over 35 years?  The city doesn’t get any benefits from depreciation like a for-profit company would since Cincinnati doesn’t pay any taxes.  Do our buildings really only have a 35-year usable life?  Such a waste of resources, both financial and environmental, is sad.

It’s also interesting that if the building is ever sold, it’s my understanding that the developer receives 100% of the proceeds, including the garage – and holding periods usually end up being much shorter than that stated in the master lease agreement. Even if the property is sold, those tax benefits will be passed to the new owner for the entire period.

I support this project for one big reason: It will create jobs and economic growth in Oakley. 

But, Mayor, according to the city’s own ordinance this particular office building will not result in ANY new jobs to the city.  

F. Developer intends to lease the Private Improvements to Community Insurance Company (the “Tenant”) for a term of not less than 10 years and 6 months, which Developer represents will bring approximately 400 jobs to the building site of which 0 shall be new jobs to the city and 400 shall be jobs retained from the Tenant’s prior location within the city.

The city projects income taxes from the temporary construction jobs to be $84,000.   Building a $6.9 million garage in order to generate $84,000 in new income taxes to the city – wow, I don’t mean to be critical – but can’t we do any better than that?????

According to an economic impact study done by the University of Cincinnati, development of the Anthem office building and parking garage will support 82 new jobs during construction, and Anthem employees will bring annual purchasing power of $4 million to area restaurants and retail. Through our agreement, Anthem must retain at least 400 jobs in the City with $15 million in payroll. Construction of the office building is expected to create 111 construction jobs with an annual payroll of $4 million during construction.

Mayor Cranley, would you mind if I asked who paid for that economic impact study? Usually it’s the for-profit developer.  Haven’t we had a few problems in the past with overly optimistic projections?  

As far as the agreement with Anthem is concerned, you must be referring to the Property Investment Reimbursement Agreement the city signed in 2013 (Ordinance 206-2013) to fix up their current building at 1351 William Howard Taft.  We gave them a forgivable loan of $300,000 outright.  And another $1,250,000 over the next 5 years if they retained 325 jobs and created 75 new ones. This agreement didn’t have anything to do with the new building, but I can see where you might get confused.  It’s hard to keep all these job-creating deals straight isn’t it? 75 jobs cost us $1,550,000 or $20,666 per job. It will take more than 26 years to break even on that investment. (the city assumes an average salary of $37,500 and we tax at 2.1%)

Again, thank you for writing me about this important issue.  I always enjoy hearing from thoughtful, engaged citizens like you.  Please feel free to contact my office if I may ever be of further assistance.

Sincerely,

John Cranley

Mayor, City of Cincinnati

Thanks for taking time to write, John.  But while all the talk about jobs always sounds great, the reality is that we can’t afford to give away more than we can ever hope to take-in.  That’s Economics 101.  Current policy only makes sense for developers who build big buildings and tenants savvy enough to sign the taxpayer-subsidized lease.  

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8 thoughts on “Hey, Everybody – John Cranley wrote me an email!

  1. David Akadjian

    If the goal is to create jobs, sometimes I wonder if it wouldn’t be cheaper to just pay people directly. I really don’t understand why we should be subsidizing private companies to create jobs. This seems to create an ever longer and greedier list of corporations lining up for subsidies.

    Reply
  2. Craig Hochscheid

    Oakley Station developer Rob Smyjunas is a long time Cranley supporter who along with his wife has contributed thousands of dollars to Cranley’s campaigns since at least 2003. Smyjunas’ investment is paying off, having now yielded a free $6 million garage for his development. We have seen over and over that bribing John Cranley pays off for his cronies.

    Reply
  3. Marc Raab

    First, I am a fairly new follower of your blog. And I LOVE what I have read so far. Very insightful stuff.

    Second, no chance John Cranley wrote that email. He has people for stuff like that. If John Cranley wrote the email, it would have read like this:

    Dear Kathy,

    **** you.

    Regards,

    Mayor Cranley

    Third, if I correctly recall, the Neyer family (co-developer of Oakley Station) was the second largest contributor to Cranley’s mayoral campaign. Somewhere around 25k according to the CBC. The only group that contributed more was his former employer and their partners/staff.

    Yes, it is nothing new for a politician to return projects for past contributions. But it is rather entertaining to watch Cranley strong arm smaller projects, like the Clifton Market or Eden Park brewery, over thousands of dollars, when they would actually create new jobs and new income for the city. Yet six million for a garage? “Where do I sign?”

    Reply
  4. Bill Collins

    NOTE FROM COUNCIL MEMBER FLYNN RE: ANTHEM/VANDERCAR DEAL
    I just received a response letter from Council Member Flynn where he responded to my note to all the Council members earlier this week re: this issue. Thank you, Council Member Flynn. I respect Mr. Flynn and appreciate his response.

    Mr. Flynn explained that he voted for this deal because the $6 million comes from the Oakley TIF District, not from the City’s general fund.

    Now, technically Mr. Flynn is right. However, as I see it, in my humble opinion the problem is that this transaction re: Vandercar and the Anthem health-insurance companies creates no net increase in jobs for the City of Cincinnati and Hamilton County because Oakley’s “gain” is East Walnut Hills’s loss.
    Net zero jobs. Nada. Zilch. [Hey, Kathy, what’s the Italian word for “zero?” LOL]

    Yes, I do understand the pressure that politicians like Mr. Flynn are under to “create jobs,” sometimes even in situations like this where no new jobs are actually created. But, the fact is that the City and the region gain nothing, in terms of job growth, from these kinds of transactions. Dare we call it a “shell game?”

    MAYOR CRANLEY AND
    THE VIEW OUT THE WINDOW OF THE KEATING LAW/LOBBYINg FIRM
    As for the Mayor, I think I understand where he is coming from. Coming from the world of law/lobbying firms where he made a handsome living prior to be elected Mayor, it’s likely that Mr. Cranley actually does view these transactions as “job creation.”

    In these elite firms like the one that Mr. Cranley hailed from (the Keating firm — remember the Keating Five?), they’re always writing press releases, newsletters and white papers that tout their expertise at “job creation” and “economic development.” But, when one looks “beneath the hood” of this job creation expertise that these elite firms tout, one often see that what this “job creation” and “economic development” expertise often amounts to is just moving a finite set of jobs around on the table from one municipality in a region to another municipality within that same region – ie, Ohio to Kentucky, Kentucky to Ohio, Cincinnati to Norwood, Norwood to Cincinnati, Cincinnati to Sharonville, Loveland to Elm Street (ie, Pure Romance), etc.
    In other words, much of this stuff is nothing more than this shell game that *does* generate fee income for the law/lobbying firms, but really has no net impact on family income, family stability and community development within this, or any other, region.

    REVENUE SHARING AMONG MUNICIPALITIES:
    LET’S START BY DOING REVENUE SHARING ACROSS JURISDICTIONS IN HAMILTON COUNTY
    In the Minneapolis/St. Paul (MSP) area, they developed an approach years ago to minimize this shell game. They have a system there for municipal revenue sharing that dis-incentivizes corporations to move from jurisdiction to jurisdiction within the MSP area in order to cop tax deals area as it also dis-incentivizes municipalities from giving these tax breaks to lure these companies to make those moves.

    From what I have read, this approach works very well for two reasons:
    1) It minimizes the shell game, and
    2) It allows economic-development officials in the MSP region to focus on creating NEW jobs, many from new, growing firms that are attracted to the MSP region because of its entrepreneurial culture and strong educational infrastructure from kindergarten through to the University of Minnesota.

    The MSP region consistently leads the Midwest in economic-development categories like net job growth and female entrepreneurship. We could do that here, of course. However, when so many rich and powerful people in the Tri-State region make such a handsome living playing the shell game, what incentive do these elites in the political class and the law firm/lobbying class have to lower the boom on this shell game?

    So, for all us regular people out there — you know, the folks who *don’t* profit from this shell game and whose communities suffer when jobs decamp for other places — let’s start by calling out the politicians and legal/lobbying firms who profit from all this gold-bricking that is embedded in the shell game.

    After we expose all this gold-bricking, then let’s fix the problem by developing some kind of municipal revenue sharing, starting with all the jurisdictions in Hamilton County and then slowly expanding that revenue-sharing network to Warren, Clermont and Butler counties and then later across the Ohio River to Campbell, Kenton and Boone counties. Until we fix that problem, our political/legal/lobbying class will continue to be corrupted, and the future prosperity of the Tri-State region will continue to be compromised.

    Reply
  5. Julie Zavon

    Key question about the feasibility study:
    Who supplied the numbers and data UC plugged into its model? If the developer or an interested party supplied the key data and assumptions, the result is not independent or robust. It’s weak.

    Where can one access this feasibility study?

    Reply

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