Why Cincinnati’s Economic Development Policy Doesn’t Work

Sometimes people actually read the stuff I write on cincyopolis.

I know this because of a conversation with a neighbor on the way home from the Lytle Park Master Plan meeting before I left for Italy.  My friend was really excited about the new park and looks forward to all the Western & Southern instigated changes in the Lytle Park Historic District, the hotels and restaurants, their future corporate headquarters and the residential tower.  “It is going to work out fine,” I agreed – but immediately jumped headfirst into my “affordability” lecture about the use of tax-payer subsidy.

That’s when my neighbor used one of my own posts against me.  “But it brings new jobs and income taxes go up,” he said.  “I saw it on your chart.”

I remember my headline.  Something about, “Good news, Cincinnati.”  Just in case you were busy living your life, picking up kids at soccer games, doing the grocery shopping (the really important stuff), here’s my chart:

image (13)Cincinnati’s economic policies have been generating more income tax revenue over time.  And compared to the rate of inflation, they out-performed.  But they haven’t grown fast enough to keep up with our expenses.  I will “spare us all another public records request”  (that’s a direct Facebook quote from a city administrator – do you think they are getting slightly exasperated with me down at City Hall?) and not ask the finance department to pull the numbers for a comparable 30-year history of city expenses.  But if you’ve lived here for more than a couple of years, you know those numbers intuitively.  We’re always broke.  Cincinnati never has enough money.

Our subsidies haven’t produced enough revenue to cover rising costs.  This is not because City Hall is spending money like drunken sailors. They have cut everything they can cut – including 23% of their staff in a decade and pension benefits – and it’s still not enough.  After 30 years of using incentives to buy jobs it costs more to maintain what we’ve got than we are taking-in.

We are not alone, Cincinnati.  This state of affairs has been the norm all over the country.  No-holds-barred real estate development financed with Tax Increment Financing has brought California to its knees and they have discontinued the practice.  Here’s why:

TIF_graph-page-001

This is the reality of of what happens when we buy jobs with never-ending subsidies.  We freeze our income from real estate. (Insult to injury: For the last 15 years City Council has added an artificial cap on their share just in case any new property tax revenue miraculously sneaks through – which has got to be one of the most bone-head moves in the history of public policy decisions.) We don’t get the full benefit of new income taxes because we frequently give 65% of that away, too.  All this infrastructure to support the new development needs to be maintained.  Basic services have to be funded.  Costs go up faster than the financial benefits coming in.

To all those who claim these tax breaks for corporations don’t really cost us anything, I say if it’s too good to be true, it is.  We have to pay for all these shiny objects with real money, not promises of good things to come. Practice a new mantra, Cincinnati – please.  Say it loud and say it proud: “We cannot afford to give away more than we take in.”

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11 thoughts on “Why Cincinnati’s Economic Development Policy Doesn’t Work

  1. Matt Jacob

    The fact that it’s this hard to get historical data on public financials makes it hard for anyone, the public or our elected officials, to make long term strategic decisions and see trends like you describe. How many private companies make decisions about their future blindly like that? Hopefully the opening of city data via Open Cincy and CincyStat will start to make discussions like this easier in the future so we can better evaluate what is in the city’s long term interest and what is not.

    I think the TIF analysis (which i assume you got from somewhere else) is interesting, but flawed in reality. For starters as you point out, revenue and expenses are not growing at the same rates and also the use of TIFs or not influences the rate of future revenue growth.

    Even given these flaws, a longer term view could still yield a positive NPV for the city and taxpayers after an upfront give away of a chunk of revenue. The problem is that calculations like this aren’t done and followed up on with clawbacks in the event the projections aren’t met.

    Reply
  2. executivedreamer Post author

    Matt Jacob, I love you. I hope that doesn’t make you uncomfortable. I keep saying exactly what you are saying – and everybody just acts like I am being annoying. Yet I honestly can’t figure out how anybody can make sound decisions that involve these huge sums of money without basic historical facts. — You’re right, of course, that the chart I stole from Wikipedia on Urban Renewal TIFs is grossly over-simplified. But I wanted to make a point about operating in the red and it worked for that.

    Reply
  3. Steve Deiters

    Interesting reading and charts. Sounds like you had lunch with county auditor Dusty Rhodes before you left. He’s been preaching these facts and beating these drums for years. I can’t speak for Mr. Rhodes, but I can speak for myself and say the last sentence sums it up-“Say it loud and say it proud: “We cannot afford to give away more than we take in.”

    Reply
  4. Johnny

    I love your blog. Give ’em hell sister. Here’s my take on the situation.

    When German immigrants first built Cincinnati back in the 1800’s they used a centuries-old economic model. They did everything on a small incremental scale. They paid cash. They pooled resources with family and small groups of local investors. Only after a viable neighborhood had been established by private individuals did the municipal government then organize infrastructure to serve it. The tax base came first. Civic improvements followed based on the proven pre-existing cash flow. This development model allows a neighborhood to mature incrementally and become stronger and more desirable over time.

    In post World War II America we abandoned that model (and our historic neighborhoods) and embraced a radically different suburban economic plan. First massive roads, sewer and water systems, and other expensive public infrastructure are built at great expense. Then tract homes, strip malls, and office parks are induced into existence. But once that horizontal infrastructure begins to age and needs to be maintained or improved the tax base from the low grade scattershot development is insufficient to cover the costs. Taxes rise. Municipal services are cut. The middle class smells decline and moves on to the next shiny new development – very often in another county or state where taxes are lower and the homes, strip malls, and office parks are fresh and cheap. Businesses have long extorted subsidies from suburban authorities that fear imminent decline or who desperately need new growth to survive. Suburbia is based on a slash and burn economic model.

    TIFs and other economic inducements in Cincinnati are based on the suburban mentality. “We need to build a $30,000,000 parking garage downtown with public money to entice private investment.” The irony is that most of what is being subsidized would either be built without the subsidy since there’s a huge market demand for urban living these days, or it wouldn’t get built at all because no needs or wants it.

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  5. executivedreamer Post author

    Did you go to some fancy school to get so smart, Johnny? Or do you just read and think and watch like I do? — I have turned my life into a little game, a bet with myself – Can one very determined, more-than-slightly obsessed woman (with no professional background in economic development) – using only her wits and the internet – take back the narrative from the corporate cabal that has controlled decision making in Cincinnati for as long as we can remember? I bet we can do it. And I bet we can do it in time for the mayoral election in 2017 – and more importantly – in time to negotiate better terms on some of these wacky 30 + year deals the developers are trying to put through.

    Reply
  6. Johnny

    The current transactional leadership (you scratch my back, it’ll scratch yours, wink, wink) coming from Mayor Cranley’s office is typical of many jurisdictions. It’s a highly resilient system that thwarts change so long as there’s plenty of slop in the trough. Political campaigns want it. Labor unions want it. Developers want it. Property owners want it. Trying to stop large scale wasteful projects is rather like eating Jell-O with chop sticks. You poke at it, but it slips around too much. But when things get tight and the goodies dry up the big projects die on their own.

    I don’t have the patience for any of it. Instead, I let the Big Boys do their thing. I concentrate on the many small projects in out-of-the-way spots that will quietly outperform and outlast the big ridiculous stuff.

    Reply
    1. Zachary Schunn

      “Political campaigns want it. Labor unions want it. Developers want it. Property owners want it.”

      I think you hit the nail on the head with this quote.

      Politicians set artificial tax levels, then give their big corporate donors tax “subsidies” for “creating jobs.” So politicians can then make their donors happy, unions happy, constituents happy, etc.

      But what is a tax “subsidy”? It’s a reduction in tax money that was never really owed, because–as the argument goes–the item to be taxed would never be there if the not for the subsidy.

      Ie, it’s a way for the politicans to say they’re helping by “reducing taxes” when those taxes never should have been there in the first place.

      I work in real estate, so I’m biased. I’d rather see a level playing field where EVERY property owner gets low taxes, instead of just the big corporate guys. This idea of taxing the individual or small business to help big business is NOT a fair deal for the average citizen.

      Reply
      1. executivedreamer Post author

        I back your approach 100%, Zachary. I don’t care what system we have. I will back a no property tax system – as long as the same rules apply to everybody.

  7. executivedreamer Post author

    I don’t want to stop these deals – but – come on, – can’t we negotiate a little harder (and I mean anything harder than milk toast, let the big boys walk-all-over-us and take what they want)? I bet we can be annoying enough to slow them down, make them give us more of the kind of town where we want to live in exchange for all those tax breaks. Yep, I’m pretty sure we can.

    Reply

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