Category Archives: Tax Increment Financing

Keep Northside Weird, Ollie Kroner

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Ollie Kroner (with his gorgeous wife and youngest child), riding the coattails of son, Quincy’s, popularity

Cincyopolis is going around town collecting development stories, what’s working in our neighborhoods and what isn’t, as the building boom ripples out from the city center to other parts of town.  I met Ollie Kroner, president of the Northside Community Council, at this year’s Neighborhood Summit and asked if he would be willing to share his perspective.

Ollie is deceptively low-key. He has a quiet voice and pauses to think for a second or two before he answers a question.  He’s an environmental scientist four days a week, the rest of his professional life split between Porch Swing Properties, specialists in the renovation of historic buildings, and Cincinnati Bio-diesel Initiative, a company that makes a cheaper, cleaner alternative to diesel fuel. But Ollie’s real claim to fame is as Quincy’s dad, the little boy who went viral because of his passion for garbage trucks and the men who man them, this year’s Grand Marshall of the Northside 4th of July parade.

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Quincy, overwhelmed when he finally meets his heroes

Standing in the order line at Melt on Hamilton Avenue with Ollie a few weeks ago, I felt like everybody else in the room already knew each other.  “Is that beard itchy?” asked the little, gray-haired lady in the line behind us, reaching out to touch his face. She and her friend chatted with the handsome young Community Council president about neighbors they all knew and the Farmer’s Market.   Later, while we were eating lunch on the patio, a group from a nearby table apologized for interrupting our conversation more than once.  They were celebrating a big new partnership they’d just landed with UC after years of work and wanted to share their triumph with a fellow environmentalist. Everybody had to make a particular fuss over their 93-year-old associate  who had just finished running his most recent half-marathon and was still wearing his medal.

So often when I talk to the individuals who are active in their neighborhood development issues, there’s a lot of frustration in their dealings with big developers.  They feel like the community’s voice isn’t being heard.  But that hasn’t been Ollie’s experience.

“Of course it’s not like the big developers are lining-up to get into Northside,” he admitted, explaining that interest is growing, especially among smaller developers who don’t require layers of public financing, but a lot of the progress in his neighborhood has focused on in-fill projects rather than the mega-deals that get all the attention.  He raved about how effective their Community Urban Redevelopment Corporation (now called NEST) under the leadership of Stephanie Sunderland has been in focusing on problem areas, completing 20 pivotal properties and helping to obtain gap financing for individuals and businesses. “Stephanie’s an encyclopedia of local information,” he said, “and great at navigating city bureaucracy. ”

Northside is unique in so many ways, a niche artist community in one of the best preserved historic districts that is truly walk-able, close to the universities and hospitals.  There’s something for everyone with the median home price around $140,000, 50% of the neighborhood available for rentals.   Young couples are moving in to be part of a close-knit community with affordable houses where you don’t have to get in a car to grab a cup of good coffee or go listen to a band.

But maybe the issue that really sets Northside apart from a development perspective is that when all the other neighborhoods jumped on the Tax Increment Financing District bandwagon ten years ago, Northside leaders opted not to participate on moral grounds, and is now one of the few areas that can’t offer TIF subsidized goodies to attract new projects.  Ollie mentioned that as he’s watched other neighborhoods use TIF funds to improve their communities, sometimes he’s been a little jealous.

Even without that option, new developments are popping-up faster than they have in the last hundred years:  the conversion of the American Can building into apartment lofts,  the Gantry, a 130 unit apartment building on the corner of Blue Rock and Hamilton, and the most recent announcement was a 54-unit apartment for low-income seniors being developed by the Episcopal Retirement Homes at the corner of Knowlton and Mad Anthony.  There’s lots of new food and music venues, burger joints, more than one barcade, Northside Distilling, bunches of taco possibilities, and the oft-talked-about Littlefield is a big draw.  Technology companies have also been attracted to everything Northside has to offer.

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The American Can Building

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the Gantry Apartments going up at the corner of Hamilton and Blue Rock

Yes, Ollie, a Tax-Increment-Financing District could have attracted more development action to your corner of the Cincinnati landscape, but faster development, bigger development, is not synonymous with the kind of place that makes real people commit to a neighborhood with their hearts, stay loyal, raise families, and start small businesses there.  Slowly, steadily Northside has been building the kind of special place that can’t be bought with taxpayer subsidies.  People are moving to Northside because it’s Northside, weird, more-imagination-than-money, Lawn Chair Lady, tattoo-rich Northside, the kind of neighborhood where the librarians at the local branch know patrons by name, one with an independent hardware store that nobody who has ever been inside can ever forget.

Absent one of the most popular tools in today’s public financing arsenal, Northside hasn’t missed out on anything that really matters.  Instead of a vision imposed by big, for-profit corporations that too often includes chain restaurants with lots of parking, the future of this community is being determined by neighbors who care about each other and inclusive values that don’t always register on the bottom-line.  The rest of Cincinnati should be jealous of Northside.

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.  

The History of Tax-Increment-Financing in the Queen City (Oh my!)

Tom Stapleton (Senior VP from Eagle Realty) and I exchanged a few emails recently and I happened to mention that I thought Great American Tower was the first use of TIF project bonds in Cincinnati and “there is no other way for citizens to critically examine this financing structure without citing specifics about Great American Tower.”

Tom responded, “What do you mean by the statement “this was the first use of TIF project bonds”?  Project-specific TIF financing has been around for a long time, so I don’t understand your comment.”

He was kind enough to follow up with a link to the Ohio Development Services website that lists all the active Tax Increment Financing Districts and Projects in the state.  Tax Increment Financing is a type of financing structure that uses tax payments (that would have been used for basic services like police and trash collection) to pay down debt associated with a specific building project instead.

Of course, Tom’s right.  He’s the pro.  TIFs have been used for quite some time, 32 currently active within city limits.  19 of those are Districts that benefit a wide variety of businesses.  The other 13 were established for specific projects, usually pretty big ones.

Our oldest TIF was for Fountain Square South parking garage in 1980.

In 1984, we used the TIF tool to build Hyatt/Saks.  Partners that owned the Hyatt filed for bankruptcy protection in 1994 and a foreclosure action was sought on the property in 2008. The hotel was sold in 2009 at sheriff’s auction after years of financial woes.  The TIF, however, remains outstanding and benefits the current owner of the property.

10 years later in 1994 we used another project TIF to finance the  square and parking garage at Fountain Square West.

A TIF was used again in 2001 for the Center of Cincinnati Milicron project in Oakley, a Neyer development.

In 2004 we established a project-based TIF for the first phase of Tom’s project: Queen City Square, now owned by the Port Authority with Western & Southern named in the Master Lease Agreement.  The second phase was established in 2008.  Total financing amounts to over $323 million.  Redirection of property tax payments to pay down the debt of both buildings and their garages will continue until all the bonds have been paid off, probably around 2038. (Cincinnati Public Schools still receive 25% of the payment and another part of the payment goes to finance other development.)

The Baldwin Building just purchased by Neyer was originally granted a TIF project in 2007.  They will most likely continue to benefit from the arrangement as they reconfigure the property into apartments.

Neyer was awarded a project TIF to develop the Keystone Park Project, a $100,000,000 office campus in Evanston in 2008.

The dunnhumby garage received the benefits of TIF financing in 2013.  3CDC holds the master lease on the $70,000,000 garage.  (The headquarters portion of the building will receive a 15-year Community Renewal Act abatement.)

5 new TIF projects have also been recorded as of 03/02/2015:  3D Color Project Development, Centennial TIF, Emery Pineapple Project Development Public Improvement,  P&G June Street access, and Rumpke Project, Public Improvement.  No details have been provided for any of these new Tax Increment Financing deals.

So – Tom –  thank-you for correcting me.  Tax Increment Financing has been used for projects in Cincinnati since 1980.  But it’s been a fairly rare occurrence, Queen City Square/Great American Tower was the largest private financing to date three times over, and we have used this 30-year arrangement for only a handful of companies.  I stand by my statement that your financing structure is one-of-a-kind – no other building is owned by the Port Authority with the developer holding a master lease – and it is important for citizens to study this particular example and understand it.

It’s especially important right now, as the use of this highly advantageous, 30-year tax subsidy is apparently gathering steam in the city of Cincinnati – all this while we project at least another five years of budget deficits.  Let’s hope our elected officials don’t get so greedy for growth that they forget what can go wrong and cripple the next generation of hard-working middle-class taxpayers who will have to cover the costs of their great expectations.