Tag Archives: 3CDC

A Primer in Garage Building in Cincinnati

There’s no such thing as too much parking in Cincinnati, Ohio.  According to current public policy in this city, every problem we have can be solved with a one-size-fits-all answer: taxpayers pay for more garages.  Taxpayers paying for more garages will result in more jobs.  More jobs will generate more income-tax revenue to pay for basic services to fill our pot holes and hire more police which will make middle class homeowners happy “customers” (that’s what the City Manager calls us these days). More jobs will apparently alleviate poverty, reverse our absurdly high incarceration rates, stop violence and get people off drugs.

Since we are making these infrastructure investments as fast as we can – and they are very expensive – it behooves us to become garage literate, Citizens.

image (8)Here are the costs for three of our most recent garage projects.  But the figures are not entirely apples-to-apples fair.

Western & Southern’s Queen City Square figures are inflated due to the fact that I did not try to back out non-garage costs from the total $65,000,000 Tax Increment Financing package.  We didn’t just get garage space.  We purchased a multi-storied pedestrian promenade, two giant escalators, a plaza and quite a bit of ground level retail for our money.  It’s a pretty sophisticated set-up and Eagle Realty probably did a very decent job of holding garage costs to within 10-15% of the national average.

Of course, Oakley Station’s $6,200,000 structure hasn’t broken ground yet.  We can see that our development professionals must have used the same national average costs for garage construction I did for their projections.  New construction always costs more than we think it will and this project will probably be no different.  Let’s just hope it comes in close.

That leaves the mysterious dunnhumby, now known as 84.51, a 3CDC public-private partnership with Kroger’s latest acquisition.  I contacted Anastasia Mileham, VP of Communications, five times over the past three months asking for a clarification on why construction costs were so high.  At dunnhumby taxpayers bought 1,003 spaces for somewhere between $60,000,000 and $70,000,000.  (The figure tended to float a bit as we talked.) She explained that only the top four floors of the 9 story structure are currently needed for offices, but they anticipate significant growth and it was decided to build the lower floors so that they could someday be converted. Ramp design was complicated, ceiling height had to be 12 feet as opposed to the normal 10, and two floors of the garage were built below ground.

Call me annoying – but that didn’t seem an adequate explanation for costs more than three times the national average.  So I did what I always do – kept asking questions.  I asked super-smart staff members of City Council.  I mentioned my concerns to other developer friends.  I even called Robert Bertsch, Sr. (otherwise known as Bob), the guy who is in charge of development projects for this area of town in city administration.  He called me back within 5 minutes, was funny and charming and forthcoming. But he couldn’t tell me why the project cost so much more than anticipated when Council approved the deal in June of 2012. (They voted on $88 million.  It came in around $140 million.)  “You’ll have to ask 3CDC,” he said.

So I sent my little-Kathy charts to Anastasia and explained why I was confused.  More than 2,200 spaces at Queen City Square cost us about the same as 1,003 at dunnhumby.  I told her I would have to start to ask publicly why this building cost so much for us to build.  And I heard nothing.

I hate to write this post.  Because I’m a 3CDC fan.  I think they’ve done about as good a job as is humanly possible in Over-the-Rhine and on Fountain Square.  But since City Hall clearly intends to use 3CDC as their preferred developer on parking garages in the city center and we are building them as fast as we can, it’s important that we honestly evaluate our garage-outcomes.

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.

One Small Step for Cincyopolis – one giant leap for transparency

Yesterday’s letter from Tom Stapleton, Senior Vice President of Eagle Realty Group, marks the beginning of a new era in Cincinnati.  The tone was co-operative, the information, a helpful and specific record of the logic behind public subsidy on one of the biggest for-profit projects Cincinnati has ever under-taken.  My only frustration is that it took 9 months of relentless arm-twisting to get to these numbers in a format that is easy to understand and can be shared.

Yet Tom and his boss, Mario San Marco, would tell you that those 9 months were completely unnecessary.  “Why didn’t you just ask us?” Mario said during our conversation last week. And maybe he’s right.  Maybe I should have just picked-up the phone and asked.

Except for two things:

(1) There’s a steep learning curve involved in commercial real estate development, especially the financing part of it – and in the beginning I didn’t even know what I didn’t know, much less what questions I needed to ask.

(2) You don’t really want to ask the people who are making the money off the project for independent and complete analysis of their building.  I thought the government entities that facilitated this mega-Tax-Increment-Financing Project should – in a perfect world – be the keepers of record and my best source of verifiable data.

But the world is not perfect, Citizens. The only page on the internet dedicated to public involvement on Great American Tower is on the Port Authority web site, a couple of paragraphs that are more public relations material than accurate and complete financial data with measurable benefit-expectations clearly spelled-out.  When I pushed for more information about the “whys” of city involvement early on, one of the most knowledgeable public employees associated with Queen City  Square admitted, “We did it because City Hall told us to do it and you’ll have a hard time finding anybody there to talk to since those people are all gone.”  This is a building that opened 4 years ago – not 30 – and we should have a written, on-line record accessible to the public in a format that is easy to understand – not 50,000 pages of documents in boxes in storage.

Let us rejoice, Cincinnati.  In the scope of world problems, this one is relatively easy to solve.  It’s not poverty.  It’s not the Middle East or global warming.  This is numbers on a page and all it takes to fix it is commitment and some focus.  We’ve even got a model to use – not a perfect model – but a darn good start:  3CDC dedicates a page to every single one of their projects complete with financing details and links to informational videos for people who want to learn more.  (Wouldn’t it be nice if they could add information about how these deals impact property taxes?)

Screenshot 2015-04-09 at 8.55.38 AM

Tom and Mario, I have a lot to learn about how a city gets built – but here’s one thing I know for absolute sure:  If we discipline ourselves to do our homework and ask the important questions before we make investments that will be with us for generations, and if we put our assumptions out in public where everybody can see what we are doing and why we are doing it – we will make better decisions.  I learned that as a financial consultant and the principles of good investment are the same for families as they are for cities.  Public scrutiny is not a cumbersome evil to be avoided.  It’s a crucial step in the decision making process that will help politicians, public administrators and – yes!  – even private, for-profit developers build a really, really great city where everybody wants to live.

Where Steve Leeper meets Kathy Holwadel

steve

Steve Leeper and I both arrived in Over-the-Rhine a few years after Cincinnati’s social problems exploded in 2001. Our community had hit rock-bottom and everybody in town understood there was no choice but to be part of the solution. Steve moved from Pittsburgh to run the non-profit, 3CDC (Cincinnati City Center Development Corporation).  I left a river-view office at Merrill Lynch to eventually start InkTank, a non-profit writing center where college-educated white people swapped stories with OTR natives who didn’t look or think like me.

We were both outsiders.  People who had been living and working in Over-the-Rhine for decades didn’t trust us.  But it was worse for Steve.  Hired by corporate executives, he represented the interests of the economic elite and everybody assumed that 3CDC couldn’t rebuild OTR in a way that would be fair.

More than a decade later, with the Cincinnati Renaissance popping-up on list after list of “must-visit” destinations, you’d think the obvious hero of our turn-around story would be strutting around like the king of the barnyard, eager to recount every detail of every 3CDC development success. But that’s not the guy who showed up for the conversation orchestrated by Anastasia Mileham, VP of Marketing and Communications, when I asked if someone could explain how the money works at a non-profit development corporation.  The guy sitting across the table from me sounded like he was on trial, like he felt I was out to get him.

The only time Steve’s eyes lit up and his voice softened during the hour we talked was when I asked about his 33 person board.  He said they were the most cohesive, supportive group imaginable.  “All they want to do is help.”  Wow.  What miracles happen when people believe in each other.

The reason I started writing Cincyopolis was because I wanted to be part of a more sophisticated public conversation about the built environment in Cincinnati, about what we value as a community, how we make those decisions and the public-private division of responsibilities and risks in making it happen. With all the development going on around town, citizens needed to be better educated about these important issues, ask for a more transparent process, and get involved.  But has the tone of my writing become too negative, the focus more on the problems than solutions, on what’s going wrong with not enough emphasis on all the amazing things that are going right?  How am I contributing to this climate of mistrust?  Because Steve Leeper isn’t crazy.  If he feels like he’s frequently under attack then he probably is.

So – let’s start over.

Please accept my sincere apologies for not publicly focusing first and foremost on all that’s going right in this city.  And it’s not just our buildings.  We rebuilt Cincinnati’s pride along with our city center, our belief in what’s possible at our little bend in the river.  Demand exceeds supply in every single aspect of all the new 3CDC developments: fun, imaginative events free to all, 2-hour waiting lists for tables in restaurants, full parking garages, residential units that fill-up faster than they can be finished, parks and plazas where people come together who would never have a chance to meet otherwise – this combined with a renewed commitment to better address the needs of the homeless.  And every single step along the way required super-human sensitivity to negotiate all kinds of different lives from yesterday to today.

Thank-you, Steve Leeper.  Thank-you, to every member of the incredibly talented 3CDC staff that has made Cincinnati’s re-imagination their work.  Thank-you, maybe especially, to all the corporate executives who believed in this community in our darkest hour, came together to invest so much time, knowledge and patient capital in our city’s future.  Our turn-around is a model for cities all across the country.

Buildings are important, but they are just the physical manifestation of what’s really important in a  community.  What we’re constructing through this process is a way of listening to each other, sharing our concerns, and coming together that goes beyond the bricks and mortar. With so much work left to do to make this the city what we want it to be, let’s try to show up at every table always assuming the best about each other, asking what we can do to help.

Mark your calendars for the Port Authority Citizen Brigade: 2/11/2015

Everybody seems to be in agreement that the Port Authority is an important development tool for our region.

Legislated by Ohio state law, authorized and funded by City Council and the Hamilton County Commissioners, the Port Authority of Greater Cincinnati can own land, issue bonds and levy taxes approved by voters.  Originally formed for the purpose of addressing sites with brownfield issues, the agency’s ambitions have grown significantly since their inception in 2000.  Possible projects reported in the press in the last year include the Brent Spence Bridge (that one’s been abandoned – but it gives us an idea of how high they are aiming), re-imagining Queensgate, spearheading the rehab of the housing stock in Evanston and a desire to be the same kind of catalyst for development in the region that 3CDC has been in the city center.

That’s a big vision and a lot of power for a quiet, nine member, politically appointed board.  By way of comparison 3CDC’s board has 33 community leaders watching over the public interests and as a non-profit they can’t own land, issue bonds, or levy taxes.  This year 3 new members of the board have been appointed to the Port and include Mario San Marco of Eagle Realty (developer of Queen City Square, the biggest project by far ever negotiated by the Port) and Charlie Luken, long-time critic of the planning function of city government.

It is our responsibility as citizens to stay informed about such an important governing body.

With that in mind I am putting out a call for volunteers for the Port Authority Citizen Brigade, anybody and everybody who wants to be a part of the conversation about the future of our built environment in Cincinnati, all the big projects that require significant public support to get them done.  Requirements to join are a touch of urban nerdiness combined with a willingness to get up at a ridiculously early hour in order to get downtown in time for the Wednesday, 8 a.m. meetings.

Here’s the calendar for 2015:

February 11

March 11

April 8

May 20

June 11

September 16

October 14

November 12

December 9

If you’ve ever wanted to have an impact on the future of the city you love, this is your chance.  It may not seem like much, but bearing witness is one of the most important roles a citizen can play.  For democracy to function as it was intended, our governing bodies need to know that they are being watched and we are sharing what we learn with each other.  We need lots of engaged, informed brains paying attention on these big decisions that will impact the investment of community resources for decades to come.

Please join me next Wednesday at the Taft Center at Fountain Square, 425 Walnut St., 2nd Floor Atrium at 8 A.M.  It’s really, really important.

A Who's-Who of the Brains Behind our Buildings (the cheat sheet)

During the last ten years more and more decisions about real estate development have moved from City Hall to outside development agencies run by independent boards.

City Council still votes on property tax abatement and the other government hand-outs that have come to be taken for granted by today’s corporate developers, but members of Council get their advice about what needs to be built from 3CDC, the Port Authority and in the not too distant future, REDI.. These agencies are not compelled to meet the same standards for transparency as full-fledged government entities, there’s a lot of room for interpretation and my experiences trying to get information have been far from uniformly positive.  If voters don’t agree with direction, there’s no chance to vote the bums out every four years like we can with stinky elected officials.  Boards are political appointments, made the way political appointments are, too often based on campaign contributions and personal relationships.

So get out your magnifying glass and study these names.  They are very important.  Especially Tom Williams, CEO of North American Properties, who quite literally seems to be at the center of EVERYTHING:  not only is he head honcho of the Cincinnati Business Committee, the man clearly is a glutton for meetings and serves on all three real estate development boards.  A member of the Williams family that founded Western & Southern, his company develops real estate all over the country, including the big, luxury condo project in Mariemont he built with fellow Port Authority board member, Rick Greiwe. North American was also recently awarded the apartment project above the planned city-owned garage at the corner of Eighth and Sycamore, a cause for some grumbling in the real estate community about what appeared to be a departure from the normally required competitive bidding process.  Lucky for us, Cincinnati, everybody I ask consistently says Tom Williams is a very nice guy.

As you study the Venn diagram below, please note how small the Port Authority board is relative to 3CDC and REDI.  These organizations are making themselves up as they go along and a recent presentation to Chris Smitherman’s very important Economic Development & Infrastructure Committee – (also very small, now that I think of it:  Smitherman, Murray and Winburn) –  indicates ambitious plans.  The city has granted the Port Authority the right to issue bonds and own land. Earlier this year, their executive director ruffled a few feathers on both sides of the river when she started to make noises about the Port taking over the Brent Spence Bridge project – which was the same month the Business Courier reported their new vision for redeveloping all of Queensgate. This group might be relatively small, but it certainly doesn’t think that way.  Our city appears to be going in the direction of more and more speculative real estate investments – which is great – unless – uh,oh – something unexpected goes wrong.  (But how often does that happen? wink, wink)

The other two boards are bigger – which translates into broader perspectives, more checks and balances. But there sure is a lot of cross-over between REDI and 3CDC, with John Barrett, Kay Geiger, and Andy Hodgett serving on both.  Shane Wright, Ed Jackson, and Scott Robertson double-up on Port Authority and 3CDC board-duty.

These are groups that clearly feel very comfortable with each other and are dominated by powerful members with for-profit interests in the real estate industry.   It behooves us to pay very close attention to what the heck they’re doing.  These are decisions that last lifetimes where mistakes are always very expensive.

Real Estate in Cincinnati

Click to enlarge

A Who’s-Who of the Brains Behind our Buildings (the cheat sheet)

During the last ten years more and more decisions about real estate development have moved from City Hall to outside development agencies run by independent boards.

City Council still votes on property tax abatement and the other government hand-outs that have come to be taken for granted by today’s corporate developers, but members of Council get their advice about what needs to be built from 3CDC, the Port Authority and in the not too distant future, REDI.. These agencies are not compelled to meet the same standards for transparency as full-fledged government entities, there’s a lot of room for interpretation and my experiences trying to get information have been far from uniformly positive.  If voters don’t agree with direction, there’s no chance to vote the bums out every four years like we can with stinky elected officials.  Boards are political appointments, made the way political appointments are, too often based on campaign contributions and personal relationships.

So get out your magnifying glass and study these names.  They are very important.  Especially Tom Williams, CEO of North American Properties, who quite literally seems to be at the center of EVERYTHING:  not only is he head honcho of the Cincinnati Business Committee, the man clearly is a glutton for meetings and serves on all three real estate development boards.  A member of the Williams family that founded Western & Southern, his company develops real estate all over the country, including the big, luxury condo project in Mariemont he built with fellow Port Authority board member, Rick Greiwe. North American was also recently awarded the apartment project above the planned city-owned garage at the corner of Eighth and Sycamore, a cause for some grumbling in the real estate community about what appeared to be a departure from the normally required competitive bidding process.  Lucky for us, Cincinnati, everybody I ask consistently says Tom Williams is a very nice guy.

As you study the Venn diagram below, please note how small the Port Authority board is relative to 3CDC and REDI.  These organizations are making themselves up as they go along and a recent presentation to Chris Smitherman’s very important Economic Development & Infrastructure Committee – (also very small, now that I think of it:  Smitherman, Murray and Winburn) –  indicates ambitious plans.  The city has granted the Port Authority the right to issue bonds and own land. Earlier this year, their executive director ruffled a few feathers on both sides of the river when she started to make noises about the Port taking over the Brent Spence Bridge project – which was the same month the Business Courier reported their new vision for redeveloping all of Queensgate. This group might be relatively small, but it certainly doesn’t think that way.  Our city appears to be going in the direction of more and more speculative real estate investments – which is great – unless – uh,oh – something unexpected goes wrong.  (But how often does that happen? wink, wink)

The other two boards are bigger – which translates into broader perspectives, more checks and balances. But there sure is a lot of cross-over between REDI and 3CDC, with John Barrett, Kay Geiger, and Andy Hodgett serving on both.  Shane Wright, Ed Jackson, and Scott Robertson double-up on Port Authority and 3CDC board-duty.

These are groups that clearly feel very comfortable with each other and are dominated by powerful members with for-profit interests in the real estate industry.   It behooves us to pay very close attention to what the heck they’re doing.  These are decisions that last lifetimes where mistakes are always very expensive.

Real Estate in Cincinnati

Click to enlarge

Tax Increment Financing and Ohio's Definition of Blight

Cincinnati was late to the Tax Increment Financing party.  As is often the case with legislative experimentation, this creative real estate development tool started on the west coast with those crazy Californians in 1956 and though we dabbled occasionally, our enthusiasm did not take off until 2004 after Ohio state law was relaxed to include districts.  It was then-Council member, John Cranley – a real estate lawyer by training and developer of the Incline District condo project in East Price Hill – who introduced the motion to divide the city into 20 TIF Districts.

The way it works is pretty simple:  the land has to be owned by the city and after the real estate developer sells the property to the public for a nominal amount, the city or a city agency issues bonds to finance their building project.  We give up taxes on the improved value for a fixed period of time and pay for any parts of the building that are deemed to be for direct public benefit (up to about 20% of total costs).  In return the city gets a new building – and if all goes according to plan – more jobs and residents. The developer pays the debt back with the money that would usually go to property taxes.  Every Tax Increment Financing agreement is a legally binding agreement voted on by City Council.  According to a 2004 report by Valerie Lemming, city manager at the time of the initial implementation, this type of incentive is supposed to be reserved for development in an urban renewal area, the designation of which is the result of “a determination that the area is blighted according to state law.”

Sounds good.  And sometimes it is.  3CDC has used Tax Increment Financing to jump-start the development of our historic building stock in Over-the-Rhine, a neighborhood formerly known for its 500 empty buildings and the highest crime rate in the city.

But like any program that involves huge dollars from the public coffers, TIF is prone to abuse and is a source of citizen outcry throughout the country.  Too often these financing tools fail to achieve public goals, diverting money from schools, parks, and other important basic services.  According to a report commissioned by the Ford Foundation in 2011, “Poorly designed TIF programs can give government officials a tool to lavish subsidies on favored or well-connected developers – regardless of the project’s public benefits.”  After two lawsuits, California has completely discontinued their use.

Regular readers of Cincyopolis know that I am not a fan of the public subsidy of the Queen City Square development on east Fourth St, now known as the Great American Tower.  And the first thing that made me raise my eyebrows when I realized we’d given them a 30-year property tax free-ride was the association of ‘blight’ with this area of town.  I’ve lived in Cincinnati all my life and never considered E. Fourth to be a slum. While there were empty buildings, most of them were owned by Western & Southern as they waited for the expiration of the historic district designation to redevelop their properties without those restrictions.  And the “but for” argument that is sometimes used as the determination for a project’s eligibility for incentive programs – the idea that a project wouldn’t be developed if not for the incentives – is unsupportable as Western & Southern had the cash to buy the entire bond issue and had been talking to City Council about development plans since the late 90s.

Here’s Ohio’s legal definition of ‘blight.’  What do you think?

1.08 Blighted area defined – excluded considerations.

As used in the Revised Code:

(A) “Blighted area” and “slum” mean an area in which at least seventy per cent of the parcels are blighted parcels and those blighted parcels substantially impair or arrest the sound growth of the state or a political subdivision of the state, retard the provision of housing accommodations, constitute an economic or social liability, or are a menace to the public health, safety, morals, or welfare in their present condition and use.

(B) “Blighted parcel” means either of the following:

(1) A parcel that has one or more of the following conditions:

(a) A structure that is dilapidated, unsanitary, unsafe, or vermin infested and that because of its condition has been designated by an agency that is responsible for the enforcement of housing, building, or fire codes as unfit for human habitation or use;

(b) The property poses a direct threat to public health or safety in its present condition by reason of environmentally hazardous conditions, solid waste pollution, or contamination;

(c) Tax or special assessment delinquencies exceeding the fair value of the land that remain unpaid thirty-five days after notice to pay has been mailed.

(2) A parcel that has two or more of the following conditions that, collectively considered, adversely affect surrounding or community property values or entail land use relationships that cannot reasonably be corrected through existing zoning codes or other land use regulations:

(a) Dilapidation and deterioration;

(b) Age and obsolescence;

(c) Inadequate provision for ventilation, light, air, sanitation, or open spaces;

(d) Unsafe and unsanitary conditions;

(e) Hazards that endanger lives or properties by fire or other causes;

(f) Noncompliance with building, housing, or other codes;

(g) Nonworking or disconnected utilities;

(h) Is vacant or contains an abandoned structure;

(i) Excessive dwelling unit density;

(j) Is located in an area of defective or inadequate street layout;

(k) Overcrowding of buildings on the land;

(l) Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;

(m) Vermin infestation;

(n) Extensive damage or destruction caused by a major disaster when the damage has not been remediated within a reasonable time;

(o) Identified hazards to health and safety that are conducive to ill health, transmission of disease, juvenile delinquency, or crime;

(p) Ownership or multiple ownership of a single parcel when the owner, or a majority of the owners of a parcel in the case of multiple ownership, cannot be located.

(C) When determining whether a property is a blighted parcel or whether an area is a blighted area or slum for the purposes of this section, no person shall consider whether there is a comparatively better use for any premises, property, structure, area, or portion of an area, or whether the property could generate more tax revenues if put to another use.

Tax Increment Financing and Ohio’s Definition of Blight

Cincinnati was late to the Tax Increment Financing party.  As is often the case with legislative experimentation, this creative real estate development tool started on the west coast with those crazy Californians in 1956 and though we dabbled occasionally, our enthusiasm did not take off until 2004 after Ohio state law was relaxed to include districts.  It was then-Council member, John Cranley – a real estate lawyer by training and developer of the Incline District condo project in East Price Hill – who introduced the motion to divide the city into 20 TIF Districts.

The way it works is pretty simple:  the land has to be owned by the city and after the real estate developer sells the property to the public for a nominal amount, the city or a city agency issues bonds to finance their building project.  We give up taxes on the improved value for a fixed period of time and pay for any parts of the building that are deemed to be for direct public benefit (up to about 20% of total costs).  In return the city gets a new building – and if all goes according to plan – more jobs and residents. The developer pays the debt back with the money that would usually go to property taxes.  Every Tax Increment Financing agreement is a legally binding agreement voted on by City Council.  According to a 2004 report by Valerie Lemming, city manager at the time of the initial implementation, this type of incentive is supposed to be reserved for development in an urban renewal area, the designation of which is the result of “a determination that the area is blighted according to state law.”

Sounds good.  And sometimes it is.  3CDC has used Tax Increment Financing to jump-start the development of our historic building stock in Over-the-Rhine, a neighborhood formerly known for its 500 empty buildings and the highest crime rate in the city.

But like any program that involves huge dollars from the public coffers, TIF is prone to abuse and is a source of citizen outcry throughout the country.  Too often these financing tools fail to achieve public goals, diverting money from schools, parks, and other important basic services.  According to a report commissioned by the Ford Foundation in 2011, “Poorly designed TIF programs can give government officials a tool to lavish subsidies on favored or well-connected developers – regardless of the project’s public benefits.”  After two lawsuits, California has completely discontinued their use.

Regular readers of Cincyopolis know that I am not a fan of the public subsidy of the Queen City Square development on east Fourth St, now known as the Great American Tower.  And the first thing that made me raise my eyebrows when I realized we’d given them a 30-year property tax free-ride was the association of ‘blight’ with this area of town.  I’ve lived in Cincinnati all my life and never considered E. Fourth to be a slum. While there were empty buildings, most of them were owned by Western & Southern as they waited for the expiration of the historic district designation to redevelop their properties without those restrictions.  And the “but for” argument that is sometimes used as the determination for a project’s eligibility for incentive programs – the idea that a project wouldn’t be developed if not for the incentives – is unsupportable as Western & Southern had the cash to buy the entire bond issue and had been talking to City Council about development plans since the late 90s.

Here’s Ohio’s legal definition of ‘blight.’  What do you think?

1.08 Blighted area defined – excluded considerations.

As used in the Revised Code:

(A) “Blighted area” and “slum” mean an area in which at least seventy per cent of the parcels are blighted parcels and those blighted parcels substantially impair or arrest the sound growth of the state or a political subdivision of the state, retard the provision of housing accommodations, constitute an economic or social liability, or are a menace to the public health, safety, morals, or welfare in their present condition and use.

(B) “Blighted parcel” means either of the following:

(1) A parcel that has one or more of the following conditions:

(a) A structure that is dilapidated, unsanitary, unsafe, or vermin infested and that because of its condition has been designated by an agency that is responsible for the enforcement of housing, building, or fire codes as unfit for human habitation or use;

(b) The property poses a direct threat to public health or safety in its present condition by reason of environmentally hazardous conditions, solid waste pollution, or contamination;

(c) Tax or special assessment delinquencies exceeding the fair value of the land that remain unpaid thirty-five days after notice to pay has been mailed.

(2) A parcel that has two or more of the following conditions that, collectively considered, adversely affect surrounding or community property values or entail land use relationships that cannot reasonably be corrected through existing zoning codes or other land use regulations:

(a) Dilapidation and deterioration;

(b) Age and obsolescence;

(c) Inadequate provision for ventilation, light, air, sanitation, or open spaces;

(d) Unsafe and unsanitary conditions;

(e) Hazards that endanger lives or properties by fire or other causes;

(f) Noncompliance with building, housing, or other codes;

(g) Nonworking or disconnected utilities;

(h) Is vacant or contains an abandoned structure;

(i) Excessive dwelling unit density;

(j) Is located in an area of defective or inadequate street layout;

(k) Overcrowding of buildings on the land;

(l) Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;

(m) Vermin infestation;

(n) Extensive damage or destruction caused by a major disaster when the damage has not been remediated within a reasonable time;

(o) Identified hazards to health and safety that are conducive to ill health, transmission of disease, juvenile delinquency, or crime;

(p) Ownership or multiple ownership of a single parcel when the owner, or a majority of the owners of a parcel in the case of multiple ownership, cannot be located.

(C) When determining whether a property is a blighted parcel or whether an area is a blighted area or slum for the purposes of this section, no person shall consider whether there is a comparatively better use for any premises, property, structure, area, or portion of an area, or whether the property could generate more tax revenues if put to another use.

Big Thinkers: Michelle Dillingham

“Big Thinkers” is a series designed to get me out from behind my computer to mix it up with other brains in Cincinnati about our built environment. I’m picking leaders in the community who don’t usually get asked about real estate development to share their unique perspectives on what makes a great city, one that will serve us well for the next thirty or forty years.

But I didn’t want to start with Michelle Dillingham.

michelle

Michelle (on the left) out doing what Michelle does: standing up for decent wages for everybody

I wanted somebody easier. More traditional. Which means somebody who wears a suit and works in an office tower.  Somebody with a more similar background to mine.

Michelle is the Director of Education for the Greater Cincinnati Coalition for the Homeless, a social worker by training and legislative aide to former Council member, David Crowley for four years.  She astonished everyone in politics with a 12th place finish her first time on the ballot as a candidate for City Council last November and is known for her outspoken views on raising the minimum wage and more affordable housing options. Michelle is anything but traditional.

But Michelle was the first interview who could work me into her busy schedule.  Besides her full-time job, she serves on 5 non-profit boards, has children at home, and is extremely active on the Kennedy Heights community council. Even though we got together for coffee almost two weeks ago – and I’ve talked to several other fascinating subjects since then – I’ve come up with excuse after excuse to avoid writing about our conversation, stuck between raging curiosity (about what I would say. . .how it all fits) and paralyzing fear (about what I would say . . . how it all fits).

Because if you talk to Michelle, you have to talk about poor people. About how many families call the Coalition these days looking for someplace, anyplace to stay because they are desperate, living in their cars and they have no idea where to go, what to do.  About what it’s like to try to live on $7.25 an hour before taxes.

And that’s hard to talk about. It’s so much more fun to write about transit options, the changing nature of retail, or why Millennials have embraced the urban lifestyle with such enthusiasm.

Regardless of how scary it is, here’s the reason we have to start with Michelle Dillingham, whether I want to or not:

More than 30% of the residents of our city live below the poverty line.

The average household income in Cincinnati  is $24,543.

Let me repeat that for emphasis, so we can’t just skim over those difficult, painful statistics and move on to the next paragraph: The average HOUSEHOLD income is $24,543.

We are not a rich community, not those of us who actually live within the city limits and we have to stop pretending we are, like the situation is going to magically “trickle down” to acceptable as those of us who are lucky enough to be living above the poverty line adjust our blinders yet again and go on as though those numbers don’t have anything to do with the city that is us.

Media personalities, national preservation organizations, and young, attractive urbanists – really all of us who have grown-up in this city and built our lives here – we look at Over-the-Rhine these days and see the miraculous transformation that has taken place in one short decade. We ‘re not afraid to go there after dark anymore or walk the streets by ourselves.  Can you believe it?   There’s a waiting list of people looking for apartments in Over-the-Rhine.   On weekends it can take a couple of hours to get a table at one of the hot new restaurants on Vine.

But when Michelle walks out the door of her office at the Coalition for the Homeless on 12th St., that’s not what she sees. She sees ‘renoviction’. – 3CDC relocating entire buildings of residents to upgrade properties and increase rents.  She sees sky-rocketing homelessness.  She sees families who have to spend 80% of their income to pay the average $750 a month rent for a 2 bedroom apartment.  She sees the community vegetable gardens she worked so hard to create  destroyed for more profitable development, places where lower income residents could grow their own healthy food and earn a little money selling their extra produce at Findlay Market .  When Michelle Dillingham walks out her door in Over-the Rhine, she sees everything that this neighborhood has lost and she sees a crisis, a crisis she works to change every minute of every day of her life.

Michelle isn’t wrong.  And neither are the rest of us who look with pride on the new energy in our urban core.  Change does not come without costs, great costs, and the world is changing so fast these days.  The reason gentrification is hard for us to talk about is because we’re afraid.  We know this is not what a healthy community looks like.   Poverty is not something people do  to themselves on purpose and it’s hard and messy and complicated.  But nobody is going to tell me that Cincinnati doesn’t have the imagination and compassion to include everybody in our Renaissance. We can do it, Cincinnati – and maybe the first step is for more of us to listen to Michelle Dillingham talk about it.