I guess if enough non desperately poor people move into Cleveland he might be out of a job.  So, screw Cleveland as long as he and Triozzi have a job.  :whip:

 

Mayor looks to revisit' abatements

Questions perks for homeowners, firms

Wednesday, February 22, 2006

Susan Vinella

Plain Dealer Reporter

Mayor Frank Jackson wants to take a closer look at Cleveland's residential tax abatement policy, which relieves buyers of new homes from paying property taxes for up to 15 years.

 

The policy, which must be renewed by City Council every two years and approved by the state, comes up for review next year.

 

more at Cleveland.com

I think you might be editorializing just a bit. At no point has he suggested abolishing tax abatements across the board, but it's something that probably should be looked at - maybe reducing the abatements from 15 years to 10, or maybe reducing the amount of abatement. Now, when he comes back from the meeting and suggests wiping out tax abatements arbitrarily, then we have a serious problem.

 

My take on the "project driven" quote is that he's not focusing on fast tracking a new convention center or other "silver bullet" project.

Don't you think the abatements are a great selling point for projects such as the Avenue district and battery park, every development in Cleveland that is still on drawing boards?  Now with this hanging out there, it could hurt the sales and in turn kill the projects.

Who is he getting his advice from?  He has not hired an economic development director yet.

 

This guy makes me crazy nervous.

What does this have to do with Triozzi?  He's the law director.

"Don't you think the abatements are a great selling point for projects such as the Avenue district and battery park, every development in Cleveland that is still on drawing boards?"

 

No, I think they're the worst selling point - why would anyone find them appealing? :roll:

 

Geez, quit being such a male and making it a either-or argument. My point is that yes, they're a fantastic economic incentive. But, they come as a tradeoff for putting revenue directly into the city coffers. That tradeoff has been in place for quite some time, and maybe they need to be tweaked - maybe not. Maybe things have turned around to the point that instead of 15-year 100% abatements, we could go with 12-year 80% abatements? I don't know if that's the case but it wouldn't kill anyone to at least take a look at the possibilities.

 

As far as the current projects, I'm sure that they would be grandfathered in, as the abatements would have to remain on the books as part of their contract.

 

And yeah - what does Triozzi have to do with this?

I agree that they should be taken away at some point.  I would like to see more momentum build before they are tweaked or removed. 

maybe he meant tweaking abatements more for business than new residential? thats what i thought initially or i guess wanted to think, but its not clear. i agree too that abatement should be reviewed & tweeked, but there is no need for developers to worry at all at this point. heck, the mayor saying that may even give some incentive to start building quicker to get grandfathered in. wouldn't that be nice?

 

this points right  the crux of the whole school funding problem. it clearly shows how an income tax for the schools would be more fair than property tax is, not to mention it would be more straightforward and make developers less nervous. too bad it can't happen.

 

Move the 100% abatment probably as short as 10 years, and it probably wont effect the current new construction output. To get rid of it totaly I dont think there would be any new home development. Can anyone think of the time when there was no abatement and home construction? I also think the abatement allows people to consider buying more "expensive units" that would ordinarly be out of their price range, which encourages builders to build more units because they can get a higher price. But in the end all the buildings will eventually roll off its abatement, sure it may suck for the mayor/city in the now but eventualy down the road they will be paying. I like to think of it this way 15 years of tax on a vacant lot or in 15 years a $200k+ building to tax.

^I think the abatements only work in that they are encouraging developers to build.  The actual value of the abatement seems, at least to me, to be included in the price of the unit. Resale prices on units that are no longer abated seem to reflect this.  So, the idea is, are we over-incentivizing builders and, if so, what is the optimal incentive below which new home construction will decrease?  Having a discussion about this, which is all Mayor Jackson has stated that he is in favor of, is probably in order. Further, the legislation has to be reconsidered by council in 2007.  However, making a reactionary decision based on politics would be really bad. 

^I want to qualify my last post with the comment that I think abatements play a large part in a homebuyer's decision to make a purchase, even if the price of the unit is inflated based on the abatement. 

I have one major fear of abatements and that is the fact that people will get addicted to them.  They will expect them.  The attitude of "they got one, so we should get one too" can develop over time.  I think that is why it would be very prudent to consider cutting the abatements length.  It is a great draw to bring people into the city and it has certainly encouraged many of the projects that are on the board today.

 

I am not against incentives but at the same time, people will be greedy and look for them even when the market doesn't need them anymore.  It can turn into a vicious cycle and sink the budget.  Just look at how every business demands incentives no matter where they are planning to move or they use them as threats against a city.  That same logic can be extended to residential properties as well.  When the time comes, will the residents support dropping the abatements?  Time will tell I guess but I doubt future residents would support it no matter what residential demand is like in 10- 20 years. 

I agree with Wimwar that we need to have more momentum going before they cut the legs off of the momentum that is building.  No one is going to move anywhere just because of an abatement, but it sure can have a secondary effect on making a decision. 

 

Why isn't a sliding scale introduced?  If this is really a draw for a lot of people, then more people will get on board earlier to get the discount.  As the years go on, less is offered, so perhaps it would spur interest as a lot of these projects (Avenue District, E. Bank, Battery Park, etc.) in their early stages.

I do know a few friends who did have thier houses built in Cleveland stricktly due to the tax abatement. They could not afford the payment in a suburb for the same house. Further, the tax abatement is only for the structure built on the land. The City of Cleveland does estimate the worth of the unused land and home owners do pay property tax on that portion of land. I have to think the abatement is appealing. I just wonder what will happen in 15 years (when the abatement runs out) when the existing owner has a huge increase in monthly payments, and/or perspective buyers have no insentive.

I may have been a little pissy before my first gallon of coffee

Just to put some numbers to it, the 15-year 100% abatement is worth a ton of money.  If I remember right, Cleveland's tax rate is about $2800 per $100K in value.  So, on a $200K condo, assuming just 2% annual appreciation (and just assuming they re-assess every year, which isn't quite true and the tax rate stays the same, which is also unlikely), and a discount rate of 8%, the abatement adds about $50,000(!) to the value of the house.  Obviously the developer takes some of this by pricing it higher, thought they likely don't take all of it.  10-year 100% is worth about $40K, 10-year 80% is a little over $32K.  I think Cleveland Heights has given 7-year, 50%.  That's worth about $15K using the same assumptions as above.

 

It may be worth considering a change ($50K is a lot of money...), but going to 10-year 80%, seems pretty dramatic (a 40% reduction in the value of the abatement).  Something in between would seem more reasonable.  Any chance they'd vary it by part of town (smaller abatement for Tremont/OC/Downtown, bigger for Detroit-Shoreway, huge for anything south of Cedar)?  That would make for some colorful city council meetings...

I should note that many suburbs also offer tax abatement for new construction or renovations to existing buildings. In Fairview Park, for example, their abatement policy is 100% for seven years. But I believe theirs applies only to commercial structures. I'll have to check.

Cleveland’s tax abatement policies under review

 

By JAY MILLER

 

6:00 am, October 23, 2006

 

Changes likely are coming in the way the city of Cleveland grants tax abatement and doles out other incentives to business.

 

Mayor Frank Jackson’s administration is in the midst of a comprehensive review of the economic incentives it offers businesses and developers that might do projects in the city. Cleveland City Council has initiated a series of hearings to review the policies.

 

Neither the administration nor council is committing to any specific changes in incentives, but it’s probable that at least some tinkering will be done to the two kinds of tax abatement now in use — for commercial and industrial projects, and for housing.

 

The tax abatement of housing is a hot-button issue in some of the city’s residential neighborhoods.

 

On Aug. 30 at a community meeting at the Gunning Recreation Center on the West Side, Mayor Jackson was questioned about the policy by a resident who pays full taxes and lives behind someone in a new townhouse who has taxes abated.

 

“We should not have to bribe people” to move into the city, the mayor responded. “That (tax abatement) was a good thing when there was no building, (but it) has outlived its usefulness.”

 

http://www.crainscleveland.com/assets/pdf/CC97181020.PDF

I had to buy my home without any "abatement" I think it should be dissolved!

I tend to think that people buying brand-new housing can afford property taxes.  This is especially true of the pricier condos downtown.  If they can't afford the property taxes--MOVE INTO A SMALLER PLACE.

 

If the abatements are done away with, the overall property tax rate could be lowered for the working-and-middle class folks who have lived in the city for a while--some of whom are struggling and need the break more than someone who can afford a $300k condo.

I tend to think that people buying brand-new housing can afford property taxes.  This is especially true of the pricier condos downtown.  If they can't afford the property taxes--MOVE INTO A SMALLER PLACE.

 

If the abatements are done away with, the overall property tax rate could be lowered for the working-and-middle class folks who have lived in the city for a while--some of whom are struggling and need the break more than someone who can afford a $300k condo.

 

I dont completely agree, there are many people that buy NEWLY CONSTRUCTED HOMES live ABOVE their means...especially folks in the 'burbs and those "keeping up with the Jones'" ! :-) 

 

As a person who bought their home shortly after college, I got no incentive to buy my home and it was a tight buyers market at the time.

 

I think abatements should be phased out, maybe reduced by 2% a year over the next 6 years.

Owners of older houses can gain tax abatement by making specific improvements to their homes.  I'm not sure how many times they can do this or if there are a certain number of allowable years of tax abatement on each property, regardless of the owner.  It's an interesting question.

 

I also think that we can take steps to scale the abatements back.  Instead of doing 15 years full, why not do 5 years at 100%, 5 years at 50% and 5 years at 25% (or something like that).  That way, owners won't be hit with a significant tax increase after the 15th year and won't likely be looking for a new tax abated home because of that difference.  It's still 15 years of tax abatement, which is obviously very marketable, but it's scaled down as time goes on. 

I dont completely agree, there are many people that buy NEWLY CONSTRUCTED HOMES live ABOVE their means...especially folks in the 'burbs and those "keeping up with the Jones'" !

 

That's not the City's problem!

 

The only problem with making improvements to obtain abatements is that not everyone has the money up-front to make the improvements.  Unlike other metropolitan areas, it's not as if Cleveland has had rampant home value appreciation to justify taking a second mortgage for such improvements, either. 

Owners of older houses can gain tax abatement by making specific improvements to their homes.  I'm not sure how many times they can do this or if there are a certain number of allowable years of tax abatement on each property, regardless of the owner.  It's an interesting question.

 

 

 

From the City:

What type of residential developments qualify for tax abatements?

 

– New construction of single-family homes;

- New construction of multifamily investor-owned properties

-Conversion of nonresidential buildings to residential units

- Rehabilitation of existing one- and two-family homes that increases the market value;

- Rehabilitation of multifamily (three or more units) structures, including historic buildings;

- Improvements of one- and two-family homes that cost more than $2,500 and would result   in  an increase in assessed value for real estate tax purposes.

 

However, If you live in a Historic Bldg its hard to get anything as you have to "live within" the guidelines of renovating a historic structure.

 

I got a small amount of money for my first renovation to upgrade the electrical, since it had not been updated since the mid '50s and in two of the bathrooms, the original 1920's plumbing was still in there.

 

I don't think abatement is fair!

I dont completely agree, there are many people that buy NEWLY CONSTRUCTED HOMES live ABOVE their means...especially folks in the 'burbs and those "keeping up with the Jones'" !

 

That's not the City's problem!

 

The only problem with making improvements to obtain abatements is that not everyone has the money up-front to make the improvements.  Unlike other metropolitan areas, it's not as if Cleveland has had rampant home value appreciation to justify taking a second mortgage for such improvements, either. 

 

I'm not saying its the cities problem...where do you get that?? 

i think the abatements need to drive a bigger purpose than new construction or renovation.  What is the desired outcome?  more houses with no accompanying city services or school quality?  developers raising house prices to include the abatement (since most people shop by monthly payment anyway)?  a rude awakening for homeowers 15 years down the road when they get hit with 3000, 5000, or 8000 additional tax liabilities?

 

if we are going to do them, i would prefer that they be tiered and also tied to specific problems or desired outcomes that will have a positive impact on the homeowner as well as the city's image or other problems.

 

for instance, by tying the abatements (or maybe the highest level of abatement) to certain energy efficency standards (LEED) or water runoff control (green roofs, porous pavement) or energy creation (solar, microturbines), I think cleveland could jumpstart an image change and have marketing abilities to say "the most LEED certified homes in the country" or meet the solar challenge.  This not only provides positive marketing and helps truly change cleveland into the green city on the blue lake, BUT it also saves the homeowner money in the long term, helping to offset the potential higher upfront construction costs with long term savings. 

 

if this type of program was available to both new and existing homes i think it would have a huge impact for cleveland.

 

i hope GCBL or E4S and some other organizations will take this cause up.

This isn't completely thought out, but what if there were a tiered abatement?

The longer you wanted an abatement, the lower the yearly abatement would be.

If you wanted the full abatement, you should get it for, let's say five years. But if you wanted the full time period of 15 years, you would only get something like 20% of the abatement.

Does that make sense?

 

 

^the problem with offering a CHOICE of tiering might be housing appreciation.  As is now, it is basically 0 for 15 years - very predictable. now at the end of 15 it will be a rude awakening, especially if the property appreciates.   it seems there could be some back room manipulation in the 3 year (or transfer) appraisel values in the near term to make the choices work better.

 

so, if the cleveland market goes nuts, the choice of abatement would greatly reward someone who chose a lower % over the entire 15 year period. 

 

i think the concept of tiering works though, but maybe on a more predictable level, ie 5 years: 75%, 5 years: 50%, 5 years: 25%, then 0 (perhaps tied to other things, so maybe you could get the 2d 10 years @ 50% if you built a certain way or in a certain section).

 

plus there are other "deductions" that could be taken off the total bill (which is already done for other things), which might make overall abatement talk more equitable to existing homeowners (ie, work in the city: 10% off; certain improvement overlay zones: 50% off)

I should note that many suburbs also offer tax abatement for new construction or renovations to existing buildings. In Fairview Park, for example, their abatement policy is 100% for seven years. But I believe theirs applies only to commercial structures. I'll have to check.

 

I just remembered that the same policy applies to new housing construction in FP as well.

^that's a great photo.

- Scott Shaw/The Plain Dealer

 

Hank Picozzi, construction manager, for the K & D Group, Inc., checks out the view from the 12th floor of Stonebridge Plaza in the Flats. A half-dozen of the region's big home builders threaten to stop doing business in Cleveland if the city eliminates or reduces 15-year tax breaks on new construction.

 

I can understand why companies would find Cleveland to be a nice housing market because of the tax abatements, but holding the city hostage is not the way to go...

 

I can understand why companies would find Cleveland to be a nice housing market because of the tax abatements, but holding the city hostage is not the way to go...

 

"holding the city hostage".   Thats a powerful statement, please elaborate.

 

I am not a fan of tax abatement, but I think its good to get homes built and sold.

 

Question:  for those of you have have purchased an abated home, if you leave/sell before the abated period has lapsed, do you have to pay all taxes up until that point?  What are the repercussions of abatement?

And here's the article that went with the photo:

 

Blunt words from builders

Developers tell city they won't build without abatements

Wednesday, January 24, 2007

Olivera Perkins

Plain Dealer Reporter

 

City Council will cut off Cleveland's redevelopment lifeline if it alters tax abatement, a group of developers told a council committee Tuesday.

 

Developers told the Community and Economic Development Committee that if council scraps or even alters the program, they won't build in Cleveland.

 

They described a bleak Cleveland without the tax break program:

 

A vacant state hospital instead of the suburban-style MillCreek subdivision off Turney Road. Huge swaths of overgrown lots and abandoned, dilapidated buildings in the Central neighborhood instead of more than 300 new houses. Empty industrial land in the Flats instead of upscale condos and apartments.

 

Council is examining whether to revise the abatement, which waives property taxes on new houses and condos for 15 years. The abatement applies only to structures - not land, which is still taxed.

 

Developers said without the tax break, most of the new homeowners, two-thirds of whom move in from the suburbs, would have no interest in calling Cleveland home. Without abatement, they said banks aren't interested in financing such construction projects because the market of buyers would dry up.

 

http://www.stonebridgecleveland.com/news/articles/012407_PlainDealer.jpg

MTS- I believe they're "holding the city hostage" (I know, that was nice wasn't it lol) by refusing to build without the abatements.  They know Cleveland's housing market needs the influx of new homes, and know that Cleveland would suffer without them.  Though I hate the PD, the statement made in the article about what "they" see without tax abatements- "A vacant state hospital instead of the suburban-style MillCreek subdivision off Turney Road. Huge swaths of overgrown lots and abandoned, dilapidated buildings in the Central neighborhood instead of more than 300 new houses. Empty industrial land in the Flats instead of upscale condos and apartments" hits home somewhat.  Tax abatements are always going to be a sticky issue, but the city needs to do what's best for it on behalf of the residents of the city, not because developers threaten to stop building without them.  If the city finds that they should keep the abatements as is, then that's fine, but to keep them as is because of threats is another thing.      Wish I had more time to post, but I'll come back................. 

"Currently homeowners who rehab are eligible for a 10-year tax abatement. Cummins said both new and rehab abatements should be 12 percent."

 

I believe a lot of people have asked if rehabs are eligible - here's the answer. I have to agree that if abatements are given to new construction, rehabs deserve equal treatment.

 

Like Fannie Lewis said, if there's a better tool out there let's use it - but is there?

Remember, this was voted into law by the citizens of Cleveland.  It wasn't a mayor or council give away.

^^ I totally agree that the abatements should be equal; if anything, I think the city should reward purchasers who are drawing from our existing stock.

 

I would also be more comfortable with a smaller abatement if a portion of the taxes generated from new residents would go into a dedicated fund to promote living in Cleveland, i.e. conducting research that would identify the characteristics of those most inclined to buy in Cleveland (conducting the research both in and outside the region), bundling amenities and services that the survey respondents wanted, coordinating targeted marketing toward those groups the survey identifies as best prospects, investing more money in overall marketing of the city as a place to live and work and organizing ongoing tours of housing options within the city, particularly for employees whose companies relocate here.

 

These efforts would help offset loss in demand, buyers would be used to paying taxes earlier in the process (and therefore less likely to sell after 15 years from "sticker shock") and might be more palatable to developers than transferring all of the money into the city's general fund.

Wouldn't it better to do this in when the downtown residental district is better established, in say 5 or 10 years? I would think at some point there will be that "critical mass" point where developers couldn't threaten to take this action, due to demand and profits. I have a feeling the city is making the right decision, just at the wrong time.

I say they only get the abatements if they don't build suburban vinyl-clad P.O.S. like that Mill Creek disaster.

Allthough I am inclined to say yes about tax abatements for rehabs, I would say no to them. You end up getting mired in questions of what constitutes re-habbing, repairing, adding, and improvements to a structure. Plus I would think this would add a surge of inexperienced, half-assed, re-habbing, real estate flippers to the cleveland housing market. It would create a glutload of housing with questionable workmanship.

Tax abatements for rehabs are granted post-rehab -- and only after the structure is inspected by the city.

It sounds like city council will oppose the mayor and keep the abatements going for the immediate future...Am I correct?

 

I don't actually live in Cleveland, so I have no vested financial interest in this, but it seems like the prudent thing to do until Cleveland becomes "hot." Then take them abatements away and bask in tax $$!

 

 

instead of reducing the tax abatement. how bout this. expand it to 30 years with a...say a five year window. you'll see every proposal thats been scrapped or shelved be developed as well as many other new developments come online. and just watch people from suburbia fight each other trying to reserve a condo/townhome etc. now that would be bold.

who's with me!! woohoo

Allthough I am inclined to say yes about tax abatements for rehabs, I would say no to them. You end up getting mired in questions of what constitutes re-habbing, repairing, adding, and improvements to a structure. Plus I would think this would add a surge of inexperienced, half-assed, re-habbing, real estate flippers to the cleveland housing market. It would create a glutload of housing with questionable workmanship.

 

HELLO!  I'm tryin to flip!  Not all flips are bad.  I've done two.  Although I can't get a damn loan to do one in Cleveland :whip:

Tax abatements for rehabs are granted post-rehab -- and only after the structure is inspected by the city.

 

which sucks for those of us who have been in our homes for long periods of time.

Well, this is my first comment here but I think some moderation in thinking on abatements is a good idea. I work in real estate and I know for a fact that abatements are a draw for new construction projects. I also know the City is losing a ton of money as someone pointed out above by allowing so many of them. Maybe tweaking it IS a good idea. I also know that many people put their homes up for sale once the abatement period is over because they can't afford the higher monthly payments. So it's not a cure all. I like the idea of allowing a 100 percent abatement if the project is 'green' or 'near RTA stops 'or someplace where development is deemed by City planners, redevelopment groups and others to be needed. I have no idea what Mayor Jackson is really thinking, but opening up a discussion on it is a wise idea. In MHO lol.

Carole, welcome to the forum - I like what you suggest about shifting the 100% abatement to 'green' and transit-oriented projects. Those are two areas that developers haven't seemed to "get it", at least not on the scale that they should be.

Thanks for the welcome, this may be the best forum I have ever been 'pointed to' - I have my work cut out for me to keep up with all of you.

Welcome aboard Carole.  :wink:

Welcome, Carole!  I think your idea about targeting tax abatements more carefully makes a lot more sense than the phase-out approach that has been discussed.

 

Tax abatements for rehabs are granted post-rehab -- and only after the structure is inspected by the city.

 

which sucks for those of us who have been in our homes for long periods of time.

 

I don't see how.  You haven't lost a thing by it.  It's not as if vacant lots are going to pay much in taxes.  If anything, they use more in services- policing, upkeep, etc.  But new and substantially rehabbed homes will eventually pay substantial taxes to the city.  But it requires a tax abatement as incentive to get those homes built in the first place.