Comment to the Development, Planning & Sustainability Committee of Cleveland City Council on the Shore-to-Core-to Shore TIF District

Chair Hairston and members of the committee: Thanks for the opportunity to speak today about the proposed tax increment financing for downtown Cleveland and part of the near west side. My name is Ben Stein and I am communications director at Policy Matters Ohio, a nonprofit research institute. I am speaking today on behalf of our research director, Zach Schiller, who is having a medical procedure and was unable to attend today’s meeting. Our comments can be divided into three areas: Questions about the proposal, concerns and recommendations.

Questions

The Bibb administration has made some very large projections of what this tax increment financing would do. It has “conservatively” estimated it could raise property values between 3.5% and 5.5% a year, compared to about 3% now. It has said it would generate an extra $3.3 billion to $7.5 billion in cumulative proceeds over 42 years, including TIF extensions previously approved by council. Jeff Epstein reported to the county council finance committee that it would generate 48,847 jobs over 30 years, and an additional $5.2 billion in sales, income and hotel/motel tax revenue.

These are gigantic numbers. The $20 billion Intel project in New Albany, the largest economic development project in state history, is expected to generate 7,000 construction jobs and 3,000 permanent Intel jobs. What assumptions and calculations were made to arrive at these projections? Where are the spreadsheets detailing them?

The diversion of property tax revenue from the county, the Cleveland Public Library, Tri C and the Metroparks is a crucial aspect of the TIF plan. What will this diversion cost each of these taxing districts, before any projected increases from the additional economic development the city anticipates? In short, what are the possible costs? Clevelanders are major beneficiaries of county services, from senior and adult services to mental health and addiction services. The administration should also describe how its accounting for these costs jibes with numbers provided by the county.

It's good to see that the city will hold the schools harmless from TIF diversions and the district will get all the tax revenue it normally would from the TIF area. Why don’t you see children’s services, protective services for neglected or abused elderly, or the Cleveland Public Library as worthy of the same level of protection? Why is such protection for the schools needed if you see no harm coming from the TIF?

How much in bonds does the city intend to sell? Will developers bear any of the risk? Who will be responsible for repayment; will the city find itself on the hook even if not legally required to do so to maintain its reputation in the bond market?

What steps do you intend to take to protect the city if the growth in values and TIF payments is not as great as expected? The state of the commercial real estate market now is highly uncertain. Over a 30-year period, we can expect more than one recession, and periods when values don’t grow substantially. During the Great Recession, numerous cities found that their TIF bonds went under water. Locally, you know how you extended the Flats East Bank TIF for 30 years.

The administration has said that the legislation “does not raise taxes.” However, the TIF will divert revenue that otherwise would go to pay Tri C and county levies that are set to raise fixed sums. Given that reality, how is it that the TIF will not in fact lead to increases in taxes vs. what would otherwise be the case?

How much will the city itself lose in property tax revenue from existing levies because of the TIF diversion? How do you expect to replace that revenue? Doesn’t that amount to taking money out of one pocket and putting it in another?

What are the details of the separate tax increment financing for the Bedrock development? What area will it cover, how much are the current valuation and taxes, and who will be responsible for payback? Why are you separating this from the larger downtown TIF district—doesn’t this constitute one of the “shores” in what you call the “Shore-to-Core-to-Shore” proposal? Will any of the TIF revenue go back to Bedrock or specifically finance the private development? And will 35% of the funds from this TIF also be spent in city neighborhoods?

Was there a specific amount of property value and/or tax revenue targeted in drawing up the area covered by the downtown TIF district? Why is there a sometimes-jagged border, and inclusion of parts of the near west side but not others?

How will a prospective deal for a new or renovated Browns stadium affect this? How much of the TIF funds do you expect to spend on the land bridge and other infrastructure that supports the Browns stadium?

Beyond the laundry list of possibilities included in Exhibit B of the proposed ordinance, what specific infrastructure improvements do you expect to make?

Concerns

Let’s be honest about this TIF: It’s a money grab. A legal one, but a money grab. Unlike project TIFs, where at least it might be argued that revenue from existing property is not being diverted, this proposal would take revenue that will exist anyway away from public services.

Tri C and the county have fixed-sum levies, where the rate fluctuates depending on the amount of assessed property. Since TIF payments will divert any growth in that revenue, this means that county residents, including city residents, will be paying more for these levies than they would otherwise. To say that they won’t be paying any more than they do now is disingenuous, since any forward financial forecast assumes growth, not a steady state. In light of this, the administration is not giving us a straight story when it says there will be no tax increases.

In describing the proposal, the administration states that TIF money won’t go to any private developer, sports stadium or arena. However, depending on the answers to the questions above, sports franchise owners or related entities may be major beneficiaries of the TIF or the closely connected Bedrock TIF.

Perhaps you will decide that the risks in this proposal are worth taking. But let’s spell out those risks, and who will bear them, not sweep them under rug as if they don’t exist.

The council commendably used ARPA money to support key human services that went beyond the city’s usual responsibilities. The fact is that your constituents depend on county health and human services, so cuts to those services will hurt Cleveland residents. Cleveland accounts for a majority or close to it of the total budget for key county agencies (see “Cleveland’s TIF Overlay” presented at Cuyahoga County Council Finance Committee, Jan. 29, 2024).

Recommendations

Our recommendations depend importantly on the answers to the questions we’ve cited. This proposal should not go forward until there are good answers to these questions. As much as we all would like to see a turn in Cleveland’s fortunes, a major diversion of public resources from critical services should not go ahead based just on glowing promises of a brighter future. In addition, should you approve the TIF, we recommend that council:

• Arrange upfront to share additional municipal income tax revenue with affected taxing entities, as the state already mandates for schools (and sometimes counties) in large TIFs. If the city is so confident that there will be large additional amounts of such tax generated, it should have no problem sharing that with public entities that will lose revenue because of the TIF.
• Consider limiting the TIF to the Bedrock area only or limiting the TIF so that it covers a smaller area than the 18% of assessed property value in the city it will affect, according to the mayor.
• Ensure that the city make good on its promise that money doesn’t go to private developers or any sports stadium or arena by:
  • Including the separate Bedrock TIF in that promise and
  • Excluding from TIF investment the land bridge to Browns Stadium and other infrastructure tied to the stadium, Rocket Mortgage Fieldhouse, Progressive Field or other sports facilities.
• Spell out specifically how the city will protect itself if TIF revenues fall short of projections.

Thank for the opportunity to speak to the committee. We are happy to answer any questions you have; you can reach me at bstein@policymattersohio.org and I will put you in touch with Zach Schiller later in the week.

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2024Local GovernmentTax ExpendituresTax PolicyZach Schiller