Cleveland City Council passed Mayor Justin Bibb’s revamp of the city’s residential tax abatement system Wednesday afternoon, dialing back the tax breaks in hotter real estate markets.
The Bibb administration – drawing on a tax abatement study commissioned by then-Mayor Frank Jackson – argued that it was time to redesign the system to encourage more even development across city neighborhoods.
Previously, the city offered a 15-year full abatement of taxes on the additional property value created by new or renovated homes. In 18 months, that system will change.
The new abatement system divides city blocks into three tiers – market-rate, middle-market and opportunity neighborhoods, with more generous abatement policies in the latter two areas.
In market-rate neighborhoods, owners of new homes can claim an 85% abatement on the first $350,000 of a property’s value. In middle markets, owners can claim a 100% abatement on the first $400,000 of value. In opportunity markets, the tax break is 100% on the first $450,000.
Home renovations are eligible for 100% abatement across all three neighborhood types, with a cap of $450,000.
Multifamily projects of four units or more are also eligible for tax abatements if developers sign a community benefits agreement with the city. New multifamily buildings can claim an 85% abatement in market-rate neighborhoods, a 90% abatement in middle markets and 100% in opportunity markets.
But in order to obtain those tax breaks, owners of multifamily projects must set aside a percentage of units that are affordable to someone making the metropolitan area’s median income of $56,000. In market-rate areas, 25% of the units must meet that criteria. In middle markets, the set-aside is 15% and in opportunity areas the figure is 5%.
If a developer does not meet the set-aside requirement, they can also pay $20,000 per unit into a housing trust fund.
Renovations of multifamily buildings can claim a 100% abatement across all neighborhoods, as long as they meet the affordable unit set-aside requirements.
Housing developments are also eligible for 100% abatements across all neighborhood types if rent is restricted to being affordable for people making 80% of the area median income.
New homes that are made to be physically accessible for senior citizens are eligible for 100% abatements on the first $450,000 of value.
The new law also allows the city to block abatements on properties used as short-term rentals or those that have had their city rental registries revoked.
Council passed the measure unanimously, with support from all 14 members in attendance. But members diverged on what the new measure could mean for their neighborhoods.
Ward 15 Councilwoman Jenny Spencer, who represents rapidly developing Detroit-Shoreway and Edgewater neighborhoods, said the measure fell short and came five years too late.
Development of higher-end housing has been “overheating” the local market, increasing property taxes and displacement pressure for longtime residents. Spencer said the city should advocate for changes in state law to limit property tax bumps for long-term homeowners.
“First, we need more mixed-income, affordable and equitable housing,” she said. “Second, we need more aging-in-place housing, whether single-family infill or condominiums. And third, we need our historic housing stock to stop being torn down in favor of fully-abated new construction.”
Ward 9 Councilman Kevin Conwell said developers’ successes on the West Side have underwritten East Side projects like those in his Glenville neighborhood. The city should monitor the effect of the new abatement policy to ensure developers can continue building in wards like his, he said.
“The ones on the West Side, if they’re doing good in Jenny Spencer’s ward, and they’re strong, then they can take a chance in Ward 9 because their balance sheet is strong,” he said. “I don’t want to kill their balance sheets.”
Ward 17 Councilman Charles Slife voiced the dismay of West Park residents who pay property taxes that aren’t levied on the owners of abated homes in newly developing neighborhoods.
“There is a frustration among residents in my neighborhood,” he said, “who feel that the school district comes and says, ‘We need a new levy,’ and they are bearing the increases in property tax, while people living in new townhomes are going scot-free.”
