PARK BUILDING - FROM TAX DEDUCTION TO TAX ABATEMENT

Submitted by Roldo on Wed, 08/05/2009 - 15:15.

I was passing by the Park Building on Public Square and Ontario recently and stopped to ask about the new condominiums promoted for the old office building.

 

The Park Building is historic in many ways.

 

Its handout says, “The Park Building, one of the most elegant buildings in Cleveland, offers the only residential units on Public Square in over 100 years. The Cleveland landmark features 25 exclusive condominiums, including four stunning two-floor penthouses with large ‘window walls,’ and balconies with inspiring views that take in Public Square, Lake Erie and the entirety of Cleveland’s downtown.”

 

The condos range in $269,900-$359,000 price to an offer of a custom penthouse “starting in the $700,000’s,” a flyer says. Pricey, no?

 

As long ago as 1919 the Park Building had a special place In Cleveland.

 

“The southeast corner of Ontario Street and Public Square, the land on which the Park Building and adjacent structures stood was the most valuable acre in Cleveland, being assessed at $2,178,000…” wrote William Ganson Rose in his Cleveland history, “Cleveland – The Making of a City.”

 

The building, and its one-time owner David Swetland, had an even more significant impact on property values and taxes for the entire State of Ohio. Swetland sued the County, claiming in essence that his office building should not pay more taxes proportionally than his home.

 

Indeed, that ALL property should be taxed at the same value.

 

In that historic Ohio Supreme Court case – known as the Park Investment case - in the late 1950s, the whole system of taxing property was changed significantly. Homeowners paid the price. The change helped commercial and industrial properties to shift more of the burden of taxes from real estate interests to homeowners.

 

The Ohio Supreme Court ruled for Swetland that property should not be taxed at different rates. Commercial and industrial properties – because they involved profit – had been paying taxes at a higher level than property used to house families. Taxes are paid on 35 percent of the market value as set by County Auditors.

 

The Park Investment case tipped taxes from real estate interests to the owners of homes.

 

Commercial and industrial properties had been taxed at 49 percent of their market value. Homes were taxed at 35 percent of market value. The Court leveled the payments for both classifications at 35 percent. So, commercial and industrial property owners enjoyed a 14 percent reduction in their taxes.

 

What does that mean? Well, the value for 2009 property taxes of commercial and industrial properties in Cuyahoga County is $8.4 billion, according to the County Budget department.

 

A 14 percent savings is 1.176 billion. That’s for one year! Multiply that by the years since 1959 and you see that it’s a whole lot of money.

 

Without tax abatement. However, since the late 1970s, tax abatements have been generously given to property owners.

 

The Ohio Supreme Court, as might be expected, gave those with wealth a big financial break. It’s a gift that keeps on giving, year after year.

 

One might say that this ruling sets a precedent that communities should not be able to offer tax abatement since they allow properties to be taxed at different levels. It gives an unfair preference to newly develop property. Sometimes that unfair preference is very significant, as properties are abated at 100 percent for 20 years.

 

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

NOTE: I recently reported on the cost of tax abatements for just for two years on eight Cleveland properties. The cost came to $48 million. That was just for the most recent two years. The detail of each property is here:

 http://realneo.us/content/how-much-does-cleveland-lose-abatement

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

The abatement subsidy started in the late 1970s when Squire, Sanders & Dempsey, acting for major property owners, wrote the state law that passed in the Ohio legislature.

 

It promptly became an issue in the 1977 Cleveland mayoral election when Mayor Ralph Perk bestowed a tax abatement for a new National City Bank building at the southwest corner of E. 9th & Euclid Avenue and one for Sohio (at the time) for a new building behind Tower City. (When Sohio moved to Public Square it didn’t ask for tax abatement since it was drowning in North Slope cash. Sometimes unseemly does win.)

 

Dennis Kucinich beat his general election opponent Edward Feighan on the head over tax abatement since Feighan had voted for the legislation as a state legislator. Kucinich opposed abatements and gave none.

 

Abatement thus became a hot political issue and it took a few years before local politicians to believe it cooled enough to restart the give-aways.

 

Mayor George Voinovich and Council President George Forbes revived the practice with hefty abatements for major projects. It grew during the White administration and expanded even more  when Mayor Michael White and County Commissioner Tim Hagan took it a bit further with tax EXEMPTIONS for stadiums and arenas. Multi-millions of dollars in tax revenue went down the drain.

 

Giving away tax revenue became so pervasive that the Cleveland Teachers Union, under Rich DeColibus, decided to do something about it in the late 1990s.

 

The rub was the city gave the tax abatement; the schools lost the most revenue.

 

The mayor and city council enacted tax abatements but the Cleveland school system lost the bulk of the revenue, usually near 60 per cent. Presently, the schools lose slightly more than 55 percent while the city loses slightly more than 15 percent.

 

Abatements thus don’t much disturb city finances. In fact, they may enhance city revenues since the city alone gets payroll taxes, which may increase from jobs and new residents. They do great damage to the schools, however, which don’t share in any income related taxes.

 

That’s the way it stood until the summer of 1997 when the Teachers Union got 33,000 signatures to put an issue changing tax abatements on the ballot.

 

The Park Building, as we’ve seen, played an important part in lowering property taxes for commercial interests. Not much has changed. The Park Building Condominiums are offering 12-year tax abatements, 75 percent the first five years; 50 percent the second five; and 25 percent the final two.

 

Some things never change – for the better.

 

I’ll talk about that vote in subsequent comments.

 

 

 

 

 

( categories: )

Roldo, I haven't finished reading your post...

And my head is spinning...this is critical info you are providing. 

Thank God you went by the Park building today.

jeffb

Check this out, the

Check this out, the following is from the Ohio Department of educations web site: School Year 2007

Cleveland schools spent $13,355 per student that $3,000 a year more than Bay Village, Avon Lake and the city of Brooklyn spent annually per student.

The school are not and have never been under funded…

The schools are mismanaged, look at per student spending across the state CMSD is far from the bottom.

Solon City spend a $1,000 less per student annually.

 

 

The PD in this article claims the city school will enroll 46,000 students and also that its budget will be $711 million.

That’s $15,546 per student for the 2010 school year.

Ok, let me get this correct if you add the losses due to abatements to the existing budget of $711 million then you would have a $1.251 billion budget? That would be $27,195.00 per students?

Then would all the clerks working in the central market have a master degrees? Would we still be able to claim ourselves as the poorest city? Or would they say put you hand back in your pocket you aren’t that poor.

most excellent

Rodlo, most excellent recent history refresher.

Debbie Webb 

stepping back

 Stepping back, we can see the long-term effects of this missing tax revenue.

In urban planning classes, tax abatements are defended under the common argument that they bring business and development into the city that otherwise would not come. I've never been so sure that argument holds water. Have we ever tested it? Is it really true no one would consider us were we not to give ourselves away for almost free?

Cleveland seems to be the girl at the dance with no self-esteem who will do nasty things just to get the boys' attention.

Or is it that the business interests have figured out they can sell the assets belonging to the people instead of their own? And we don't have politicians with integrity to call it?

Onegus, there is no question

Onegus, there is no question that there is a problem with the financing in the Cleveland schools and politics plays a big part in it. However, you seem to take the side of wealth every time.

Several points. First,  do you believe school teachers in Cleveland are overpaid? I don't and I believe that more money, wisely used, could help correct that. Might even attract better teachers.

Second, do you think developers and condo owners should profit  from  money that should go not only to schools, but to the county, city of Cleveland and Cleveland libraries? (These abatements also shield against tax increases. For example, the school levy for new buildings, I believe 13 mills, was levied on everyone's property except abated property. The abatements shield against tax increases, too. So you - unless you live in an abated property - paid and made up for those who didn't have to pay.)

 

Third, do you think that YOU should make up in property taxes what is given away to developers and often downtown new or renovated condos? Because the money you cite the schools  get has to come from somewhere.

Fourth, of the total County property tax revenue - more than 40 percent - goes to other levels of government  than the city schools. So they also are being deprived of that revenue.

Fifth, my experiene - and you can see it often in the newspaper - is that the developers who get  tax abatement also receive often substantial other subsidies  from local, county and state levels.

 

This process leads to one community raiding another with gifts. The process lowers the revenue all around and is a cycle that must be stopped. Talk about bailouts. There are bailouts over and over again in this process.

We have  two problems - the operation of the Cleveland schools (I don't believe they have improved much under mayoral control) and the issue of abatement, which  the city bestows and the schools suffer some.

Solving one doesn't necessarily solve the other. You have to solve both ideally.

 

 

That’s why you need

That’s why you need before and after measurements, the people that owned the Park building were refused tax reduction repeatedly. They kept claiming that they were loosing tenants and while their taxes kept increasing. There are court documents online reflecting that scenario.

The money was in this instance diverted, it was spent on the structure and in the hope of getting people to come back and live in the city.

The Park Building did not sell out, they did not come back yet.

What changed was the space, if something does not change it was in vain.

Who owns the May Co building, that’s directly next door to the Park Building?

Take all the numbers now into consideration, the flow of capital, what if you owned that building? What gets me is that they often sit empty. They pay taxes and really have no way to pay those taxes. Then they take a write off of the loss, they pay less taxes on the income because there is none.

You are being held hostage, the gas company tells you what you use and also how much it cost, the taxes are the same this is what it is worth and how much you pay. If you own a vintage 1930 building your going to loose your ass in that scenario.

It cost money to change that scenario, because if the money is not flowing nothing changes.

People are greedy from every angle, and then they take it up notches to prove their points. Half truth and half lies for what?

I tell people that the May company could be made viable, get somebody to fill that space I suggested they promote a retro style drug store. An SS Kresge for today a retro CVS/Walgreens through backing of the

Sears holding group.

That’s about setting up a franchise on a supply chain, a distributor of selected products of an existing huge retailer. Would you abate the building for that? To covert the top floors to offices for the people that managed the new franchise? For the pilot store on the ground floor?

The reality is that of demographics, the losses the shrinkage is off the charts in the city. They will walk in and take things and walk right out. So you would also have to study loss prevention, cameras and theft detection devices. That all cost money to do.

However the drug stores seem to be doing well, the little mini stores that sell all the crap people seem to need and K-mart has all of it in its supply line.

Maybe I am thinking to much but if I was to live in the city, I would like having a place to buy things and maybe grab a quick meal in the process.

What does Cleveland Plus do again? A very costly version of a chamber of commerce? How about instead a team of instigators chasing venture capitalists? How about planned defined schemes that are set for abating if they meet all the correct criteria?

I say abate only the new and better, then only in stages as one ends another can begin a limited amount and staged in over time.

If gentrification is bad then what about the higher values that results? That raises money for the schools?

One section that accommodates wealth feeds the systems that pays for the education. The city is pushing for critical mass in the urban center, that’s about higher values and about adaptive reuse of space. That cost money and it has to be pushed to a point. If you do it and then also fight it then it is all self defeating. To say abate it and then include low cost housing it’s a logical contradiction.

Onegus, let's play it

Onegus, let's play it straight. I assume the document evidence you cite as "the Park building were refused tax reduction repeatedly" comes from a case before the Ohio Board of Tax Appeals from back in 2004.

The conclusion reads: "Therefore, since the appellant failed to demonstrate that the alleged occupancy change had a substantial economic impact on the property, the BOR (Board of Revision) lacked jurisdiction to consider the merits of appellant's 2002 complaints. The appeals are remanded to the BOR with orders to dismiss appellant's 2002 complaints."

Don't make it seem as though David Swetland was constantly being deprived.

 

You don't address at all (very convenient) that the Swetland 1959 case decreased by 14 percent all his commercial property and that of every other such holder of property in Cuyahoga County.

 

This tax year that has meant a reduction in taxes of more than $1 billion.

That's not county any tax abatement.

I would also ask you to note that Swetland lives in historic Moreland Courts in a 3-bedroom, 3 full bathroom condo of 3,082 square feet apartment and pays less than $500 in property taxes this year.

 

Pity the rich. They're so picked upon in your mind.

Here is the link to the Tax Board and Swetland's taxes:http://bta.ohio.gov/04j276.pdf

& http://auditor.cuyahogacounty.us/REPI/taxbill.asp

pity the rich

 Oengus, what makes you think that raiseing the tax value of my house because of gentrification helps me at all? And the  new homes around me that are tax abated means that not only do I now have to pay higher property taxes, I have to pay the abated share (you probably, ironically, are opposed to solicialzed health care but ok with reversed socialized taxing)! Also, what makes you think that people who live in gentrified, expensive homes actually send their kids to the Cleveland public schools?

Debbie

The money being paid out is

The money being paid out is that same, it now being directed to the building and much needed restorations.

The monthly payments are the same as they were before the abatements with respects to the individual units.

So for a time the money is redirected to the building, that ends up in the hands of those that actually do the work.

People all have limits and sometimes the limits are referred to as economic infeasibilities. That being; we would love to do for the structure what is needed…but we can’t afford to, it simply costs to much.

So what was paid is equal, by each resident, sometimes more than before and that is a capital exchange, it comes back through something other than what the property taxes fund. It becomes labor and material that is applied to the physical structure.

The results are a higher valued property, neither of these tax abated properties are inexpensive. The price now includes the cost of restoration instead of property taxes.

That set a time line and being restored should have impact on the property surrounding them, making them retain or appreciate in value. If not done the opposite occurs and is that of deprecation and loss of value to the surrounding properties.

As a historic preservationist I appreciate that and would teach the next generation to apprciate that as well.

I read your comments and

I read your comments and thank you for not making much sense.

 

 

thank you

 for making me chuckle, Roldo - you're so darn polite!

Always trying to be helpful.

Always trying to be helpful.

ditto

on the thanks, Roldo. I tried to respond this morning to the post and just could not.......

Debbie 

The owner monthly payments

The owner monthly payments each month are the same (the dollar outlays are equal or more than they were before the abatement).

The Moreland condos have monthly fees, those have been increased. The increase is in excess of the amount of the tax abatements.

The amount they pay each month is the same as it was before the abatement…it is actually more than the monthly costs before the abatement.

What they paid in taxes was reduced to nothing and what they pay in fees; as in the form of an assessment, that they put on themselves.

The money that used to be paid in taxes now is being paid as in the form of an assessment, when that assessment ends then they will be paying taxes again and on an appreciated value.

In the instance of the Moreland Courts it is not about saving money, it is about spending that money that was paid to the city as property taxes for a time diverting it to restoration of the building.

The point is that the buildings both needed to be restored, and taxes abatement is always for a reason. In both of these instances large amounts of money was spent. More than the amounts that would have been spent on taxes. The money that would have been paid in taxes went into the costs of the restorations all at once as in a lump sum. Then it is being paid back incrementally, when that is done it becomes taxes again. When it becomes taxed again it is or should have appreciated.

Then you have the issue of the amounts that have been historically paid and that they are for sure in excess of those others have historically paid. Simply put the Sweteland’s have paid more than you in accumulated taxes over the years, perhaps more than you will pay in your lifetime. They got cut a break so they can restore two historic buildings.

From what I have heard the

From what I have heard the city council did not want to give abatement to the Park building. That’s because it is part condo and part offices and commercial. They ended up awarding them a staged abatement rather than a full 15 years.

The Moreland Court was just a painful reality of economic infeasibility. When the restorations and related assessments took place, many attempted to sell. They could not afford the costs monthly. The building management/board forced it on them.

That’s has to do with limits, everyone has them even the wealthy.

Offering abatements is a tool in public finance, if used correctly it can change areas, if used incorrectly it will have little or no positive impact. It is well know that it should be used in a concentrated area as part of a gentrification scheme. That’s about creating an enclave of wealth and higher relative tax revenue.

and taxes abatement is always for a reason

 and you make no more sense than before.

 

ever considered taking

ever considered taking remedial reading classes? 

sure thing, oengus

when you learn to write. I get excited just thinking about it.

Debbie 

Here is an interesting

Here is an interesting article in the Wall Street Journal about commercial vs. residential property tax burdens.

The Moreland Court are taxed on 104.52 % of the market value and that is equal to an actual tax of 3.20% the highest in the county.

The Park is taxed what as commercial or residential? Are the rates different for commercial properties in Cleveland?

The city taxes on 64.77% of the market value in it primary tax district, it taxes at 69.98% in the Berea/Cleland district and at 104.52% in it's Shaker Cleveland district.

Those are the effective rates of taxation, the actual tax is on that value.

So without abatement the Moreland Court condo with a market value of $200,000.00 paid $6,400.00 a year.

That’s $533.00 a month, but the assessments that they levied on themselves are way beyond that.

Then there is the issue of them not even being in the CMSD they are in the Shaker school district.

Have you ever looked at an old historic building that is abandoned and wondered why? That’s because it is economically infeasible to repair it.

The money is going to the contractors, the architects and engineers the suppliers of materials. Then they pay taxes on that.

 

 

 

 

 

 

Frank Luther Mott defined

Frank Luther Mott defined one of characteristics of yellow journalism as a dramatic sympathy with the “under dog” against the system.

All property is taxed at 35

All property is taxed at 35 percent of market value in Ohio.

 

The Wall Street Journal story Onegus cites has nothing to do with the above piece or how Ohio taxes property.

Tax rates, of course, differ in  different communities. However, when the are abated that means they are abated - meaning not paid. Get that?

 

However, I do report that the Ohio Supreme Court ruling in the Park Investment case judged that all property in Ohio - industrial, commercial and home - should be valued at the 35 percent of market rate.

 

It doesn't matter to Onegus and I wouldn't expect him to accept that fact.

Trusted Voice

Roldo, I thank you for your continued presentation and analysis of the many issues facing NEO.  I think the time of abatement as a development tool has run it's course, with a possible few exceptions.   

Your blog is a trusted voice, when most are rife with misinformation and opinion presented as fact.  The average citizen has little time and/or inclination to familiarize themselves with  even one issue, if that.  A good example is the use of this site as a political forum for Nelson Cintron, Jr. 

Kudos for your hardwork and dedication.  Kate

Thank you Kate.

Thank you Kate.