The Cleveland Metropolitan School District misses out on an average of almost $29 million in revenue each year, thanks to tax breaks meant to spur new housing and businesses in the city. 

The city’s abatements illustrate the trade-offs that local leaders face in Ohio, where schools rely on property taxes for money. As the city tries to juice development through tax breaks, schools and county services must wait on the sidelines for their piece of the windfall. 

Cleveland has long given out 15-year tax abatements for new or renovated housing – whether single-family homes or high-rise apartments. The tax breaks apply only to the new property value that a development creates, meaning the schools don’t lose money they were already receiving. 

Alone, the money annually tied up in tax abatements isn’t enough to close CMSD’s projected deficit, which was caused by the expiration of federal pandemic aid. Without the cuts proposed by school leadership in February, the district’s negative cash balance was forecast to hit $168 million by 2026. 

The abatement numbers do add up over time, however. Between the school years ending in 2017 and 2023, Cleveland schools lost out on a total of $201.8 million in abated taxes, or an average of $28.8 million a year.

Those figures come from Cuyahoga County calculations compiled in CMSD’s annual financial reports. The district first began publishing abatement figures in 2017 after a change in government accounting standards. 

Property taxes are a major source of CMSD’s general revenue. They contributed about $278 million – or 42% – to CMSD’s general fund in the 2023 school year. 

Abated property value is not lost to the school district forever. When the abatements reach the end of their 10-, 12- or 15-year terms, new tax money will start flowing to the schools.

CMSD could yield as much as $23.8 million annually from expired abatements by 2035, according to a 2020 study commissioned by the City of Cleveland. 

The abatement debate: development fuel vs. pockmarks in the tax base

Proponents argue that without the tax relief, new housing and commercial projects would not break ground. Critics, like research fellow Greg Lawson with the libertarian-minded Buckeye Institute, say abatements poke holes in the tax base. 

“Effectively, over time, it can turn your property tax base into Swiss cheese,” he said. “It kind of diffuses the cost away from certain people and onto others. And I think that is a big problem that we have in Ohio, not just for schools.” 

Lawson questioned whether abatements were necessary for development projects in high-priced real estate markets. 

“A lot of these abatements are going to high-end areas, that this notion that no developer would come in, I guess I find – I’m not sure that I believe that,” he said. “I think in a lot of these places, they say that because that’s how you sell the message.”

The Buckeye Institute advocates for a “transition away” from municipal income taxes – city governments’ biggest source of cash – in favor of property and sales taxes. The institute sued Cleveland last week on behalf of suburban commuters who said the city took too long to pay income tax refunds. 

Cleveland City Council Member Kerry McCormack said abatements were instrumental in turning downtown Cleveland into a residential neighborhood. His ward includes downtown, Ohio City and Tremont – three neighborhoods flush with abatements. 

“Abatement and historic tax credits have been a critical piece to ensuring that downtown Cleveland was not a wasteland of empty office buildings over the last 20 years,” McCormack said, “and that it’s a vibrant neighborhood with thousands of people living in it that of course support the other economic activity in the city.” 

Cleveland now caps new tax abatements in expensive markets

More and more over the years, abatements have become concentrated in multifamily apartments and in “high price neighborhoods,” according to the city’s 2020 study. The report names five places in the city as top recipients of the tax breaks: Detroit-Shoreway, Ohio City, Tremont, Downtown and University Circle. 

Mayor Justin Bibb’s administration referred to that study when it proposed cutting back on abatements, particularly in expensive neighborhoods, in 2022. McCormack supported that legislation. He said there should be limits on abatements. 

“I did see a problem with how inequitable they were,” McCormack said of abatements under the old system. “Having a $700,000 house, townhouse, abated is a huge problem.” 

The amended rules now cap the amount of new property value that can be abated in certain census tracts. A new $700,000 townhouse in Ohio City, for instance, can now claim only an 85% abatement on $350,000 in property value. 

Developers of apartment buildings now must sign community benefits agreements in exchange for abatements. They also must set aside affordably priced units or pay into a housing trust fund.

McCormack pointed to another force that he argued has drained Cleveland’s schools and tax base: the plummeting of the city’s population and the rise of the suburbs.

“The suburbanization of Northeast Ohio is what devastated the city of Cleveland,” he said. “Hard stop. And we never have that conversation when we’re talking about tax abatements.” 

High-rise apartments top Cleveland’s abatement list

Examples of abatements dot — and tower over — the landscape.

The 34-story Lumen apartment tower contains a parcel with the highest-valued abatement in Cleveland, according to data compiled by the Cuyahoga County Fiscal Office. The high-rise is a complex project consisting of 16 parcels of property, some of which are not abated. It offers a case study in the arguments for and against abatements. 

The building, which is owned by the nonprofit Playhouse Square Foundation, advertises luxury apartments with a scenic view of downtown. It counts the mayor among its tenants. The building opened in 2020 and received its tax incentives before Bibb won election. It will see its abatement expire in 2034.   

Playhouse Square pays property taxes on a fraction of the Lumen’s $93 million in estimated value, according to county data. Thanks to recent leaps in valuation, Cleveland schools now lose out on an estimated $1.7 million a year from the building, the county data shows. 

That’s a lot of money to hold back from the city’s public schools. But as a Playhouse Square spokesperson argued, the abated high-rise is still better for the schools than what sat on the land before: a parking lot. 

“The school district is receiving significantly more in tax revenue now that the property has been developed than they were receiving when it was a parking lot,” communications director Cindi Szymanski said. 

Before the Lumen was built, the county valued the parking lot parcels at about $2.3 million, property records show. Now, the Lumen pays taxes on $8.1 million of the project’s total value, according to county data. That produces a bit more than $167,000 annually for CMSD, according to a Signal Cleveland estimate based on the county’s property tax calculator.

The development also benefits from a tax-increment financing deal, or TIF. But in Cleveland, TIFs generally make the school district whole. They are not included in CMSD’s reported abatement figures. 

One University Circle is the second most expensive abated parcel in the city. Most of the apartment building’s $60 million in value is abated, meaning CMSD forgoes $1.2 million in yearly income. The building’s parking lot is not abated. The nonprofit University Circle Inc., which owns the land beneath the building and leased it to a developer for the project, declined to comment.

Apartment towers are just part of the abatement picture. Wherever one sees construction in Cleveland, tax deals are likely not far behind. 

Owners of new or rehabilitated single-family homes enjoy breaks on their property tax bills, too, from the near West Side to Lee-Harvard. Commercial projects can also win abatements from the city. The Ohio Environmental Protection Agency grants abatements for cleanup redevelopments. 

Such commercial projects as Dave’s Supermarket in Midtown receive partial property tax breaks. Even the former headquarters of CMSD is tax abated. Now the Drury Plaza Hotel, the property is nearing the end of a 10-year partial abatement from the Ohio EPA, according to county data. 

Stadiums, hospitals and universities not counted in county abatement data

Cuyahoga County’s abatement data does not include other forms of property tax exemptions granted under state law. Missing from the $29 million number are the property taxes that sports stadiums and nonprofit hospitals and universities are exempt from paying.

A 2022 Ideastream Public Media investigation estimated that the Cleveland Clinic owned $2.4 billion in property across Cuyahoga County, almost all of it exempt from taxation. University Hospitals owned $797 million in mostly exempt property, the report found. A Clinic representative told the news outlet that the hospital system paid more $5 million in property taxes across the county.

Cleveland Browns Stadium is also largely exempt. The City of Cleveland will pay almost $800,000 in property taxes this year on the land beneath the stadium – but not on the building. 

The county values the stadium property at $271.3 million. If the whole property were subject to taxation, it would cost Cleveland almost $9.5 million this year, according to the county’s property tax calculator. Of that, $5.5 million would go from the city’s General Fund to CMSD. 

Gateway Economic Development Corporation is set to pay nearly $1.7 million in property taxes on Rocket Mortgage FieldHouse and Progressive Field. The nonprofit, which owns the arena and ballpark, covers its bills using lease payments from the Cavaliers and Guardians. 

If those two stadiums were fully taxed, Gateway would be on the hook for an estimated $11.1 million this year, based on the county’s current valuations. CMSD would receive $6.5 million of those payments.

This story was updated to clarify the ownership of One University Circle. An earlier version of this story incorrectly said the nonprofit University Circle Inc. owned the building. In fact, the nonprofit only owns the land beneath the building.