Cleveland City Hall has long struggled to get development started on the Lake Erie shore. Mayor Justin Bibb is trying something new. He wants to plow money into downtown infrastructure – the roads, utilities and streetscapes that surround new developments.
City Hall plans to raise that money by diverting new property tax payments from downtown buildings. Cleveland City Council signed off on the first step of Bibb’s proposal in March. They passed legislation to create what’s called a tax-increment financing (TIF) district.
Unlike typical TIFs, which cover a single project, the district covers a lot of ground. It reaches from the west bank of the Cuyahoga River to Dead Man’s Curve. Within the district, taxes on increased property values will fund infrastructure improvements downtown and elsewhere.
The city gave this district a tongue twister of a name: “Shore-to-Core-to-Shore.” The two shores are the Lake Erie waterfront and the Cuyahoga River, and the core is downtown Cleveland.
The administration argues that these investments will set the stage for more development along the Cuyahoga River and Lake Erie, leading to more appreciation in property value. Critics say the plan comes at the cost of diverting new tax revenue that could have benefitted county services.
Read on for an explanation of how the district will work.
Where does the TIF district money come from?
Property owners pay for improvements in the district. They do this in the form of “service payments in lieu of taxes,” known as PILOTs. That’s a legalese way of saying “the money they would have paid in property taxes.”
Cuyahoga County will collect property taxes as it normally does. Then it will transfer the PILOT dollars to the City of Cleveland. The city will use the new funds to borrow money to pay for downtown infrastructure work.
So what money goes into the TIF district? Only the taxes paid on new property value that didn’t exist before.
Consider this simplified example of a typical TIF. A developer turns a $1 million parking lot into a $20 million commercial building. The taxes collected on the $19 million in new value would go to the TIF. The taxes on the original $1 million are distributed as normal.
The one wrinkle in that example is the Cleveland Metropolitan School District, which we’ll get to next.
Do the Cleveland schools lose out on money from a TIF district?
No.
Unlike with tax abatements, Cleveland typically carves school taxes out of TIF agreements. That means CMSD still receives revenue from TIFed properties.
That can be a significant amount of money. Cleveland schools receive almost 59% of the taxes paid by commercial properties and about 54% of the taxes paid by smaller residences.
Let’s return to that $20 million commercial building. The $19 million in new value would produce $664,145 in PILOTs, according to the county’s property tax calculator. Of that money, $389,853 would go to the schools, and $274,292 would go to the TIF district.
The picture is more complicated in the case of mixed-use buildings that include both commercial space and apartments. Because the new residential property receives a 15-year tax abatement, it wouldn’t begin paying fully into the 30-year TIF until Year 16 of the project. The commercial value and non-abated residential value would produce TIF PILOTs as normal.
Who misses out on new taxes generated inside the TIF district?
CMSD may be the largest recipient of Cleveland property taxes, but it’s not the only one. City government, Cuyahoga County health and human services, the Cleveland Public Library, Cuyahoga Community College, the county board of developmental disabilities, the Cleveland Metroparks, the county general fund, county debt payments and the Port of Cleveland all receive property tax dollars, too.
Those non-school taxing entities don’t lose money to the TIF district that they already had. But they do forgo new money they otherwise might have received from new construction and future levies.
Cuyahoga County’s Fiscal Office calculated a few examples of the financial impact on other levies. Here’s one of them. A 1% increase in PILOTs across the TIF district would produce $13,347 in new money that otherwise would have gone to the county general fund and debt payments.
The debate over the true impact of TIFs
This gets to a disagreement over the meaning of “foregone taxes.” Supporters of TIFs and tax abatements argue that the new value only exists because of the incentive. Take the incentive away, and there’s no new revenue to forgo at all, the argument goes.
Cleveland Finance Director Ahmed Abonamah put it this way during a City Council hearing: “It’s the essential contention of this administration that without these investments, very little, if any, of this increased value would happen.”
In other words, if Cleveland didn’t create a TIF district and spend money on streets and utilities, there wouldn’t be new development to pay into the TIF.
Zach Schiller, the research director at Policy Matters Ohio, disagreed. Surely downtown Cleveland property would appreciate in value even without the added juice of TIF district investments, he argued.
“They’re saying there would be nothing without this investment,” he said. “I think that, over a 30-year period, is clearly incorrect.”
How much money will the TIF district raise?
The Bibb administration estimates that its TIF proposal could raise almost $3.4 billion between now and 2065. That time period includes the 30 years of the TIF district plus the additional lifespan of other TIF projects that already exist in the area, according to the finance director.
The city wouldn’t necessarily spend all that money directly on infrastructure. Instead, Cleveland would borrow money and use the TIF revenue to pay back the debt over time.
City Hall hasn’t settled on how it would borrow. One option is to use federal loan programs, Abonamah told Signal Cleveland. Another option is to have the Port of Cleveland sell bonds to investors. The latter is a common financing tool for developments around town.
The city estimates it could borrow around $558 million between now and 2042. That would tie up $1.9 billion in TIF revenues in debt service. City Hall projects that the TIF district could produce another $1.4 billion in cash for additional projects downtown and in city neighborhoods.
What can the TIF district pay for?
Cleveland would use its TIF district to finance public infrastructure work in support of private development. Parks, roads, bike lanes, streetscapes, bridges and utilities all could qualify for TIF district money. The district could also pay for parking garages, real estate acquisition, demolitions, sewer work and stormwater remediation.
City officials have said repeatedly that they won’t spend TIF district dollars on stadiums.
All three of the city’s major sports facilities are housed in the district – and all three need money. The Browns have floated a $1 billion to $1.2 billion stadium renovation, with local government picking up half the bill. Progressive Field and Rocket Mortgage FieldHouse have been eating up their shares of public repair dollars as construction costs rise.
But even though the stadiums themselves won’t receive TIF money, a major stadium-adjacent project could: a proposed land bridge connecting downtown with the lakefront. The bridge would give Clevelanders and visitors a new way to walk to the lakefront’s amenities – including Browns Stadium.
For years, the city has sought money for the bridge, which was once estimated to cost as much as $230 million. The TIF district could finally give Cleveland a way to pay for it.
Will Cleveland neighborhoods see any of the money?
Bibb and Council President Blaine Griffin agreed earlier this year to spend excess TIF district dollars on neighborhoods outside of downtown. As much as 35% of that extra cash left over after debt service could go to infrastructure work around the city.
What if the district doesn’t live up to the hype?
During hearings on the legislation in March, council members posed a few questions about failure. What happens if the TIF district doesn’t bring in the billions the city is hoping for? What if the city can’t pay back the bonds issued on the back of that TIF money?
Abonamah, the finance director, acknowledged that there is a risk the district could go under. If that were to happen, the city would stop borrowing money against the TIF district, he said.
“There is risk that this totally bottoms out,” he said. “I think it’s a small risk, but we can’t have it both ways. We cannot set this up, sell bonds, tell those bondholders we’re going to pay you back from this revenue stream, and then decide we want to take it away.”