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CLEVELAND, Ohio – Mayor Justin Bibb’s sweeping plan to remake downtown Cleveland by redirecting potentially billions of dollars in property taxes cleared a major hurdle Tuesday when City Council’s Development, Planning and Sustainability Committee signed off on the creation of special downtown taxing district.
Tuesday marked City Council’s first and only hearing on the idea before it heads to council’s finance committee on Monday afternoon. Full council approval could happen as soon as Monday night.
Council members on Monday had plenty of questions for Bibb’s administrators about the deal that will impact Clevelanders for decades to come, though trade-offs and risks were a big topic on council’s mind.
Many of council’s questions revolved around the grand trade-off Cleveland is considering that would allow it to juice infrastructure spending in the city center with future tax money that would otherwise go toward county social services, Cleveland Public Library, Cuyahoga Community College and Cleveland Metroparks. Other questions revolved around the financial risks Cleveland would face by borrowing money against future growth that is not guaranteed to happen.
By creating Bibb’s proposed tax-increment financing district across much of downtown and some of the near West Side, Bibb’s team conservatively estimates that it would generate $3.3 and $7.5 billion over 42 years.
Current property taxes from those properties would continue to flow to social services, the libraries and other usual recipients. But any increases in property taxes over the next 30 years would not. Instead, that money would go to the city, to be spent on infrastructure upgrades along the Cuyahoga River and Lake Erie waterfronts, and across downtown.
Bibb’s team on Tuesday shared updated, rough estimates for how much each of those plans could cost. The public’s price tag for the river — which would augment Cleveland Cavaliers’ owner Dan Gilbert’s development plans for Terminal Tower and adjacent riverfront land – is $400 million, according to the city’s presentation. Previous estimates put it between $400 and $500 million. Private investors are expected to kick in more than $3 billion.
For the lakefront surrounding Browns stadium and plans for a land-bridge to better connect downtown to the water, the city anticipates about $706 million in public spending, with $1.3 billion in private investment. Prior estimates were around $640 million in taxpayer contributions.
For downtown proper, Bibb wants to increase connections to the waterfronts, make it more pedestrian-friendly, and improve multimodal transportation access and transit amenities. City officials on Tuesday revealed their estimates for this work for the first time, saying it could cost the public somewhere around $140 million.
The TIF district, if established, would generate smaller sums on the front end, and, ideally, much larger sums on the back end, starting sometime around 2050.
The philosophy behind the TIF district is that Cleveland could use future expected tax increases, stemming from future expected increases in the value of downtown properties, to kick-start a self-sustaining cycle of growth downtown.
Read more: What’s a TIF, anyway? The mechanics of Cleveland’s big development tool
Proponents, like Bibb and downtown Councilman Kerry McCormack, say the district and upfront infrastructure spending would generate property tax revenues that would not happen naturally.
Bibb’s finance chief and development chief on Tuesday said downtown Cleveland would remain stagnant if City Hall doesn’t take action, saying the reason Cleveland has never been able to improve its lakefront is because it hasn’t had the money to do it. This funding plan finally changes that, they said.
Risk talk
To pay for those initial infrastructure improvements, the city would likely issue bonds that are backed by future TIF district revenues.
Development committee Chair Anthony Hairston and other council members wanted assurances on Tuesday that Cleveland’s finances won’t be wrecked if future development doesn’t materialize. Several members wanted to know: If the TIF district doesn’t work, and there isn’t enough TIF revenues to pay back the bonds, would Cleveland have to dip into its general fund, which pays for police and other vital services, to cover its outstanding debt?
Bibb’s finance chief, Ahmed Abonamah, said the plan does entail risk, and TIF debt is some of the riskiest debt a city can take on.
“There’s always risk. If there wasn’t any risk, there’d be no benefit to what we’re doing,” Abonamah said.
But Abonamah maintained no general fund money would be on the line. The investors who buy the bonds would be the ones who would lose out if the TIF district revenues aren’t enough to pay back the debt, he said.
Council members probed further. Councilwoman Jenny Spencer wanted to know about other possible impacts on the city’s finances.
Abonamah later acknowledged that if the TIF district fails, the city would be risking its reputation in the bond market, even if it’s not financially on the hook.
If a bond associated with Cleveland fails, he said, “that’ll provide some level of taint to the city for a period of time.”
Abonamah said Bibb’s team intends to do everything it can to ensure the city is “as insulated as possible” while still taking the leap on downtown development. He said they’re using conservative projections about how much money could be generated and how much debt could be issued, because “we don’t want to borrow based on figures that are too rosy.”
If extra assurances are needed, they could choose to issue less debt and keep more money of the TIF proceeds on hand to cover the cost of a possible default, he said.
Plus, the city’s projections will be heavily scrutinized by the bank and bondholders. They won’t move forward unless they’re satisfied with the numbers, Abonamah said.
Bibb hopes the city won’t have to tap traditional financial institutions to issue the debt. He’s attempting to secure special federal funding through the U.S. Department of Transportation that would offer cheaper interest rates and a longer term than the private market.
Trade-offs
Bibb’s team emphasized that usual recipients of property taxes, like Tri-C and the library, won’t be missing out on any tax revenues they receive today.
They would stand to lose out on future possible tax revenues from downtown properties within the TIF district, which the city says represents 18% of Cleveland’s taxable value. New levies or replacement levies would be impacted, meaning non-downtown taxpayers would have to cover those costs if voters approve them.
The Cleveland Metropolitan School District is exempted from the district, so it would still receive all future increases in property taxes. Future property tax hits for the other groups, however, loomed large for some council members on Tuesday, particularly Councilman Richard Starr.
No one from the county, Tri-C, Cleveland Public Library or Metroparks have come out in opposition of the plan. The library’s CEO, for instance, says he supports it.
Starr said even if they were opposed, “they’re not going to come out and voice their opinion regarding this.”
Starr shared figures with cleveland.com he said he obtained from Tri-C that show the college would potentially forego hundreds of millions of dollars over 42 years, based on Bibb’s revenue projections.
Spencer said it would’ve been appropriate for council to have invited leaders from the affected agencies to testify, share their thoughts and offer projections for how much they stand to lose. She asked that they appear before council’s finance committee on Monday instead. Hairston said he’d run the idea past Council President Blaine Griffin.
Benefits
Despite their questions, committee members appeared to largely support the plan.
Councilman Kris Harsh said he’d been scrutinizing the idea for awhile, but could not “find a reason not to support this.”
If new levies are passed by the other entities, such as the county’s health and human services levy, Harsh acknowledged that Cleveland taxpayers outside of downtown, and suburban county taxpayers, will end up covering more of the bill. But for Clevelanders, it would amount to “a couple bucks a year,” and for suburbanites, it would be “a couple dozen bucks” a year, he said, so Harsh views the benefits as far outweighing those impacts.
Harsh and Spencer were among those who praised Bibb’s plan because it seeks to change Cleveland’s trajectory.
“I appreciate Mayor Bibb’s perspective that we can’t just manage decline, and that the status quo is not going to work for us,” Spencer said.
Kerry McCormack said the plan will combat decades of suburbanization that has resulted in hundreds of thousands of Clevelanders moving out of the city proper — “which we all know has led to significant loss in property tax value, significant losses of income tax, and significant blight in our neighborhoods.”
Said McCormack: “For those of us who choose to continue to live in the city, we’ve got to start thinking about us.”
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