Thursday, April 15, 2004

Tax ruling stymies plans

Developments could be halted

By Gregory Korte
The Cincinnati Enquirer

Cincinnati development projects from the riverfront to Bond Hill are in jeopardy because the state tax commissioner has refused to certify the taxing districts to pay for them.

City Manager Valerie Lemmie said Wednesday that the state's decision is a "major roadblock" to the city's efforts to make over Fountain Square and develop the Banks - and for dozens of smaller projects in Over-the-Rhine, Walnut Hills, Bond Hill and Carthage.

The reason: Ohio Tax Commissioner William W. Wilkins has interpreted state law to require that every property owner has to agree to be placed in a tax-increment financing district, even though the districts result in no direct tax increase to the owner.

City Finance Director William E. Moller said the development tool could bring in $150 million over 30 years. Because of the high stakes involved, city officials are trying to get a change in state law to overturn the decision.

"I'm not trying to scare anyone, but this is a crisis situation," said Finance Committee Chairman John Cranley, who led the effort to create 11 tax-increment financing districts in 2002. "Every dime the city can bring to the table is tied to these districts. We can talk about Fountain Square, but until we get these TIF districts solved, we don't have any money."

Even more urgent, Cranley said, is the Calhoun Marketplace in Clifton Heights, where 42,535 square feet of new retail, 291 units of apartment-style student housing, and a 1,118-car garage are already under construction. The city's $3.2 million contribution comes from a 300-acre tax-increment financing district surrounding the project.

City officials call the districts a powerful tool for development. They've been used to fund projects like the Convergys Corp. headquarters and the Saks Fifth Avenue renovation, and new districts are expected to provide the city's contribution to the Cincinnati Center City Development Corp., the new quasi-private development authority charged with jump-starting new business in downtown and Over-the-Rhine.

Here's how tax-increment financing districts work: The city invests in a capital improvement, causing property values in the surrounding area to increase. That increase, in turn, leads to higher property tax revenue - the tax increment - which is captured and used to pay off the original investment. The city can sell revenue bonds based on that revenue stream, making millions of dollars available up front.

But the state tax commissioner won't create the districts until every property owner agrees. With 11 districts of almost 300 acres each, that would involve thousands of property owners and is "an impossible task," Lemmie said.

Though Cincinnati has agreed to reimburse Cincinnati Public Schools for any lost tax revenue because of the districts, other school boards have challenged the districts to the tax commissioner. To be consistent, state tax officials said, they have to ask every city to meet the same requirements.

The tax commissioner also said the districts could impair the ability of property owners - or their successors - to get a tax abatement or to seek a non-profit tax exemption, an infringement of property rights.

If that interpretation holds, Mayor Charlie Luken said, the result would be "devastating." With the city's $54 million Anthem development fund set to run out in a few years, the TIF districts were expected to provide the capital to pay for the city's investments downtown and in neighborhoods.

Luken is enlisting the city's statehouse delegation to change the law.

The city's lobbyists are likely to run into opposition from lobbyists for the County Commissioners Association of Ohio, which generally oppose the districts.

When the city gives a tax abatement, the county has to sign off on it - but not so with tax-increment financing districts, said John Dowlin, president of the Hamilton County Board of Commissioners. "There's just something wrong with that."

On districts outside the city limits, which the county does have to approve, the county treasury loses $2 million a year, Dowlin said. And county agencies - like the Children Services Board - that receive money from special levies lose $13 million a year to the districts, meaning they have to come back to voters more often for tax increases, he said.

State Rep. Steve Driehaus, D-Price Hill, said he hopes it won't take a change in state law to get city development projects rolling.

"As a co-sponsor of the legislation, I can tell you it was not my intent - nor was it my understanding - that they needed the permission of property owners to establish a TIF district," he said. "I have no idea why the tax commissioner would require the consent of individual property owners, because it really doesn't matter. You're paying the same amount of money, it just goes to a different place."


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