PARK BUILDING - FROM TAX DEDUCTION TO TAX ABATEMENT

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.

 

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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 [1]

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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.