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City's residential tax abatements disproportionately benefit high-income, white neighborhoods

Hatch Street in Mount Adams in 2019.
Warren LeMay
Wikimedia Commons
Hatch Street in Mount Adams in 2019.

Cincinnati’s residential tax abatement program disproportionately benefits majority-white and higher-income neighborhoods, according to a new report.

If council implements the recommended changes, it could lead to a settlement in an ongoing lawsuit filed by dozens of Black residents, who allege the city’s policies are racially discriminatory.

Cincinnati hired HR&A Advisors to conduct a review of the system; their report recommends changing to a tiered approach that would reduce benefits in those higher-income and majority white neighborhoods like Mount Adams, Hyde Park, and Oakley.

HR&A presented the findings and recommendations to Council’s Equitable Growth & Housing Committee on Tuesday.

“This presentation and the data that shows this disparate disinvestment is an example of systemic racism,” said Council Member Reggie Harris. “When we talk about this, it's not a feeling, it's not about words, but it's about how policy can incentivize and create disparities in investment.”

Read the full report below (story continues after)

Current system has inequitable results

Residential abatements include up to four-unit dwellings. An abatement allows the property owner to pay taxes on the pre-improvement value for 10-15 years; it can be used for either renovation or new construction.

The program aims to attract and retain city residents, stimulate community revitalization, and reduce development costs for home ownership and rental projects.

HR&A looked at data from 2017 to 2021, finding 1,889 approved abatements that saved property owners a total $200 million in taxes. Most of that value is concentrated in neighborhoods with the highest home values, highest household income, and a majority of residents who are white.

  • Neighborhoods with the highest home values received over 100 times the level of tax incentives than those with the lowest home values
  • Neighborhoods with the highest household income received over 45 times the level of incentives than the those with the lowest incomes
  • Neighborhoods with the highest percentage of white residents received incentives over 7 times higher than those with the lowest percentage of white residents

New construction abatements generally align with new construction permits; both are highly concentrated on the east side of the city. Rehab permits are pretty equally distributed across all neighborhoods.

“However, we're really seeing those abatement still concentrated in the neighborhoods we've discussed on the east side,” said HR&A senior analyst Keiley Gaston. “So the question here is if education, awareness are potentially contributing to this.”

The report says it’s not surprising to see abatements concentrated in wealthier parts of the city, because households there are more likely to have the financial resources to pay for a home renovation or build a new home altogether.

“It's very eye opening,” said Vice Mayor Jan-Michele Lemon Kearney. “It does confirm what we might have suspected, but it's good to have the data, to have the facts.”

Recommended changes

The report suggests a new system in which neighborhoods are put into one of three categories based on factors like average household income, percent poverty, and current construction activity. Residents in “low score” neighborhoods would be eligible for the highest incentives for the longest period of time, with the incentives going down in the “mid score” and “high score” neighborhoods.

This tiered approach has been implemented in many other cities, including Cleveland, Columbus, Dayton, and Columbia Township in Ohio; plus Louisville, Philadelphia, Pittsburgh, Portland, St. Louis, and Des Moines.

HR&A Partner Cary Hirschstein says a tiered system would have the same goals as the current system.

“But to do so in a manner that establishes a more equitable share of property tax burden across the city, and safeguard public dollars in the process aiming for a much more efficient use of the abatements to achieve desired outcomes,” he said.

The rankings suggested by HR&A put six neighborhoods in the “high score” category: Mount Adams, Oakley, Hyde Park, Linwood, Columbia Tusculum, and Mount Lookout.

Five neighborhoods are in the “mid score” category: Downtown, Over-the-Rhine, Pendleton, East Walnut Hills, and California. The remaining 41 neighborhoods are categorized as “low score.”

The recommended system would reduce the maximum abatement to $550,000 for remodeling (down from $900,000) and $500,000 for new construction (down from $750,000).

The maximum term length is currently 10-15 years depending on certain environmental benchmarks; it would change to 5-8 years in high score neighborhoods, 10-12 years in mid score neighborhoods, and 15 years in low score neighborhoods.

Hirschstein says to be successful, the new program should be flexible and built to evolve over time.

Lawsuit and what happens next

The federal lawsuit challenging the city’s current residential abatement program is still active in U.S. District Court.

Last fall a judge dismissed the claim that the city is intentionally discriminating, but ruled the lawsuit could continue based on disparate impacts of the city’s policy.

At a hearing on June 13, city attorneys presented the HR&A report.

“In the Court's view, the recommendations in the completed study are largely compatible with the ordinances Plaintiffs propose as a means to settle this litigation,” court documents say. “The Court therefore ORDERS the parties to engage in settlement discussions to avoid further costly litigation.”

Attorney for the Plaintiffs Robert Newman says he met with Mayor Aftab Pureval and Vice Mayor Jan-Michele Lemon Kearney on Wednesday morning.

“I gave them the reasons why they should consider the proposed ordinances that I've submitted to them dealing with tax abatement reform,” he said. “They listened very well. And, of course, council will decide on what ordinances that they're going to entertain and consider.”

A representative from Mayor Pureval’s office says he will refer the report to the city’s Housing Advisory Committee before drafting any specific legislation.

Council will be on summer recess in July and will meet only once in August. An ordinance changing the abatement system is not likely to be filed before September.

“If council is able to adopt ordinances that resemble the ones that we have proposed, it would settle the lawsuit,” Newman said. “They’ll be presented to the United States District Court, and the court is going to hold the fairness hearing, because this is a class action [suit], and then the court will ultimately decide if the settlement is fair.”

Any changes to city policy this year would likely not take effect until January 2023. The HR&A report recommends all current abatements be honored with the terms under which they were first approved.

Local Government Reporter with a particular focus on Cincinnati; experienced journalist in public radio and television throughout the Midwest. Enthusiastic about: civic engagement, public libraries, and urban planning.