Cincinnati's residential tax abatement program changes Sept. 1. Here's how it will work

Cincinnati City Council voted 8-1 in March to approve an overhaul of the residential tax abatement program. The new program goes into effect September 1.

"This reform is straightforward," Mayor Aftab Pureval said in a statement to WVXU. "We are significantly lowering tax abatements in our wealthier communities and significantly increasing abatements in our lower income communities to achieve a more equitable result."

Pureval says public feedback has been a very important part of the process, resulting in updates to the original proposal.

"How we accomplish things is a critical part of good government and good policy," he said. "With our reform, not only did we build a policy based on data-driven studies and extensive community feedback, but we have sought out and incorporated public input after the initial proposal."

Council Member Reggie Harris co-sponsored the legislation.

"This reform is being directly responsive to where incentives are still needed and where they aren't," Harris said in a statement. "Where the neighborhood investment is already happening, we want folks to pay their fair share so that critical revenue is returned to our schools, seniors, public infrastructure and more. In neighborhoods not yet seeing housing investment, we want to continue to encourage it while simultaneously making the system more accessible."

Here are answers to some of the questions you may have; click to jump to a specific section.

• Timeline
• What is a residential tax abatement?
• Who and what qualifies for a residential tax abatement?
• How does state law affect the city's program?
• What does the ordinance do?
• How does the current program work?
• How does the proposed program compare to the current program?
• Why do some want to change the program?
• How do residential tax abatements affect public school revenue?
• Does a residential tax abatement on one property raise values and taxes for neighboring properties?
• How do tax abatements affect racial and economic segregation?
• When would the new program go into effect?

Timeline

The ordinance was expected to get an initial vote in the Equitable Growth and Housing Committee Tuesday, Feb. 28. Chair Jeff Cramerding said that vote was delayed in favor of getting more public feedback.

The vote was ultimately delayed four times in two months.

Vice Mayor Jan-Michele Lemon Kearney says it was important to have an evening meeting outside of City Hall to make it more accessible to the public.

She briefly scheduled a special session of her own committee, Healthy Neighborhoods, for Saturday, March 4. It was announced on February 27 and canceled less than 24 hours later.

RELATED: What went wrong when council asked for public feedback on abatement reform

Then, Kearney scheduled two special sessions of Healthy Neighborhoods: March 13 and 15. It would have been a tough week for the Council Clerk's office, who were already scheduled to work evening overtime for a public budget hearing on March 14 and an unrelated Healthy Neighborhoods meeting on March 16. So Kearney decided to convert the meetings to "public engagement sessions" and cancel the official committee meetings. That notice went out Friday, March 10.

Mayor Pureval hosted a Town Hall on March 23.

The ordinance got final passage on March 29.

What is a residential tax abatement?

A residential tax abatement eliminates property tax on new value added to a property for a set amount of time.

This program is for housing with up to four units and is most commonly used for single-family homes. (A separate program regulates commercial tax abatements, which includes housing with five or more units and all other development projects.)

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

Only taxes for new value are abated. Here are some hypothetical examples of how it works.

For new construction:

• An empty lot is worth $100,000.
• Someone builds a new home worth $200,000 on the lot; that entire amount is considered new value and is eligible for a tax abatement.
• The homeowner will continue to pay property taxes on the lot's original value ($100,000), but won't pay any additional taxes for up to 15 years (depending on whether certain environmental construction benchmarks are met).
• When the term is up, the property owner will pay taxes on the full worth (original value and new value) at whatever tax rate is in place at that time.

For remodel:

• An existing home is worth $250,000.
• Remodeling makes the home worth a total $400,000; of that, $150,000 is considered "new value" and is eligible for a tax abatement.
• The homeowner will continue to pay property taxes on the original value ($250,000), but won't pay any additional taxes for up to 15 years (depending on whether certain environmental construction benchmarks are met).
• When the abatement term is up, the property owner will pay taxes on the full worth (original value and new value) at whatever tax rate is in place at that time.

Under the current system, abatement values and terms are calculated the same regardless of where in the city the property is located. Value is based on environmental construction certification, with higher levels of certification allowing for the highest amount of abated value for the longest period of time.
Under the proposed new system, abatement values would be calculated based on which tier the neighborhood falls into. See more info about that below.

Who and what qualifies for a residential tax abatement?

A residential structure with between one and four housing units qualifies for a residential tax abatement.

The property owner applies for the abatement, but it stays with the property even if ownership changes.

State law requires an investment of at least $2,500 for homes with one or two units, and at least $5,000 for all others. That means home renovation costing less than those minimums do not qualify for an abatement, even if they add value.

Generally speaking, maintenance projects like replacing a roof would not add value and would not qualify for an abatement.

How does state law affect the city's program?

The overall program is outlined and regulated in Ohio state law. A municipal corporation (in this case the city of Cincinnati) can define specific parts of the city as "community reinvestment areas" in which "housing facilities or structures of historical significance are located and new housing construction and repair of existing facilities or structures are discouraged."

While some cities choose only particular neighborhoods as CRAs, Cincinnati has defined the entire city that way.

State law requires an investment of at least $2,500 for homes with one or two units, and at least $5,000 for all others. City officials cannot allow tax abatements if the cost of improving the property was less than these minimums.

State law also requires a maximum abatement term of 15 years. City officials can offer abatements for shorter periods of time, but cannot offer abatements for longer than 15 years.

What does the ordinance do?

Mayor Aftab Pureval’s ordinance would limit the value of abatements in wealthier neighborhoods and increase value — and, theoretically, increase participation — in lower-income neighborhoods. The idea is to offer better incentives in neighborhoods that haven't seen much investment recently.

Cincinnati's 52 neighborhoods would be divided into three tiers using six equally-weighted criteria:

• Income
• Poverty rate
• Home values
• Mortgage approvals
• Single-family market change
• New construction

The neighborhoods would be re-evaluated every three years and could be moved up or down a tier based on the results.
The SUSTAIN tier includes neighborhoods determined to be least in need of incentives:

• Columbia Tusculum
• Hyde Park
• Linwood
• Mt. Adams
• Mt. Lookout
• Oakley

The EXPAND tier is in the middle and would get slightly higher abatement values than SUSTAIN. It includes 10 neighborhoods:

• California
• Clifton
• Downtown
• East End
• East Walnut Hills
• Madisonville
• Northside
• Over-the-Rhine
• Pendleton
• Pleasant Ridge

The LIFT tier includes the city’s 36 remaining neighborhoods.
The ordinance says neighborhoods should be re-evaluated every three years to determine which tier is appropriate.

The tables below show how much new value can be abated and for how long under the proposed three-tier system.

Bonuses would be available for sustainability, visitability (i.e. wheelchair accessible) and historic renovations. All abatements are eligible for the same amount regardless of neighborhood tier.

Council recently voted to add the Visitability+ and the multi-unit bonuses to the proposed ordinance.

All bonuses are "stackable" meaning a single abatement can include multiple bonuses. If a property has three units and is also along a transit corridor, for example, it would be eligible for a bonus of an additional $300,000 in abated value.

Read the C Version of the ordinance below:

How does the current program work?

Under the current residential abatement program, you get the exact same abatement value and length anywhere in the city.

Other bonuses: remodels are eligible for a historic restoration bonus of $100,000 OR a visitability bonus of $100,000. New construction are only eligible for the visitability bonus.

How does the proposed program compare to the current program?

All abatements, in the current and new program, have a baseline abatement cap: the maximum amount of new value for which taxes can be waived.

Here's how the value caps and term lengths would change:

For LIFT neighborhoods:

• The baseline cap for abated value increases $150,000 for remodeling (to $350,000 total) and $100,000 for new construction (to $300,000 total)
• The term length increases three years for remodeling (to 15 years total) and five years for new construction (to 15 years total)

For EXPAND neighborhoods:

• The baseline cap for abated value increases $150,000 for remodeling (to $350,000 total) and $100,000 for new construction (to $300,000 total)
• The term length does not change; it's still 12 years for remodeling and 10 years for new construction.

For SUSTAIN neighborhoods:

• The baseline cap for abated value increases $50,000 for remodeling (to $250,000 total) and does not change for new construction (remains $200,000)
• The term length decreases four years for remodeling (to eight years total) and five years for new construction (to five years total)

Here are some examples to compare the current program with the proposed changes:

A homeowner remodels their $200,000 house, adding $100,000 in new improvement value *

A homeowner builds a house valued at $500,000 on land valued at $100,000, with LEED Silver certification:*

*Taxes estimated using the Hamilton County Auditor tax estimate calculator. Taxes may increase or decrease during an abatement term based on triennial assessments and changes in levies.

Why did some want to change the program?

Cincinnati's residential tax abatement program disproportionately benefits majority-white and higher-income neighborhoods, according to an external report commissioned by the city.

An ongoing lawsuit filed by dozens of Black residents alleges the city's policies are racially discriminatory.

Cincinnati hired HR&A Advisors to conduct a review of the system; their report came out in summer 2022. It 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.

Read the full report below (story continues after)

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

CR&A

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.

Commissioning the HR&A report was a recommendation of the Property Tax Working Group, which operated from February 2019 to July 2020.

The final recommendations were established in July 2020.

How do residential tax abatements affect public school revenue?

The rest is divided among Children Services, Developmental Disabilities, Park District, Public Library, Mental Healthy Levy, Indigent Care, Senior Services, the Zoo, Family Service/Treatment and the Crime Information Center.

Michelle Dillingham of the Cincinnati Federation of Teachers says the entire abatement program is detrimental.

"On average, $6 (million) to $7 million annually is foregone, meaning the schools don't get it because we're incentivizing residential abatements," Dillingham said.

City officialssaid in a February 14 FYI memo for council members that abatements don't take money away from Cincinnati Public Schools, because it only forgoes tax on new value — property owners always pay taxes on the value before any improvements or new construction.

"The intent of the program is to encourage investment in our housing that would not otherwise occur," the memo reads. "The goal of the program will be to continue to create taxable value that would not otherwise be created, benefiting the city, CPS, other taxing jurisdictions and our economy."

State law allows for a Payment in Lieu of Taxes, or PILOT, for commercial tax abatements, meaning developers pay CPS an agreed amount to compensate for the tax revenue CPS would have gotten without an abatement.

The City Solicitor's Office says state law doesn't address that kind of system for residential abatements.

"The state law itself is silent," said Kaitlyn Geiger, from the city's law department. "However, there is an Ohio Attorney General opinion that states if the statute is silent, then that means payments are not permitted."

The City Manager's office released a new FYI Memo on February 27, estimating what CPS revenue would look like if all current abatements were transitioned to the proposed new requirements.

In that hypothetical scenario, CPS would get about $1.3 million in additional revenue a year.

"The administration does conclude that given this projection, the proposed changes to the existing program will result in additional revenue to CPS as opposed to the continuation of our existing program," Assistant City Manager Billy Webber told Council.

The report shows abatement values would decrease in all three tiers of the proposed changes, most of all in the "Sustain" neighborhoods that currently get the most valuable abatements. The changes would actually increase abatement value in "Lift" neighborhoods, but the analysis includes abatements under older regulations with much higher or even unlimited caps. In this hypothetical scenario, those very high-value abatements would be significantly reduced, which shows up as an overall decrease in abatement value for those neighborhoods.

Does a residential tax abatement on one property raise values and taxes for neighboring properties?

The Property Tax Working Group recommended studying the affect of residential tax abatements on neighboring property values.

The HR&A report did not include that evaluation.

Property owners have a complicated relationship with value — they want it to be low when it's time to pay property taxes, but high when it's time to sell.

The intention of an abatement program is to draw new residents and amenities to a neighborhood. If successful, it's very likely property values for the entire area will go up, not just for properties being improved and getting an abatement.

Council Member Jeff Cramerding, chair of the Equitable Growth and Housing Committee, said in a recent meeting increasing property values are a good thing.

"That is how working class people accumulate wealth," he said. "Higher property values mean levies — including Cincinnati Public Schools — make more off of each levy, so that is a good thing. We have seen rising property values in a number of neighborhoods, but we need to see it in more neighborhoods, especially in our LIFT neighborhoods."

The concern is that widespread increase in property values means long-term (often older) homeowners have to pay much bigger tax bills. That could mean displacement if those residents have to find somewhere cheaper to live.

How do tax abatements affect racial and economic segregation?

Cincinnati’s residential tax abatement program disproportionately benefits majority-white and higher-income neighborhoods, according to an external report commissioned by the city.

An ongoing lawsuit challenges the city's current program on that basis. Attorney Bob Newman represents dozens of Black homeowners in that lawsuit. He says the proposed changes don't go far enough.

"I don't think Hyde Park needs any more residential tax abatements except for affordable housing," Newman said. "I also think that what has to happen is, with respect to the African American neighborhoods, not only are they in need of tax abatements, but also low interest or no interest loans to do improvements to improve the value of their property."

Newman says the proposed changes "will only worsen the segregated residency pattern in Cincinnati," as he wrote in a recent op-ed.

"Hyde Park neighborhoods will likely continue to obtain abatements at the rate and average amounts that they have gotten over the years," Newman wrote.

That's not technically possible. If the proposed changes go through, the same hypothetical housing project (either remodel or construction) would be worth a lot less:

A homeowner builds a house in Hyde Park valued at $800,000 on land valued at $100,000, with LEED Silver certification:*

*Taxes estimated using the Hamilton County Auditor tax estimate calculator. Taxes may increase or decrease during an abatement term based on triennial assessments and changes in levies.

Council Member Reggie Harris says removing abatements in the city's wealthier neighborhoods would make it difficult for a middle or low-income family to move there.

"I see [abatements] as an economic mobility tool," Harris said in a recent public meeting. "A number of people in my family worked really hard and were able to buy houses in neighborhoods of opportunity through an abatement process."

When will the new program go into effect?

The ordinance goes into effect Sept. 1.

If a construction permit is submitted before the effective date, it would qualify for the current abatement program, as long as construction begins within one year of the permit application.