A tax abatement agreement between the city of Cincinnati and Cincinnati Public Schools expires at the end of the year, and it appears a dispute about state school funding formulas could be holding up a new agreement.
The city says details in those state numbers are important to reaching a new deal, but the school board says no.
Developers in the city getting property tax incentives on commercial projects receive a property tax break, but currently make PILOT (payments in lieu of taxes) payments to the school for 25-27% of the abated value. The 1999 agreement exempts new housing at $330,000 per unit or less from PILOT payment requirements.
In addition, the city has been providing a $5 million annual payment to the school district. That was part of a deal for the school district to support construction of Paul Brown Stadium and Great American Ball Park, which are exempt from paying property taxes.
Mayor John Cranley this week sent a letter to School Board President Carolyn Jones on the tax abatement agreement. He said a "collaborative approach to renegotiating this important agreement is in the interest of all parties."
"We believe that establishing objective fact-based funding formulas form the basis of our agreement," Cranley wrote. "Otherwise, how would the public and CPS know if it is being held harmless or not? The city has provided access to its own financial calculations to the CPS administration and CPS should commit to the same. Let's compare analyses and isolate any differences."
CPS Attorney Dan Hoying, in a July 25 email to a deputy city solicitor, disagreed about the information in the state funding formulas.
"The (school) board has firmly stated that state funding formulas are not germane to these negotiations," Hoying wrote.
A CPS spokesperson said the district believes the state formula should not be used in negotiations with the city because the Ohio General Assembly is not part of the agreement and the calculation is unpredictable and volatile.
"The state funding formula has been ruled unconstitutional four times," the spokesperson said. "The formula is not static and has the very real probability of changing every two years, based on the legislative desires of that current General Assembly. For the 2020-2021 biennium, the funding from the state does not take into account property valuation at all and property wealth calculations under the most recent formula were relative to the state average so benefits in state share calculation can be reduced due to factors completely outside the city of Cincinnati’s economic status."
The district also said the entire formula could be redesigned by the state legislature.
"Our families residing within the City of Cincinnati boundaries contribute to the economic well-being of this city through their property taxes and income taxes – it’s a symbiotic relationship," the spokesperson wrote. "Any new agreement should be based on what we collectively want as a community for our kids and for our future, notwithstanding what the state does or does not do to fund public education."
Cranley said property tax incentives drive growth in the city, and if there is no new agreement with the school district, the city will restructure its programs consistent with state law.
"Even without an agreement the city will ensure that CPS does not lose revenue as a result of property tax incentives and 'held harmless,' " Cranley wrote. "I continue to believe that the best way to accomplish this is through an agreement that is informed by the facts, but we remain committed to ensuring that CPS does not experience undue loss of a result of a failure to reach an agreement."
Cincinnati City Manager Patrick Duhaney said in a May letter to the Cincinnati Schools superintendent that the district's operating revenues have actually increased because of city property tax incentives for developers and the agreement related to those tax abatements.
Duhaney also stressed the city wants to ensure CPS doesn't lose money because of tax abatement the city provides.
In an attachment to that May letter, the city suggested for CPS to simply break even on a 30-year incentive the PILOT would be 5% instead of 25%.
Another attachment showed CPS had a net increase in revenues for tax year 2018 with the abatement at $9,311,627.
"Without an agreement, the city will still be able to offer property tax incentives to assist development projects that would not otherwise occur in the city, but the city will have to restructure its incentive programs," Duhaney wrote in a May memo. "For CPS, having no agreement will have a significant negative impact on CPS revenues."
Some in the community strongly disagree with the city's memo and have suggested the city's tax abatement policies have cost the district revenues.
The school board passed a resolution in June outlining its 10 priorities for a new tax abatement agreement with the city. Some of those are:
- While the Board respects the City's role to determine the necessity of development incentivizes, the starting point for any abatement should be an assurance from the developer that the Board will be made whole for foregone real estate taxes. In lieu of the annual, fixed-sum $5 million payment from the City under the current agreement, the Board supports a higher percentage contribution from developers who benefit from the abatements. The new agreement should compensate the Board for "grandfathered" CRAs that were negotiated under the 1999 Agreement.
- The parties should also consider the negative impacts that all abatements, including residential CRAs, have on the Board. City-wide abatements should be avoided, and the agreement should hold the Board harmless for residential abatements in areas of the city where abatement incentives are not necessary based on current market conditions.
- In lieu of cash payments made by the City to the District under the current agreement, there should be a partnership between the City and CPS for providing and funding municipal services that directly impact the health and safety of CPS students, including school nurses, and city sponsored school-based health centers, crossing guards, and school resource officers. The City should enhance pedestrian safety features surrounding CPS schools, especially high schools. The parties should consider again how both parties could benefit from the shared use of City and Board facilities as described in the 1999 Agreement.
- The agreement should be shorter in duration than the 1999 agreement, not to exceed five years.