Smart Growth May Offer Cincinnati a Way Out of Its Structurally Imbalanced Budget

Land Use Budget ImpactsThe City of Cincinnati passed yet another structurally imbalanced budget late last week. At the meeting Vice Mayor Roxanne Qualls (C) and other council members admitted that the approved budget once again relied on a one-time fix to get the city through another budget cycle without significant layoffs and major funding cuts.

Despite having its hands tied in coming up with creative ways to find revenues, Cincinnati is not alone in dealing with this dilemma. Hundreds of cities across the nation are struggling with budget deficits with some much larger than ours.

Smart Growth America recently completed a national report, titled Building Better Budgets, with findings that could help many municipalities find long-term solutions to their budget crisis. The report makes three main arguments that smart growth development, described as compact, walkable and mixed-use overall save municipalities on upfront infrastructure costs, service costs and serve to increase the city’s tax base better than suburban style developments.

After reviewing a diverse collection of cities across America, such as Raleigh, NC,  Nashville, TN and Champagne, IL, the study found that smart growth development costs an average of 38% less for upfront infrastructure, saves municipalities an average of 10% on ongoing delivery of services, and generates approximately 10 times more tax revenue per acre when compared to conventional suburban development.

“These figures are conservative, and many communities could save even more,” authors of the report stated. “Smart growth development’s potential for lower costs and higher revenues means that many municipalities can operate smart growth development at a surplus rather than a deficit.”

How local projects stack up
Several projects on the horizon are poised to add to the tax base in Cincinnati’s urban core. Phase two of The Banks, dunhumbyUSA Centre, the 580 Building apartment conversion, hotels at the Bartlett Building and Enquirer Building, and proposed apartment buildings above Fountain Place and the parking garage at Seventh and Sycamore all offer the upfront infrastructure cost savings and long-term revenue advantages discussed in Smart Growth America’s report.

The redevelopment of the Pogue’s Garage into a 30-story apartment tower with a grocery store, and an 11-store Holiday Inn at Broadway and Eighth Street are two other projects that offer similar benefits, but are currently on hold due to the ongoing legal dispute surrounding the City of Cincinnati’s Parking Modernization & Lease Plan. Additionally, a slew of projects in Over-the-Rhine, Walnut Hills and Northside also appear poised to help stabilize the city’s finances thanks to their smart growth advantages.

Property Tax Yield

Not all is well, however, as many recent real estate investments throughout the city have taken the conventional suburban development approach. The Incline District in East Price Hill, Villages of Day Break in Bond Hill, Oakley Station in Oakley, MetroWest in Lower Price Hill, and developments along Red Bank Road in Madisonville all seem to be missing the bigger picture about the financial advantages of smart growth.

In addition to the actual footprint of the development, the report discusses the importance of a project’s site location.

“The per-acre measurement of tax revenue is extremely important because land is a precious commodity for every jurisdiction,” the report concluded. “It is true that in some cases the total dollar amount of tax revenue in conventional suburban settings can be very large, but those conventional suburban developments consume large amounts of land. Many cities in the United States have a constrained land supply and must husband their land resources carefully in order to protect their solvency.”

While many of the real estate investments throughout Cincinnati are being done in a smart manner, others seem to be squandering valuable urban land with suburban-style developments. The City of Cincinnati, and other cities around the region, might be able to make a long and sustained positive impact on their budgets by refusing to go forward with projects that offer an easy, short-term score, and instead demanding more sustainable development practices in their community.

  • TimSchirmang

    “The City of Cincinnati, and other cities around the region, might be able to make a long and sustained positive impact on their budgets by refusing to go forward with projects that offer an easy, short-term score, and instead demanding more sustainable development practices in their community.”

    This is a beautiful summary against the parking lease deal. Perfectly stated, thank you John.

    • I would disagree with your assessment, Tim. The parking lease deal provides an initial payout for the City, but it also includes annual payments of about $3M. Furthermore, the deal rids the City of future capital obligations for aging parking facilities, and allows the City to benefit from an investment in its parking assets that will bring them into the 21st century.

      Providing modern facilities that utilize up-to-date technology, and creating a competitive marketplace seems to be both sustainable and beneficial long-term.

    • TimSchirmang

      Having combed through the lease documents, the remarks about the annual payment and capital maintenance obligations are just not accurate. The details reveal that this is indeed a short term score for the city at the expense of long term sustainable development. It really fits perfectly within John’s description of what not to do.

    • Eric

      Having combed through my hair, what has the relationship between privatized parking in cities like Chicago and Indianapolis been with respect to “long term sustainable development”? It is my understanding that development has not ceased or even tailed off since their leases were agreed to.

    • Having read through the entire parking modernization and lease agreement, I can tell you that it calls for an upfront payment of $92M and annual installment payments estimated to be around $3M.

      The parking assets included in the deal also included properties that will need to be rebuilt sometime during the 50-year lease on garages and 30-year lease on parking meters.

    • John Yung

      My comments in the article were in reference to the several strategies council has actually employed to bridge funding gaps, including the shell game of delaying payments on debt and other financing voodoo. The parking deal had many other redeeming features aside from plugging a 2-year budget hole including the modernization of the parking meters, replacement of several garages and rendering profit on a program that is currently revenue neutral. Not to mention the investment in several economic development projects such as the MLK interchange.

      I think it is worthy to note that there have been several factors contributing to the structural imbalance with the largest being the reduction and elimination of state funding to local governments. This is the era of belt-tightening that cities across the country must prepare for as funds for programs at the state and federal level dwindle under the banner of deficit reduction. To coin a term, the “self-reliant” city is one that will have to sustain itself without the aid of outside funding such as the state excise tax or other funding sources. Funding alternatives must be considered in this new era as well as the implementation of a long-term strategy to increase the city’s tax base.

    • Eric

      If you want to make this about parking, than it’s more of an argument against surface lot or privatized parking as the uses with the highest tax yield likely have structured, on street, or no parking. That’s why the yield per acre for uses like WalMart and malls is so low, because surface parking wastes land and reduces the tax base.

  • Jake Mecklenborg

    People are forgetting that this year’s budget crisis was largely caused by John Kasich eliminating the state inheritance tax. This means that rich asshole you went to high school with inherits all 22 of his grandfather’s apartment buildings instead of just 17. Meanwhile, the budget was balanced in part by raising the property tax, a detail that has received surprisingly little media attention.

    • NOT a partisan hack

      It would have been much better to leave the estate tax in place. That way, that rich asshole would have become a Florida resident (as many Ohio residents have done) to avoid a confiscatory tax on assets that have been purchased with income that was already taxed. That way, Ohio would get substantially less tax income from this individual for the rest of their life. Or, maybe the resident chooses to remain an Ohio resident and the state forgoes a one-time inheritance tax in exchange for years of other taxes.

      Even better, I wish the estate tax would have remained in place so we could stick it to those rich assholes who own other types of real estate like family farms or dairies. I like the prospect of making them sell the farm in order to pay a tax bill.

    • matimal

      So, you have no ethical problem with the effects of enormous inheritances on concentrating wealth and power in fewer and fewer hands?

    • NOT a partisan hack

      Nice non-sequitur.
      But to answer your question –no, I do not have a problem with someone passing on material wealth from one generation to another. Chances are they worked hard for it and paid huge sums of taxes along the way –much more than your averagetax payer. And chances are that theybought hard assets with income or earnings that were already taxed and thenpaid taxes on those assets for years. Soyou tell me how it is fair that upon their passing the government will againtax those assets, only this time they will do it at extraordinarily high rates? By and large, the estate tax is not a problem for those who have incredible amounts of wealth. They have enough money that it probably doesn’t
      matter. It is very much a problem for those who do not have incredible wealth but fall under the purvey of the tax, especially family run business with hard assets or with long held land that has appreciated over the years. Many of
      these business do not have the equity or cash on hand to pay the tax bill when
      the founder passes away so they are forced to liquidate an otherwise perfectly
      fine business that is contributing to the economy and providing jobs. There
      is a reason that states have been abolishing estate and inheritance taxes – it hurts the states competitiveness. As a lifelong Ohioan, I do not want to see successful people who have lived and worked here all of their lives change residence to another state after they retire as part of their estate planning.

      I am sure now I will be accused of being a COAST operative and city-hater on
      this site since I am not swallowing the party line hook line and sinker.

    • I can’t speak for Jake or the others, but to me the problem is that the State of Ohio balanced its budget on the backs of local governments throughout the state. The State of Ohio could have done a wide variety of things to balance its budget, but it chose to do the things that would hurt local communities and spread the pain around.

      Real leadership would have been finding a solution to the State’s budget issue at the state level. Simply passing the buck off to someone else isn’t achieving a real solution to the problem. The result of such actions is drastic service cuts and/or tax increases at the local level…but at least John Kasich can say he didn’t raise the taxes himself. Instead he forced the local guys to do his dirty work since they have no one else to pass the problem onto.

    • TimSchirmang

      Responsibility flows both ways here. The city shouldn’t have become reliant on a state handout.

    • There’s a difference at how each level works, and local governments have fewer tools at their disposal to balance their budgets.

      Furthermore, the existance of state government is to support its local communities. That’s what the federal level does for the states. The programs run by a state save money for local governments. This makes sense and is how the system works.

      You may call it a “handout”, but I doubt most people would. They’d probably just view it as the structure of government.

    • TimSchirmang

      Ultimately, the state and city draw from the same economic well: the people. For one level of government to assume the other should bear a greater portion of the burden requires a ‘handout’ mentality based on some utopian fantasy. Alternatively, practical leadership would recognize that the budget situation is rough for everyone, instead of sitting around and moping about it.

    • Tim,

      Local governments are mandated to have balanced budgets. The federal government is not, and for good reason, as deficits indicate spending which means there is investment in the economy…thus boosting GDP. As a result, governmental finances operate in a trickle down manner from the federal government. The Feds provide money to the States/MPOs so that they can invest in things that they otherwise can’t afford on their own. It’s not to say that these things are pork projects, it’s just that the economy works better that way.

      If you were to tax people at the full level of what services they require, then there would be massive tax increases. What’s needed to keep that from happening is some deficit spending at the federal level to boost GDP and thus boost tax revenues from the levels at which they are currently set.

      These aren’t “handouts” or some utopian vision. It’s reality.

    • TimSchirmang

      Yes! This thread just reached a real destination. Your second paragraph is a gem. Let me re-phrase it…

      …If people actually had to pay for what they consume, they would not enjoy it. Instead, we should repeatedly sweep economic reality under the rug, year after year, by having the federal government endlessly borrow money, confident that the long term consequences probably will not occur in our lifetimes, thus they are not really a concern at all…

      How did that work out for Rome, when they ran out of foreign treasuries to conquer and pillage?

    • Not only did I not ask you to rephrase my comment, what you rephrased it as is not at all what I said.

      Your mind is clearly made up and you don’t appear to want to have a genuine discussion.

      Here’s some good reading for you:

    • matimal

      What’s “nice” about it? Do you want Ohio cities to become a have of tax dodgers like Florida?

    • NOT a partisan hack

      Less than half of the states in the US have estate taxes. Does that make ~60% of our states enclaves for tax dodgers? Mind you that Ohio’s estate tax had the lowest exemption of any state in the Country at ~400k, meaning it was the most punitive of any state. If you don’t think this hurt the states competitiveness for retaining residents then your world view is so warped that there is no reason to continue this conversation.

    • matimal

      YES. Inequality is a problem for localities and states as much as the nation or the world. Lessening the negative effects of concentration of wealth can be BENEFICIAL for cincinnati. It creates new purchasers of services and increases the tax base. The middle class didn’t just happen, it was built. We need to rebuild it.

    • Kasich never would have cut the estate tax if that money went to the state instead of to local communities.

    • NOT a partisan hack

      I feel sympathy for communities like the village of Indian Hill. They are going to have to increase the earnings tax rate in order to pay for the amenities that residents would like to keep. They might even need to increase the fees at the shooting club.

    • Matt Jacob

      Sympathy? Why? That’s what was supposed to happen.

      I happen to agree with you that getting rid of the estate tax was a crucial part of making Ohio more competitive. But another part of why Ohio is less competitive (and I believe why Kasich intentionally left the burden for local governments to deal with) is that there are so many localities in Ohio! A big part of why Ohio isn’t competitive for new businesses is that there are a maze of local jurisdictions and taxes to wade through in order to start a business here. By intentionally putting more pressure on the local governments, Kasich is trying to force consolidation. Elmwood Place is surviving on traffic cameras right now for chirst sake because they’re too small to exist as their own jurisdiction, but they still refuse to consolidate with those around them.

      If you want Ohio to be more competitive, you have to get rid of these thousands of small localities. But it’s much easier to put a weigh on their shoulders and let the small ones get crushed than to pick winners and losers and become politically unpopular in the process.

    • TimSchirmang

      So doesn’t rich asshole in your narrative pay the piper anyway, via property tax on 22 buildings instead of 17?

    • Jake Mecklenborg

      No, actually the tenants pay the property tax, unless our rich asshole is too lazy to keep them rented. Oh, and please don’t give me that business about how renters don’t pay property tax, because they absolutely do in two ways. First, rent would be lower if there was no such thing as property tax, and second they pay the property tax embedded in the cost of all goods and services.

    • TimSchirmang

      Haha, I love the dramatics. I’m with you Jake, the tenants ultimately get the bill. But that’s basically my point. Sure in select commercial leases there may be a direct property tax pass-along, but in others and certainly in residential, the rent increases are delayed and therefor diluted. Ultimately taxes filter down to those least capable of avoiding them. The state’s decision to allocate greater tax revenue to property taxes versus inheritance tax has little impact on the long-term economic development at the local level.

    • Nazcaproperties

      As a property owner myself, with 15 buildings that my grandfather and father before me worked hard to build, renovate, and maintain over the years, not to mention fill with tenants, YES we do. I do not own a huge company and do not drive a BMW. I drive a Ford, I make about 50k per year. My family members and I live off of this business and yet we are being penalized with this tax. If someone owns billions of dollars worth, fine. But two or three buildings will get you over the estate tax mark some of you are pushing. That’s a middle class retirement, not some bigwig’s vacation money. You all need to do some more research. Thanks, Tim.

    • I’m not trying to advocate either way, here, but one note about real estate that I think is getting mis-construed in several comments.

      Inheritance taxes (when applied to real estate) promote disposition upon inheritance (aka, selling the farm to pay the tax bill). High property taxes promote dis-investment. There is an important distinction between the two: the first causes scattered selling; the second leads to across-the-board limits on buyers.

      Frankly, in all the tax discussions that go on in this country, I’m surprised more people don’t talk about property taxes’ effect on the economy as a whole. Real estate investment is still a huge part of the economy, and in a state like Ohio where property taxes are typically 2.5-3% of the property’s value, that can severely limit investment.