By Linda Dillman
The dance of development and tax abatement is a sophisticated tango performed by businesses, municipalities and school districts to bring new business to Community Reinvestment Areas, though with trade-offs in tax revenue for cities and schools like those in Canal Winchester.
What is a tax abatement and why is it attractive to a company looking to open up a new facility? It is an agreement where a municipality and, if appropriate, a school district forgo the property taxes on a commercial building for a set number of years—usually 10 to 15—in exchange for a developer constructing a building and generating income tax revenue or improvements to existing properties.
Real estate taxes are still collected on the increased value of the land, just not building improvements. However, according to Canal Winchester Schools Treasurer Nick Roberts, not all abatements are industrial related.
“Industrial valuations only make up 3.54 percent of the district’s total valuations—$16.4 million of $465.7 million—thus the industrial parks don’t generate an abundance of revenue,” said Roberts.
City of Canal Winchester Development Director Lucas Haire said the majority of Canal Winchester land within a Community Reinvestment Area was established before 1994, such as Canal Pointe.
According to Haire, the pre-1994 district allows for what is known as a by-right incentive, which means if a company or business builds or remodels a building, they automatically qualify for a specified incentive and there is no negotiation on the rate or the term.
“There is no negotiation in a pre-1994 CRA,” Haire said. “In a post-1994 CRA, there are prescribed requirements in Ohio law. The city must negotiate or receive a waiver from the school board if more than 50 percent of real estate value will be exempt from taxation. The term and percentage of the exemption are determined by the city negotiating with the developer and the school district. This is based on the project investment, the number of new jobs and payroll created, and if the project meets certain requirements as specified in the enabling legislation.”
There is currently only one CRA district within Canal Winchester that is post-1994—the Route 33 CRA that was created late last year.
Currently, there are 32 tax abatements on the books. Roberts said if there were no tax abatements, the district could collect an additional $611,049 in property tax revenue.
“The only advantage to our district is job creation and economic development of the area,” said Roberts. “The district does have an income tax, but to benefit, the people filling these news jobs must live in the school district.”
Despite many new builds, such as Brewdog on Gender Road, they are all located in areas already classified as pre-1994 CRA. Therefore, Roberts said the city did not need school board approval, which translates into no revenue-sharing agreements.
However, the Canal Winchester Board of Education approved their first post-
1994 CRA arrangement last year, which involves a revenue-sharing agreement in lieu of taxes to offset a portion of the abatement.
“We obviously won’t receive the amount we would have received with no abatement, but this helps offset about 60 percent of the loss in revenue,” Roberts told the school board in March 16, 2018 email. “Tax abatements are, unfortunately, a must for communities needing and/or wanting to grow economically due to competition around the world. The district obviously would love to have the $611,049 lost due to the abatements; however, in the big picture, it is a small cost to the return on investment in the community.”
Haire said most communities in Ohio offer CRA exemptions for certain projects, especially areas that are zoned industrial. And to remain competitive in attracting industrial investment, offering a real property tax exemption is necessary.
Canal Winchester typically only receives six percent of the real estate taxes that are collected, but in most cases, Haire pointed out it receives 100 percent of income taxes collected from the employees that work within tax-abated buildings.
“We remain cognizant of the impact exemptions have on other taxing authorities within our jurisdiction,” said Haire. “In other cases, the exemptions for improving property are targeted specifically towards our historic district. There are many properties in the Old Town Area that have received a real estate tax exemption by investing more than $25,000 in improving and rehabilitating these historic structures. This incentive encourages investment in these historic properties that are inherently more costly to maintain and improve in a historically appropriate manner.”
According to Haire, in many cases there would be no investment into the property, but for the real estate tax exemption.
“So often times the city and other taxing authorities are not necessarily giving up anything as they continue to receive the taxes on the land,” said Haire “and likely will receive increased revenue when any investment is made as the land value will increase.”