Property tax incentives include include abatements of property taxes for a period of time (8-30 years) on the value of new construction in the city. The city has established parameters for issuing abatements for both commercial (including apartments) and residential. The owner of the property continues to pay property taxes on the existing land and structures.
Property tax incentives are often given by the City of Cincinnati in order to attract new businesses or new residential development. Lately, there has been much pushback against these incentives. At a superficial level, this pushback seems like a good way to achieve social good in our city at a time when the city does not have the money to achieve the desired social good by itself.
However, if the incentives are being given out properly, there is no excess profit for the city to recoup from the developer. If the Community and Economic Development Department is doing its job, the incentives given are just enough to allow a project to move forward. If the city requires the developer to provide housing or other community benefits that were not part of the original budget, either the developer will increase the ask for incentives or they will take their development elsewhere.
The city earnings tax provides more than 10 times the amount of money to the city’s general fund revenue compared to property taxes. Property taxes have been fixed by the City Council since the early 1990s. In addition, almost all new development in the city is done either through a project TIF, a community redevelopment TIF, or in a TIF district. Tax Increment Financing (TIF) is allowed under state law to provide for reallocation of property tax dollars away from the city’s general fund and into a fund to provide for public improvements within the TIF area or project. A simple example is using TIF dollars to build a public garage in a private development.
Given that almost all new development in the city is associated with a TIF, developer tax abatements have little direct bearing on taxpayers or the city's general fund. However, assuming the development creates new jobs and/or new residents, the city will see a significant benefit in the form of enhanced earnings tax revenue, which is 71% of the general fund budget revenue.
No one likes to give away money to third parties and take it away from other worthy causes, especially when those third parties are better off than we are. If this is the choice, then it is of course much harder to justify giving developers incentives. But this is not the choice. The choice is whether to have the development or not have the development. If we have the development, we will see greater tax revenue through collection of an enhanced earnings tax against a fixed property tax receipt. Whether we give the incentive or not, the other worthy causes will not be impacted.