Cleveland City Council agrees to rare 60-year tax incentive to support Flats East Bank development - cleveland.com - Home Builder Developer, Interior Renovation and Design Home Builder Developer, Interior Renovation and Design

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CLEVELAND, Ohio --- Cleveland City Council voted Wednesday to extend by 30 years development aid for the Flats East Bank project to help relieve some of its debt burden and open the door to more growth.

The plan extends tax deferments on the project that were slated to last until 2040 for another 30 years to 2070. Doing so is expected to clear the way for the Wolstein Group to refinance some debt and ensure that citybacked federal loans will be repaid.

The measure still requires the signature of Mayor Frank Jackson to become effective. Jacksons administration had lobbied the council to approve the extension.

Taxes for Cleveland schools would not be affected.

Why is the plan viewed as important?

Its important because it should stabilize the project and clear the way for its next phase, said David Ebersole, Jacksons economic development director. Clevelands biggest source of revenue from development projects comes from income taxes.

Also, about 1,800 people work at businesses at the site, according to the administration. The next phase calls for more jobs to be added at several restaurants. More than 300 more apartments are also planned.

I think were strengthening what is a more significant component for us and in fact the income taxes for the project are more substantial than whatever the forgone property taxes are at this point, Ebersole said.

How often is this type of extension considered?

The Ohio General Assembly created the power for cities to extend tax-deferments for up to 60 years in the last state budget. Intended for large projects, the authority expires at the end of this year.

Ebersole said it has only been considered a handful of times in Ohio the last time in November when Columbus approved an extension for the Polaris development adjacent to Interstate 71 at the citys northern edge.

The Flats East Bank project is a $500-million development involving about 25 acres along the east bank of the Cuyahoga River. Initial phases involved construction of a hotel, the Ernst & Young office tower, entertainment and retail sites and about 240 apartments.

What triggered the debt burden?

A drop in revenue and unexpected costs.

While some businesses struggled this year from the impact of the coronavirus pandemic, Flats East Bank has fared reasonably well. About 84% of residential space and about 83% of retail space are under lease, said Adam Hill, a real estate and financial consultant on the project. New leases recently negotiated will nearly fill the remaining retail space.

The office tower has been solid, too, said Ryan Sommers, another financial consultant.

But parking revenues, which were expected to help repay debts including the federal loan that the city is on the hook for have lagged by more than $1 million.

The project also encountered other unexpected costs environmental cleanup at the site that was more expensive than anticipated, higher property taxes as a result of new 15-mill levy for Cleveland schools that is not covered by the incentives package and the impact of the coronavirus pandemic this year.

The project is current on its payments to Cleveland schools and a reserve fund has covered payments on the federal loan, Ebersole said. Refinancing, supported by revenue from the extension, would allow prepayment of that federal loan.

Tax increment financing will allow new taxes created by the development to be used to help with project financing. The initial incentives were to run through 2040. Ebersole estimates the extension will provide about $3 million more a year for that financing through 2070.

Was there opposition?

While members of City Council voted 14-2 for the extension, some members flinched at its length and complained about being surprised with it now councils last meeting of the year rather than much sooner.

Councilman Jenny Spencer described the rush as a fire drill.

Councilman Mike Polensek said poor communication showed a lack of respect.

There has to be basic responsibility to this institution and the people, Polensek said. Nobody likes getting something dumped in their lap in the 11th hour.

Councilman Brian Kazy noted that approval of the extension would lock in the incentives for years beyond the tenure in office for any members of City Council.

He and Spencer voted against the plan.

Legislation for the extension was introduced in August. But Wednesday was the first day that all members were briefed on it.

A council committee tabled the proposal on Tuesday, planning to take it up in 2021. But Council President Kevin Kelley put it on Wednesdays agenda for discussion when it was realized that the chance to act would expire Dec. 31.

What if the City Council had balked?

Ebersole said failure to act could make it difficult for the developers to refinance their debt burden, ultimately forcing the city into litigation to recover the federal loan.

Cleveland City Council agrees to rare 60-year tax incentive to support Flats East Bank development – cleveland.com

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