Stop This Tax “Abasement”

Dear Council President Griffin and Mr. Epstein,

I am writing to you to provide public input on the reauthorization of Cleveland’s Residential Tax Abatement program. I have read thoroughly and with great interest the April 15 report and recommendations of the Community Development Working Group and the 2020 Study and Recommendations prepared previously on this issue.

My intent is not to reiterate or critique either. My intent is to give you an unvarnished and common sense driven perspective that I know is shared by many, many Cleveland residents who have witnessed the effects of this tax abatement policy for decades, both at a macro and ground level.

I start with a simple Yiddish proverb: “A meowing cat catches no mice.”

Interpreted: it’s time to stop studying this matter to death and do something bold with tax abatement policy to help address directly Cleveland’s two critically debilitating issues: poverty and affordable housing. Doing something bold with tax abatement policy now can create significant velocity in that direction.

Scanning the April 15 recommendations, I see a lot of things that make great sense, and I also see where the many worthy organizations involved are being tactful to not alienate the powerful, influential and well-connected developer and contractor community, as well as their ubiquitous power broker attorneys.

I felt the same way about the 2020 Tax Abatement Report and the 2030 Equity Housing Plan. There were many good things in both but also lots of accommodation, as no one appears to be willing to be clear and call out the way the posh, privileged and powerful in our city have profited for decades by driving a civic agenda that has had the net effect of keeping poor people poor and living in costly, substandard housing.

You’ve heard this from people smarter than me and its true: poverty is a policy decision, and it wasn’t a policy decision of our government officials here. It was a policy of the power elite in the greater Cleveland area that actually run things. It was their policy towards economic and property development that focused on the downtown playground for the well-to-do and a handful of Cleveland’s neighborhoods. It was a policy that refused to acknowledge and attack directly endemic poverty and housing discrimination in a truly effective way. It was a policy that rewards rich people for catering to rich people.

It’s time to stop studying these problems to death and do more to finally fix them. I know lots of well-meaning people have been trying very hard to do the right thing, including yourselves, and I mean them or you no disrespect whatsoever.

But what matters is results. Every stratum of the real estate market here has been poached by investors, and as a result affordable housing is in crisis and poor people have only stayed poor. We remain the poorest big city in the United States, and every economic development decision in the City must now be viewed through the filter of this one question: what directly will this do for poor people in poorer neighborhoods in this city? That question must be asked of the reauthorized tax abatement policy.

I believe our tax abatement policy and practices have contributed to both entrenched problems (lack of affordable housing and poverty, saying nothing of the money it has stripped from our schools) and it needs to be fixed and fixed fast. Increased urban density in certain “chosen” areas to get income tax revenue and retail activity never “trickles down” to actually address either problem in a meaningful way and largely just benefits the Cleveland power elite.

Take a ride around Gates Mills, Hunting Valley, Chagrin Falls or Pepper Pike. Then take a ride around some of our forgotten eastside neighborhoods and tell me this is not a fact. The income and wealth disparity in this community is as stark as anywhere in the United States, and decades of tax abatement policy has only served to help keep it that way. The suburban elites investing in real estate and pulling the strings have done quite well in taking advantage of this tax abatement policy. Those living in Cleveland’s neglected neighborhoods have not.

I agree tax abatement is just one tool and we need to use a big tool kit to get on top of affordable housing and poverty, but tax abatement policy must be used boldly going forward in its next iteration to preferentially help Cleveland’s most vulnerable, and I ask that you focus on the recommendations in the April 15 Report that will directly do that.

For too long developers with investment funding from outside the city have profited handsomely building and acquiring, then becoming the property managers of high end rental. As well, investors have gobbled up tracts of cheap homes and rented them at ridiculous prices while letting them deteriorate.

Investors have manipulated the market by squeezing the supply side and then claiming they are meeting market demand. They have pocketed the tax abatement, played the spread between low cost to acquire land and buildings and high rent and have extracted the economic vitality of neighborhoods in excess rent. That’s one way that poor people stay poor, and moderate income people never get ahead.

People rent because they cannot afford to buy, because they rent and pay too much.

If there is any good that can come from our current inflation, higher interests rates and the possibility of a recession is that the out of control building boom of high end rental will come to an end. The market demand story is a lie created by flimflam investor marketers. Who do you think funds the market studies that are promoting this lie of market demand for high end rental?

Rentals are filled because there is little or no affordable housing that can be purchased! There is no “silver tsunami” not conjured up and mythologized by investors, and truly independent studies reveal millennials would much prefer to buy a house if they only could, rather than throw their money away on stupidly high rent. But Wall Street has invested in high end rental and made affordable housing impossible to find, so we’re stuck with paying way too much for way too little.

And all the while tax abatement was a key to making that lush deal for the developers pay off like crazy in Cleveland.

Who is hiding behind those secretive LLC’s for every high end rental project or bulk acquisition of distressed homes? Investors from New York, Texas, Detroit, Hong Kong, Singapore, Moscow? We know the U.S. real estate market is a favorite for the international dark money laundering racquet. How much dark money is invested now in Cleveland’s high end rental real estate market? Would it be a good thing for the City to know that?

Take the best recommendations from the April 15 report that end the money grab by developers and help average and poor people in this city. End abatements for market rate and luxury rental. Assure we know who the investors are behind each real estate development LLC. Assure robust public participation in the property development project planning and implementation. Restore much needed cash flows to our schools, libraries and Metroparks. Provide scaled abatements that target forgotten neighborhoods and especially home renovation and first time home buyers. Give preference to owner occupied purchased homes and help lower income people get into them. Help keep seniors in their homes. Make homeownership the vehicle for wealth creation it should be in every Cleveland neighborhood. Help people first, not corporations.

Cleveland can do this. One candidate for County Executive says we don’t think big enough; we don’t have enough big ideas. Here are a few.

Provide plenty of jobs for poor people in Cleveland. Revitalize the poorer neighborhoods, rebuilt by minority contractors and filled with local business fed by local investors. Assure every Clevelander has housing that is affordable for them in their income bracket.

Tax abatement policy can help. Please design it such that it preferentially helps our most vulnerable.

Thank you,

Arthur Hargate, Cleveland Ward 6

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Arthur Hargate

Arthur Hargate

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Arthur Hargate is retired after a 40-year management career in the environmental services business. He now writes, plays guitar and is a social activist.