Cleveland leaders need to explore other options to secure funds for the schools
by Chuck Hoven
(Plain Press, September 2012) The City of Cleveland and the Cleveland Metropolitan School District are making an all out effort to pass a 15-mill school levy this November. This represents a 50% increase in the amount of property tax residents would pay for the schools. The district hopes to raise $77 million of which $50 million would cover a projected deficit and the remaining amount would be used for funding a transformation plan. An additional $5.5 million (1 mill of the 15 mill levy) would be designated to charter schools aligned with the district. If the levy passes, the average Cleveland homeowner, with a home worth about $64,000, would pay an additional $294 per year in property taxes roughly a 50% increase in the amount of the tax for schools.
Cleveland residents have to be wondering why in a city blessed with so much property wealth would each individual homeowner be asked to pay so much? Why are Cleveland residents being asked to bear 15-mill tax increase? In a July 18th Cleveland Plain Dealer article, titled Cleveland Schools seek big tax increase in November to carry out transformation plans, the article notes that no other district in Northeast Ohio has passed a levy with as much millage since the Ohio School Board association began tracking levy results in 2003. The article further notes that to gain a comparable amount of funding per pupil, the Beachwood school system would only have to pass a 3.1 mill levy and the Mayfield school system would require only a 4.3 mill tax. Granted, Cleveland’s modest homes are not, for the most part, valued as high as those in most suburbs, but this doesn’t’ explain all of the disparity. The big reason for much of the disparity is that the City of Cleveland has a disproportionate share of tax exempt, tax abated, and tax delinquent properties.
A 2004 study by Policy Matters Ohio commissioned by then Cuyahoga County Treasurer Jim Rokakis showed that 36% of the real property in the City of Cleveland was either tax exempt or tax abated in tax year 2003. That year, the Policy Matters study indicates that all of Cuyahoga County, which includes the City of Cleveland, had 15.6% of its real property value receiving property tax exemptions or abatements.
Many of the tax-exempt properties in the City of Cleveland serve the entire county. However, the Cleveland Metropolitan School District takes the hit for the lack of property tax revenue from these properties with no effort by Cleveland’s leaders to recoup some of the lost revenue from County taxpayers. Think about the large stadiums downtown for the sports teams—all tax exempt. The government buildings downtown, which include county, state and federal office buildings that serve a population larger than the City of Cleveland—all tax exempt.
Cleveland’s Museums in University Circle and downtown, and the Rock-N-Roll Hall of Fame—all regional draws—all tax exempt. The Veteran’s Hospital, Cleveland Clinic, University Hospitals and MetroHealth Medical Center—the bulk of those large facilities—tax exempt.
Cleveland also carries a disproportional share of the region’s public housing—again tax exempt.
Cleveland has also had a policy of abating new and substantially rehabbed housing from property taxes for periods ranging from 10-15 years.
In an October 3, 2004 Plain Dealer article, Tax burden should be shared, Clevelanders tell schools, indicated that citywide the City of Cleveland residential and non residential tax abated properties had a market value of $1.2 billion. The article indicates the schools’ portion of the abated taxes amounted to $17.4 million dollars per year.
The City of Cleveland gains revenue from payroll taxes from the new homeowners moving into abated properties and believes the abatements help to maintain the housing stock. But, perhaps to alleviate the burden on the schools, the City could share half of the payroll tax from these homeowners with the school district until the abatement is finished. This would only be fair.
Another way Cleveland differs from many suburbs is the low collection rate for property tax. A rate that is declining due to the economic conditions of Cleveland residents who can’t pay their taxes or are forced to abandon their property.In 1999, the school district reported a property tax collection rate of 91.6%. In the Cleveland Municipal School District’s 2009-2010 Budget forecast, the district stated, “Current year property taxes are estimated by the County Auditor ‘s Office based on a Collection Rate of 84.28%.” This means that nearly 16% of the property taxes are delinquent in Cleveland.
When the Cleveland Municipal School District did its Five Year Financial Forecast in October of 2004, it reported actual general property tax revenue at $151 million. This represented a decline from $155 million in 2002. In 2004, the School District predicted property tax revenue of 150.8 million in its fiscal year 2009 forecast. However, that rosy projection never occurred. The Cleveland Municipal School District never was to realize the expected bump up in real estate taxes as abatements on Cleveland properties expired. Instead the foreclosure crisis took Cleveland by storm. Property values dropped as delinquency rates increased. In the Cleveland Municipal School District’s 2009-2010 budget forecast the Real Estate Tax Estimate was $140,765,786, ten million less than it had predicted only five years previous.
At a public meeting promoting the Cleveland Plan for Transforming the Schools, Cleveland Mayor Frank Jackson said Cleveland had $7 billion in new construction projects either planned or underway. He said he would trade all that development for “quality education for Cleveland’s children.” When asked how much of that new construction was tax abated, the mayor said that the schools’ portion of commercial development projects is no longer being abated. This would leave citizens to think that the schools must then receive a substantial amount of money that would make a new tax levy unnecessary.
However, what Mayor Jackson did not say, was that a large portion of the properties being developed now in the City of Cleveland are tax exempt. Think about it—massive expansion at University Hospitals and Cleveland Clinic—largely tax exempt. The expansion at the Art Museum is also tax-exempt. The new convention center facility is tax exempt. The expansion of the Federal Building is tax-exempt. New buildings at Cleveland State University and Case Western Reserve University, and Cuyahoga Community College are all tax exempt.
When Cuyahoga County Treasurer Jim Rokakis commissioned a study by Policy Matters Ohio in 2004, his goal was to get Cleveland’s large non-profit hospitals to make payments in lieu of taxes for what he termed a Payment In Lieu of Taxes (PILOTs) program in Cuyahoga County. He noted, at the time, that large hospitals in Boston were doing just that—giving the city of Boston about $2 million a year. The Policy Matters study indicated that in 2003, together Cleveland Clinic and University Hospitals had nearly $960 million in exempt property. The Policy Matters estimated that the values of the hospital buildings were most likely overstated by 40%, so for the purposes of the study reduced the value by 40% and calculated, even at the reduced value if the two institutions were not exempt, Cleveland Clinic would pay about $12 million in property taxes and University Hospitals about $5.5 million per year in property taxes. With roughly 58% of commercial/industrial property tax going to the Cleveland Metropolitan School District, that would amount to roughly ten million in additional revenue each year for the school system. The study indicates that the two hospitals were seeking additional exemptions at the time of the study. Both hospitals have been building additional structures in the interim as well, so we can conclude the amount due the Cleveland Schools if the two hospitals were not exempt from property taxes would be more than $10 million a year.
In Cleveland, one of the poorest cities in the United States, many residents and homeowners find themselves struggling to pay large property tax bills due twice a year. Recent monthly fees added for garbage pickup have added to the burden. Given the dire straights that most Cleveland residents find themselves, it is high time our leaders take a different tack to find a way to provide the revenue to assure every school in the district has the resources and staff it needs to provide high quality education and after school programs for our children.
In 2004 Rokakis’ plan was shot down by then Mayor Jane Campbell, no doubt at the urging of the large hospitals. Cleveland residents continue to witness large tax exemptions with no lobbying by Cleveland leaders to bring fairness to the process. Many of the foundation leaders that are now pushing for the Cleveland Plan for Transforming the Schools and the 15-mill levy also were involved with creating the new County Government. They allowed the County government to form without addressing the most fundamental disparity in Cuyahoga County—that of property tax revenue for the schools.
City of Cleveland and Cleveland Municipal School District leaders need to get on their bully pulpit and make a case for the Cleveland Metropolitan School District to receive just compensation for the properties receiving exemptions. There are numerous examples in other states on how communities can be reimbursed for exempt properties or develop payment in lieu of taxes programs.
Randy Lerner’s recent sale of the Cleveland Browns for $1 billion dollars is a particularly galling case of property tax exemption. Lerner sold a losing football team for a half billion dollars more than his family paid for it just over a decade ago. Cuyahoga County residents built the stadium for the Browns. In an effort to accommodate the Browns’ owners, Cleveland leaders marched down to Columbus to make sure the property was tax exempt—we were told this was important for the project be feasible. Cleveland veteran investigative journalist Roldo Bartimole has documented the public cost of building the stadium for the Browns. Besides the huge subsidy to build the stadium, the building was exempt from taxes. Bartimole says the exemption amounts to about $8 million a year—more that half of which would have gone to the Cleveland Metropolitan School District. The sale of the Browns by Lerner calls out for a sit-down between Lerner, Mayor Jackson and Cleveland Metropolitan School District CEO Eric Gordon. At the very least, Lerner should be persuaded to pay the City of Cleveland and the School District ten years equivalent of property taxes that were exempted on the stadium. The $80 million, over half of which would go to the schools, would represent just a small portion of the $500 million Lerner made on the sale of the Browns. Lerner would probably get a tax break by giving a large donation to the schools and the property tax payback would help in improving his reputation in Cleveland.
Bartimole suggests that the stadium be given to the billionaire owners for $1 and in exchange they would begin paying property taxes on value of the buildings. Similar deals could be made with the other large stadiums and arenas downtown, or perhaps the state granted tax exemptions could be revoked. Bartimole further estimates that tax exemptions to the Browns Stadium, Quicken Arena and Progressive Field totaled $16 million in 2010. With The commercial/ industrial tax rate of 58% going to the schools, the amount due to the school system would be over $9 million per year. City and County leaders need to shake up the status quo and start to look for revenue from sources other than the cash strapped residents of Cleveland.
Other options exist to garner revenue from large tax-exempt institutions. In 2004 Cleveland Clinic and University Hospitals bulked at the idea of giving cash to the school district and claimed they deserved their tax exemptions due to the charity care they offer in the community. Perhaps another course of action can be used to persuade the two large hospitals to consider the plight of the school district and its children. It should be an embarrassment to the two large hospital systems that people living in the neighborhoods immediately surrounding the hospitals have a life expectancy that is 20 years lower than that of some of the suburban communities that Clinic executives commute from each day to go to work.
Also, with the advent of national health insurance, charity care may no longer be a justification for such a large property tax exemption. Certainly Mayor Jackson and CEO Gordon can persuade Cleveland Clinic and University Hospital executives that it is in their interest to listen to a proposal to provide their charity care to the children of the Cleveland Metropolitan School District.
A modest proposal to have the large hospitals get involved in planning, designing and paying for a state of the art school nutrition program, a comprehensive health program for students, health classes, and physical education classes. The two major hospitals providing funds for the teachers, nutritionists and health care professionals necessary to design and implement these programs would go a long way in relieving the financial burden the school district is bearing for their tax exemptions. In turn the hospitals could receive credit for creating a national model for improving the health of a community, and offer an exciting area of research to help attract the best and brightest staff from around the world.
Perhaps the hospital’s development staff could also give the city and the school district some pointers on how to sit down with billionaires and ask for multi-million dollar donations. It seems the large hospital buildings bearing the names of prominent people speak to their abilities. Let’s start asking our wealthy citizens to extend those generous contributions to the Cleveland schools. Perhaps Lerner could be persuaded to take the entire $500 million profit he made on the sale of the Browns and place it in a foundation to benefit the Cleveland Metropolitan School District.
If Cleveland leaders don’t have the means to persuade the state to end the tax exemptions of the major sports palaces downtown, perhaps they can make a similar presentation to the owners of the Browns, Cavaliers and Indians. In exchange for the tax exemptions, the sports teams could be asked to provide funding for all after school extracurricular activities, and for the upkeep of the gyms and sports facilities in the district.
Fair Tax Distribution
As for Cuyahoga County government—Cleveland leaders need to get involved in the rewriting of the charter to assure that the Cleveland Metropolitan School District is reimbursed for tax exemptions given to facilities serving the entire county. A good starting point would be all Cuyahoga County government buildings and any stadiums, arenas or other facilities such as the medical mart and convention center, and port of Cleveland that were built or receive operating funds as a result of a countywide vote.
Cleveland needs to establish some fairness in the distribution of property taxes in Cuyahoga County. While the State of Ohio Supreme Court has ruled four times that heavy reliance on property tax is unconstitutional and results in unequal education, the state legislature has done little to remedy this glaring injustice. It is time for Cleveland residents to demand fairness in the tax structure. Since it is not likely that the State will rectify the property tax revenue disparities between communities any time soon, Cleveland and Cuyahoga County should address this matter locally. Certainly Cuyahoga County taxpayers can see the injustice of the Cleveland Metropolitan School District foregoing property tax revenue on huge expensive properties that are used not only by Cleveland residents, but also by residents of all of Cuyahoga County.
The Jackson administration is planning an all out push for the 15-mill levy. Community Development groups in Cleveland neighborhoods are reportedly being recruited to sign pledges to work with block clubs to persuade them to go out and vote for the levy. Block Club members should send the mayor and the development corporations a strong message that the 15-mill levy is not the preferred option. A smaller levy, coupled with other options would be more sustainable and fair to residents. Other options include the Payment in Lieu of Taxes program proposed by Rokakis in 2004; changing the County Charter to require the County to reimburse school districts for property tax exemptions when exempt properties serve the entire county; or working with tax exempt entities on creative programs for the schools that fit within the purview of the exempt organization’s mission. The city could also share with the school district some of the payroll taxes from property owners living in tax abated homes.
No Mayor Jackson, you do not have to trade all the new development in the City of Cleveland for “quality education for Cleveland’s children,” you just have to make sure that Cleveland’s children benefit from the development and the massive property wealth in the City of Cleveland.