Requiem for responsible development in CH

Barring a miracle, CH City Council will pass financial legislation this month that will allow construction to begin on the Top of the Hill (TOH) project. This legislation will complete the package of financial transactions associated with the project. The city has yet to produce a comprehensive financial statement indicating revenues and costs to the city for TOH. At public meetings, city representatives discuss revenues but never costs. I searched council minutes, legislation, and TOH contracts to calculate the revenues and costs shown below. They show that TOH will be a major, long-term drain on city finances.

Total estimated revenues to CH over 30-year term of agreement: $20,250,300           

  • Land lease at $10/year: $300
  • Payment by developer in lieu of taxes (tax rebate) to schools of $400,000 per year: $12 million
  • Payroll taxes of new residents and employees of $275,000 per year: $8.250 million
     

Estimated direct costs, plus revenue loss, to CH: $43,970,000

  • $1.8 million grant to developer paid by City Revenue Bonds, including interest: $2.3 million
  • Loss of revenue from parking garage (assumes 300 spots will be rented at a rate of $30/month): $5.67 million
  • Tax rebates to developer of $1.2 million per year: *$36 million (*The city argues this is not a cost because it is money never received. The TIF agreement requires the developer to make payments in lieu of taxes so funds are deposited to a city/school system account. The city sends 25 percent to the school system and rebates the rest to the developer. This is equivalent to someone sending a check for a $100 debt and asking for $75 back. Most people would conclude that it cost $75 to get $25, not that the $75 was lost revenue.)

Net cost to CH: $23,719,700
                                                                                                                                            

The developer's website boasts $2 billion in completed construction. Figures from other projects show that the developer gets an average of 36 percent of its funding from public subsidies. At the current estimated cost of $75 million for TOH, the developer will be getting 38 percent of its funding from Cleveland Heights. Clearly this is a profitable company that is astute at securing public funds to guarantee, if not enhance, its profits.

City representatives tell CH residents that no development would occur without subsidies. However, by insisting that TOH be built as a single entity, the city has shut out developers who would be more likely to build smaller buildings without giant subsidies. Studies of subsidized projects in other cities suggest that slower, incremental development would generate nearly the same revenue as highly subsidized projects. There is no evidence that the city has seriously sought alternatives to this massive development.  

The hotel, office space, retail space and for-sale townhouses that were part of the original plans for TOH were removed. These eliminated components would have created more payroll taxes, bed-use taxes, and property taxes from permanent residents, resulting in more revenue for the city and less for the developer, who will collect rent in addition to subsidies under the revised plans.

City officials either do not understand the long-term ramifications of publicly subsidized projects, or do not care about kicking the debt can down the road. Their motivation for constructing this behemoth seems to be the satisfaction of saying they completed a project that has been discussed for decades. They have demonstrated that they are not acting in the best financial interests of residents. 

The next CH City Council meeting is Jan. 6. Every CH citizen should contact council members and tell them not to pass the upcoming financial subsidies for TOH.

The TOH project might not be in everyone’s backyard, but there are projects coming soon to the Cedar/Lee/Meadowbrook, Severance, and Noble/Nela neighborhoods. Early indications are that large subsidies are being planned for those projects, as well. Failure to hold council accountable for TOH finances will allow its members to continue to drive the city toward economic ruin. The current financing of TOH sounds a death knoll for fiscally responsible development in CH, now and in the future.

Joan Mallick

Joan Mallick is a 48-year resident of Cleveland Heights. She cannot imagine living anywhere else, but is concerned about the direction the city is going in, in terms of viable economic development.

Read More on Opinion
Volume 13, Issue 1, Posted 9:38 AM, 01.03.2020