Why Beachwood should NOT extend the Eaton 30-year TIF

While most people are not aware of this, an urgent special Councilmeeting has been called for tonight at 7pm, where Council will be asked to vote to extend the original 30 year TIF established in 2009, on the 53 acre Eaton HQ site. This will allow the City (not Eaton) to capture the approximate $1.2m a year, of non school property taxes generated by the TIF, which were intended to go the following important county agencies, once the original 30 TIF expires, for an additional 30 years.

The main rationale I have heard to defend extending the original 30 year TIF, which allows the City of Beachwood to capture around $1.2m a year, for an additional 30 years, that voters intended to go to these important County agencies, is that the recent state budget passed created a three month window where a loophole was created that made it legal and allowed us to do so.  While I don’t agree with the Mayor that we can legally use the money from this TIF in the way he believes we can, even if we could, there are many things Ohio cities are legally allowed to do, in regards to TIFs, but almost no city does, as it goes against the rationale to justify a TIF, and simply allows a city to hijack property tax dollars intended by voters to go to all the important County agencies.

For instance, this article from last week shows that Ohio law doesn’t prohibit the City of Middleburg Hts from creating a TIF after a $5m building was already constructed on undeveloped land, without the consent of the property owner, so the City can hijack the non school property taxes on the increased value of the property (which clearly would have happened without the TIF), and then use this money (which voters intended to go to all the important county agencies), to pay for things like the resurfacing of Engle Road when repairs are needed in the future, which is something the City would have had to do and pay for regarless of whether this new $5m building was ever built.

The most shocking thing about the article is they say the quiet parts out load. The Middleburg Heights’ Economic Development Director openly admites, “The TIF was not an incentive to attract Serpentini here,” which would have been hard for him to deny since the TIF was put in place a year after construction began and days before the business opened.  He went on to awknowledge that “The TIF is simply a mechanism to keep the tax money here and allow us to capture that increment above what’s there now, meaning the land and the new building,” and “The city is capturing that to use for public improvements. An example would be if Engle Road needed to be repaired in the future … we would be able to draw from that (Serpentini Tax Increment Equivalent) fund.”

In short, the City of Middleburg Heights doesn't see any ethical issue of using a TIF in a way it wasn’t intended, admitting it won’t spur any development or increased value that wouldn’t have occurred without the TIF, so they could legally hijack property tax money that citizens voted to send to these multiple important county agencies, so they could use it to pay for expenses that would have occurred without this building being built, simply because Ohio law doesn't prohibit it.

Beachwood could have legally done the same thing multiple times. For instance, we could have placed a 30 year non-school TIF on the property where the hospital was built on the corner of Chagrin and Richmond, right before it opened. This would have legally allowed the City to hijack the property taxes on the approximately $30m it increased in value, or about $290k a year, for 30 years, from all the important County agencies it was intended to go to. Then, we could have used this money, not intended for us, on things like resurfacing parts of Richmond and Chagrin road, that we would have had to do anyways and pay for from our money. In fact, there is nothing stopping us or illegal, if we wanted to place a 30 year TIF on the Porshe dealership property currently under construction, to hijack any non school property taxes on the increased value of the property once it is built. 

I assume the reason we didn’t do this, even thought we legally could (and still can on the Porshe site), is it unethical to use a TIF to hijack tax dollars from all the county agencies voters intended them to go, unless, at a minimum, there is a non-embarrassing argument that the increase in value to the property, would not have occurred, if not for the TIF.  

How does this relate to tonight's vote to extend the original 30 year Eaton TIF and additional 30 years? Since the Eaton HQ is already built, and the value of the property has already increased from $1,006,600 in 2009 before the TIF to its current value of $131,105,600, how can it possibly be argued that extending the original 30 year TIF to 60 years, is proper and the intended use of a TIF as you can’t claim it will incentivize something that has already occurred.

I understand the City wants to extend the Eaton TIF so it can continue to use the $1.2m+ a year in non school TIF money it generates on other economic development purposes in the Chagrin Highlands, like building a connector road from Harvard into Commerce Park other economic development purposes in the Chagrin Highlands.

I have been one of the biggest advocates of building this connector road. However, the language of the 2009 TIF ordinance and ORC 5709.40(B) is specific that the “TIF Site” is the 53 acre Eaton HQ site (not all of Chagrin Highlands), and the money generated from the Eaton TIF is only allowed to be used on certain allowable improvements that will “directly benefit, or that once made will directly benefit” the 53 acre Eaton TIF Site.

As big of a proponent as I am of the benefits of building this connector road, I don’t think there is any honest argument that a road from Harvard into Commerce Park, that on Harvard begins over 2,000 feet past Eaton Blvd, and at it’s closest doesn't come within 1,000 feet of the boarder of the 53 acre Eaton TIF site, provides a “direct benefit” to it (see overview map below). Any benefit the Eaton TIF site realizes from this connector road would be the definition of an indirect benefit, not a “direct benefit” the ordinance and ORC 5709.40(B) requires.

What is most frustrating is it would be completely appropriate and non contraversal for city to float bonds to pay for this road, and place a 30 year non school TIF on the two undeveloped parcels that would realize a direct benefit from this road being built. While this TIF won’t kick off $1.2m+ a year like the Eaton TIF does now, if it takes three years to build this road, and another 7 years for developers to build on the land which was landlocked without the road, that still leaves 20 years to collect the property taxes on the increased value of this property, which should be more than enough cover all, or at least most of the debt service on these bonds.

While all these important County agencies don't their share of property taxes on the increased value of the property during the TIF, they benefit in the long run because when the TIF expires, the property returns to normal taxation. This allows all these agencies that didn’t get a share of the increased value for years, to now benefit by collecting them on $131mm in value, instead of the $1m in value before and during the TIF.

At the last Council meeting, when this was discussed, Alec Issacson said that he thought it was admirable that I care about the funding of these important county agencies we are taking this money from, but as a Councilman, it is my job to only care about Beachwood's funding.

I do understand there is some unique balancing that has to be considered. However, if Councilmembers are given the authority to take millions of dollars away from these important County agencies voters intended this money to go to, it places a responsiblity upon us to make sure we are are only using TIFs in the way they are intended, and not just as a grab of money intended for others, simply because Ohio law doesn't prohibit it.

Secondly, it was only a few months ago when the County Library System announced that they will be building a new $21mm library in Beachwood breaking ground in 2024. To turn around a few months later and vote to take a millions of dollars over 30 years that voters intended to go to the County Library System, just because something in the state budget created a three month window where a loophole made it legal for Beachwood City Council to do so, doesn't mean we should.

Finally, this isn't a Republican vs Democrat issue. David Brock, the Chairman of the Cuyahoga County Democrat Party who authored this blog post with his thoughts on the extention of 30 year TIFs to 60 years, reached out to me to let me know that he shares my position on this, as has County Councilman Jack Schron, who is a Republican. Ensuring these important County agencies recieve the funding voters intended to provide them, is something all residents should care about.