Cleveland To Vote on Limiting Tax Abatements

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In a trailblazing referendum, Cleveland voters will decide this summer whether to limit property-tax breaks for businesses in an effort to pump more money from urban development into the financially strapped public schools.

The driving force behind the referendum is the Cleveland Teachers Union, which collected 33,000 signatures to force it onto the ballot. A special election is scheduled for Aug. 5.

Tax experts and Cleveland officials say the election will be the first time in the country that voters will have a direct say in whether to limit tax abatements for schools.

Proponents of the measure say that limiting tax breaks will allow schools to benefit from the property tax revenues generated by new businesses.

"We want to force all businesses to pay their fair share of taxes and hold the school system harmless," said Richard A. DeColibus, the president of the 5,000-member union.

Critics of the referendum, including some high-ranking city officials, believe it could hurt the city's economy--and the schools--by discouraging businesses from locating there.

Sensitive Issue

Nationwide, as cities have dangled corporate tax incentives to entice businesses to choose downtown locations over greener suburbs, districts have been losing million of dollars in potential property-tax revenue. ("Schools' Taxes Bartered Away To Garner Jobs," March 12, 1997, and "Despite Rhetoric, Businesses Eye Bottom Line," March 19, 1997.)

In Cleveland, where the new downtown skyline contrasts with debt-ridden schools that are on the verge of a mayoral takeover, the teachers' union maintains that the district loses $21 million annually because of tax abatements. The state auditor pegs the economic impact closer to $10 million, while city officials stress that tax losses have declined in recent years.

The union's plan would not prohibit tax abatements, in which the city agrees to tax only part of a development's total value. The plan would, however, compel the city or the new developer to give the school district its portion of property taxes based on the total value.

The teachers' union is also upset about a recent City Council vote to hold a special election estimated to cost $400,000 instead of placing the referendum on the Nov. 4 ballot. Mr. DeColibus said Mayor Michael R. White and City Council members don't want their re-election bids on the same ballot as the sensitive tax issue.

But council President Jay Westbrook said the decision was based strictly on a city charter rule that the council place a referendum on a ballot 60 to 120 days after receiving the required number of signatures.

As for the merits of the ballot measure, Mr. Westbrook said the city already has restricted abatements to 65 percent and that it needs to offer incentives when competing with suburbs that can give 100 percent tax breaks.

"If this referendum succeeds, it would be like going into the boxing ring against George Foreman with our hands tied behind our back," Mr. Westbrook said.

Chris Warren, the city's director of economic development, said the union's broad attacks on tax incentives are unfair in light of a 1990 city policy limiting new tax abatements to low-income housing developers and companies moving to abandoned sites that need environmental cleanup.

"The union is running a campaign against a policy that was radically altered in 1990," he said. "Their proposal will exacerbate urban flight."

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