State Representative Mark Frazier (R-Newark) introduced Ohio House Bill 123 to reform Ohio’s tax abatement law. Property taxes are a large cost for communities attempted to develop or redevelop land for housing, office, commercial or industrial uses. The large capital investment needed for these jobs producing projects often dramatically increase the property taxes applied to the land and buildings.
Ohio offers two programs to abatement or limit the property taxes based upon increased investment. The Ohio Enterprise Zone Program is an economic development tool administered by municipal and county governments that provides real and personal property tax exemptions to businesses making investments in Ohio. Enterprise zones are designated areas of land in which businesses can receive tax incentives in the form of tax exemptions on eligible new investment. The Enterprise Zone Program can provide tax exemptions for a portion of the value of new real and personal property investment (when that personal property is still taxable) when the investment is made in conjunction with a project that includes job creation. Existing land values and existing building values are not eligible (except as noted within rare circumstances). Local communities may offer tax incentives for non-retail projects that are establishing or expanding operations in the State of Ohio. Real property investments are eligible for tax incentives, as well as personal property investments for those entities that continue to pay personal property tax.
The Ohio Community Reinvestment Area (CRA) program is an economic development tool administered by municipal and county government that provides real property tax exemptions for property owners who renovate existing or construct new buildings. CRAs are areas of land in which property owners can receive tax incentives for investing in real property improvements. The program is delineated into two distinct categories, those created prior to July 1994 (“pre-1994”) and those created after the law changes went into effect after July 1994.
The CRA Program is a direct incentive tax exemption program benefiting property owners who renovate existing or construct new buildings. This program permits municipalities or counties to designate areas where investment has been discouraged as a CRA to encourage revitalization of the existing housing stock and the development of new structures. Local municipalities or counties can determine the type of development to be supported by the CRA Program by specifying the eligibility of residential, commercial and/or industrial projects. CRA exemptions may apply to remodeling of at least $2,500 for single- and double family housing; remodeling of at least $5,000 for multifamily housing or commercial or industrial structures; and new construction of residential, commercial, and industrial structures. Under continuing law, CRA exemption procedures differ depending upon whether the exemption is sought for residential projects or commercial and industrial projects. Specifically, the percentage of the exemption for residential property, up to 100%, must be uniform and specified in the resolution designating the CRA. But an exemption percentage for commercial or industrial property may vary and is set in accordance with a formal agreement entered between the local authority and the property owner. While residential property owners can obtain an exemption from an officer designated by the local authority called the housing officer, commercial and industrial property owners are required first to enter into this formal exemption agreement.
Ohio House Bill 123 suggests substantial reforms of the Ohio CRA Program to provide more balance back to counties and municipalities that are charged with implementing economic development at the local government level. HB 123:
- Eliminates the requirement for the Development Services Agency (DSA) to approve a proposed CRA;
- Requires DSA to prescribe a model CRA exemption agreement between owners of a commercial or industrial project and local authorities, and the terms of such an agreement;
- Increases from 50% to 75% the percentage of a proposed CRA exemption for a commercial or industrial project that requires obtaining permission from a school district encompassing the project;
- Removes the requirement that municipalities share municipal income tax revenue generated by new employees at a large CRA commercial or industrial project with the school district encompassing that project;
- Reduces, from five to two years, the amount of time required to transpire between the discontinuation of a CRA commercial or industrial project, and when the project’s owner may obtain an enterprise zone tax exemption or another CRA exemption;
- Removes the requirement that the owner of a CRA commercial or industrial project notify the local authority in advance of relocating the site of the project to another local authority’s CRA;
- Modifies the recipients of and the information appearing in a required annual report issued by local authorities detailing CRA commercial and industrial projects;
- Eliminates fees paid by CRA commercial and industrial project owners to the local authority and DSA to cover the cost of administering such projects; and
- Requires DSA to publish on its website the locations of each CRA, as well as all commercial and industrial project exemption agreements.
Hearings in the Ohio House of Representatives are progressing and opposition from local school districts is anticipated. Please contact Dave Robinson at [email protected] if you have questions about Ohio HB 123 or other economic development public policy issues.