Tax Abatements Used as Handouts in North Canton

Prepared Comments Made to
NORTH CANTON CITY COUNCIL
January 9, 2006


First, I would like to say that I was very gratified by this council’s close scrutiny last month to the 2006 budget. Given the economic uncertainty that North Canton is now facing, I hope that this scrutiny of expenditures becomes the norm for this legislative body.

Beyond controlling expenditures, there is another part of the financial equation that must be managed and that is revenues. And this is what I want to address tonight.

At the January 3, 2006, Council of the Whole meeting, Economic Development Committee Chairman Jim Repace presented to this body proposed legislation to authorize a twelve-year tax abatement for Dr. Suglio. It is on your agenda tonight to be voted on as Ordinance 1-06.

In the past, I have spoken about two tax abatements, specifically, the abatements granted to Reed Funeral Home and to Spee D Foods.

Tax abatements for business are to be given as an incentive. They should not be given simply for the asking. A tax abatement is appropriate when it is needed to make something happen that would otherwise not happen.

The City of North Canton is giving tax abatements when none are needed and, furthermore, getting little or nothing in return for the abatement.

The Ohio Department of Development (ODOD) has a three page summary titled Ohio Community Reinvestment Area Program at http://www.odod.state.oh.us/edd/cra/crasummary.pdf and I would like to highlight some remarks from that summary.

“…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 (emphasis added) and the development of new structures.”

I do not believe that the Main Street of North Canton is a place where investment has been discouraged.

The recent purchase of nearby property for construction of a bank shows that investment on Main Street of North Canton is alive and well. Legacy Bank, next door to Dr. Suglio’s newly acquired property has made a substantial investment on Main Street with the construction of a new bank, and no incentives were needed.

Legacy Bank is one of several new banks to locate in the city in the past year and according to a recent report in the Repository, North Canton now has thirteen banks with most of them on Main Street.

The financial investment on the main street of North Canton by business clearly shows that investment on Main Street is not discouraged and that tax incentives are not needed to stimulate this kind of activity.

Another source of information that clearly defines the primary focus of a CRA as the revitalization of housing stock comes from the legislative comments regarding House Bill 754 of the 108th General Assembly.

The legislative comments regarding CRAs, state the following:

“…the incomes of residents generally in the area are such that taxes on property substantially affect the ability of residents or owners of housing to make expenditures for repair or rehabilitation of housing.”

It is the homeowner who ultimately bears the burden of taxes in the community and the abatement of taxes under the CRA Program was created to provide an incentive to invest in the revitalization of their homes.

Giving tax abatements to businesses that need no incentive to remain in North Canton is unfair to homeowners who bear the bulk of the burden of taxes in the community. It also undermines the beneficiaries of these taxes. They are the following: the North Canton City Schools, the North Canton City Library, the Stark County Park District, Stark County government, and the City of North Canton.

Tax abatements such as those recently given distort and pervert the true purpose of the Ohio Community Reinvestment Area Program.

The CRA summary from the Ohio Department of Development also states “…the exemption percentage and term are to be negotiated between the property owner and the local legislative authority.” The North Canton legislation creating the Main Street CRA, Ordinance No. 22-99, uses similar language stating “…improvements to commercial and industrial real property and the period of those exemptions shall be negotiated on a case-by-case basis…”

What sort of negotiations are taking place? From the seats here in the audience at last week’s council meeting, what I heard is that there was a request for a 12-year tax abatement in exchange for two part-time jobs and that this requested abatement of taxes should proceed.

Does anyone really sit down and evaluate the requested tax abatement to determine if it is a fair and equitable request that is truly needed and provides something to the city in return?

The ODOD CRA summary also addresses the fact that along with the creation of a CRA program, the local legislative authority must create a Tax Incentive Review Council to review performance on all agreements and projects. I believe the operative word here is “Incentive.”

Is this requested tax abatement a needed incentive to make this investment in the community a reality? That does not appear to be the case.

In the minutes of the Community Reinvestment Area Council meeting of November 29, 2005, that met specifically to discuss this tax abatement request, one of the members remarks “…that it looks like he is going ahead with this project whether or not he gets the tax incentive or not. There is nothing that says the project is contingent upon receiving the incentive.”

Also noted in these CRA Council meeting minutes is the following “because so many of his patients are local, he purchased the building for approximately $150,000. Apparently a good value since the County Auditor’s market value is listed at $229,000.”

It appears that the acquisition cost for the property abutting Dr. Suglio’s current dental practice was the incentive for Mr. Suglio to expand his dental practice on Main Street here in North Canton.

Clearly, tax abatements are not an incentive in this case. Dr. Suglio, as a wise businessman, saw an opportunity and took advantage of it. This is an example of free-market forces at work and free-market forces are alive and well on Main Street.

This request for a tax abatement is similar to the abatements given to Spee D Foods on South Main Street in January, 2004, and to Reed Funeral Home just off Pittsburgh Road in June of the same year.

No incentive was needed to secure these investments in the community and yet tax abatements were approved by North Canton City Council.

The approval of the tax abatements for Spee D Foods and for Reed Funeral Home simply discounted the tax liability for each of these businesses and now we are facing another similar request here in Ordinance 1-06.

I guess it gets council members a few extra votes at the next election and persuades people to like you more than they otherwise would. The tradeoff is that that the remaining taxpayers pick up the tax burden and the school district collects less revenue.

There is something a little unique in this tax abatement request that I would like to bring to your attention and this is the fact that this requested tax abatement appears to violate state and local law regarding when commencement of construction or remodeling can begin.

ORC §3735.671 (A) states the following: “If construction or remodeling of commercial or industrial property is to be exempted from taxation pursuant to section 3735.67 of the Revised Code, the legislative authority and the owner of the property, prior to the commencement of construction or remodeling (emphasis added), shall enter into an agreement, binding on both parties for a period of time that does not end prior to the end of the period of the exemption, that includes all of the information and statements prescribed by this section.”

A reference to this section in the ORC is also described in the ODOD CRA summary that I have referred to earlier.

This same information is repeated in an Ohio Attorney General Opinion (OAG 96-030), dated, May 29, 1996, in a response to a question from a Wood County Prosecuting Attorney.

The OAG opinion states in part: “…Commercial and industrial applicants must apply prior to beginning a project and negotiate with local legislative authorities for an exemption. R.C. 3735.66-.671.”

This same requirement is also posted on the North Canton Web site at http://www.northcantonohio.com/content/main-st-cra.htm.

Item 5 on this Web page, in bold print, states the following:

“Once Council has adopted legislation approving the abatement and all parties have signed the CRA agreement, construction of project can begin.


A memo from Eric Bowles, Director of Economic Development, dated November 28, 2005, documents the fact that remodeling work on the Suglio property was underway as early as October, 2005.


I have confirmed this with an onsite visit to the property. I was told by one individual that construction has been ongoing for well over six-months, and I observed that plumbing and electrical work are substantially complete. Many areas of the new office are complete with wall board and will soon be ready for paint.

It is public knowledge that construction and remodeling have been underway for some time.

I ask that this council seriously reconsider any plans to approve this tax abatement request and any similar request. This request is not made with any ill-intentions to Dr. Suglio.

This council must do everything in its power to insure that taxes are collected to support all the governmental bodies that rely on these funds.

The City of North Canton is facing some very difficult times ahead and funds will indeed be scarce. The Hoover Company is a ghost of itself, the Maytag Company is soon to be non-existent, and Whirlpool is not here to pull anyone out of an economic death spiral.


Thank you,

Chuck Osborne
Resident
City of North Canton