Was something lost in the shuffle of Cleveland City Council’s deliberation over residential tax abatement policy? Council's reaction to Frank Jackson’s call to scale up abatements for energy efficient homes doesn’t seem to square with the information provided by the mayor's staff and non-profit group Cleveland Green Building Coalition (GBC).

In an April 13, 2007 analysis of the Cleveland State University study that is the nexus of council’s decision, GBC and the mayor’s office draw a bright line connecting what those surveyed in the study want and what a green building policy similar to ones adopted in 24 other U.S. cities including Cincinnati can provide.

“[The CSU study] cites multiple reasons to maintain the current residential tax abatement incentives in the City of Cleveland,” the GBC report begins. “However, most of the positive results…of tax abatements could be achieved instead through the requirement of green, energy-efficient residential construction.”

The top six factors CSU survey respondents listed as important to homeowners are:

• Lowering the cost of homeownership
• Making a home more attractive to buyers
• Enabling buyers to get a larger mortgage
• Increasing the value of the home
• Reducing investment risk; and
• Helping buyers to get a mortgage

Jackson is proposing a 10 to 12-year break for conventional construction, and a 15-year abatement for Energy Star or LEED-rated homes. Energy Star lowers the cost of homeownership by reducing energy bills by 15 percent. A $2,500 increase for energy savings features might add about $15 to a homeowner’s mortgage, the GBC report adds. However, the home could save as much as $35 a month on energy bills, which results in a $20 a month savings for the homeowner.

Council members—including a subcommittee formed to address green building policy for tax abatements—received the GBC memo and have been receptive, according to a source in Jackson’s administration, but have not publicly addressed its stated benefits.

Some council members have called for green building policy to come through the city’s building code. But, new state law prohibits local building code to deviate from the Ohio residential code. And Energy Star is at least 15 percent more efficient than the 2004 International Residential Code that Ohio uses, according to the GBC.

Jackson is now pushing for a short-term renewal so that council can hold public hearings and decide on the connections between the CSU study and the benefits of a green building policy. As of this writing, council plans to vote on Monday, May 21 to renew abatements, as is, until 2010. Council has indicated it would then study the green building policy for two years and come back with a proposal the next time tax abatements expire. That may be an academic exercise that just forestalls the inevitable of a policy with proven benefits, the source on the mayor’s staff counters.

In late 2006, Cincinnati city council passed an ordinance that grants 100 percent tax abatements for commercial and multi-family residential units that achieve LEED certification. The 15-year break is capped at $500,000 and accompanies a 10-yr break for conventional construction capped at $250,000.

“Green building ideas were not even considered in the CSU study,” the source concludes. “It’s not hard to do this. It would make homes more affordable to operate, and allows a good builder to have something else to market. Tax abatements even the playing field, so builders could use an edge. This could be it.”

Council, which legislates tax abatement, has argued that the mayor could create incentives for green building in other ways. The mayor could fast track building permits and reduce permit fees as they do in Gainesville, Florida for LEED buildings. Or, a green building zoning overlay district can be created, as Boston did for larger commercial projects (any project that’s over 100,000 sq ft. has to be LEED certified in the district).

Still, the tax abatement may be the single largest government incentive program. Should council vote to renew tax abatements as is, or should it consider leveraging its position to get a green building policy as well? Should council vote to renew the policy for 18 months (instead of three years), study the green building policy, and vote on it at that time?

Resources

• Cleveland Green Building Coalition's green tax abatement memo (pdf)
• Cincinnati's green tax abatement and CRA policies (pdf) 
• Boston's green building policies (pdf)
• Broad coalition in Pittsburgh studies tax abatement reform
• Green building ordinances and tax abatement policies in the U.S. (pdf)