Ohio Senate Bill 33 (S.B. 33), which makes significant changes to Ohio’s laws regulating Community Reinvestment Area (CRA) incentives, goes into effect April 3, 2023. Introduced in early 2021, S.B. 33 aggressively expands the availability of CRAs, the benefits they can provide and the frequency which they can be taken advantage of, while also reducing the costs associated with obtaining CRA exemptions and increasing efficiency and transparency of the CRA review and approval process.
Beginning in April, certain townships and commercial and industrial recipients of CRAs will be able to take advantage of a number of new benefits S.B. 33 introduces, while other entities – specifically local school boards – will see their ability to review and approve CRAs limited.
What Is a Community Reinvestment Area?
As defined by Ohio statute, a CRA is an area within a municipal corporation or unincorporated area of a county for which a legislative resolution has been adopted that describes the boundaries of the area and contains a finding that the described area is one in which:
“Housing facilities or structures of historical significance are located and new housing construction and repair of existing facilities or structures are discouraged.” R.C. 3735.65(B).
A county or municipal corporation may conduct a housing survey to assist in the development of a CRA’s boundaries.
What Impact Does a CRA Have?
CRAs are intended to promote economic development. CRAs do this by providing property tax savings to induce development through a property tax exemption. While property taxes associated with new development in a CRA are foregone for a period of time, the economic impact in the form of increased revenues from other taxes generally benefits the surrounding community in amounts well beyond the foregone property taxes. Counties or municipal corporations enter into agreements with school districts and other taxing units whereby the impacted school districts and taxing units are compensated for the foregoing revenue they would have otherwise received but for the exemption.
What Uses Are Eligible for CRA Exemption?
Municipal corporations or counties may adopt a CRA legislative resolution that provides for all, or a combination of new structures or remodeled structures classified as commercial, industrial, residential or mixed uses pursuant to Revised Code 3735.66. For purposes of exemption, use classifications must be consistent with the zoning restrictions applicable to the area. Exemptions are limited to no more than 100% of the new or remodeled structure’s assessed value, generally referred to as Improved Value. Interestingly, Ohio’s three major cities have different exemption policies evident in their CRA ordinances. For example, Cleveland’s broader CRA ordinances generally only provide exemptions for single or multifamily residential use, while Columbus and Cincinnati CRA ordinances provide exemptions for residential as well as commercial and industrial uses, with some limitations.
S.B. 33’s Expansion of CRA Availability and Reduced Costs and Revenues
When S.B. 33 goes into effect, limited home rule townships throughout Ohio will be able to designate their own CRAs for the first time. This new ability is limited, however, to areas not already designated as a CRA by the county in which the local authority is located and, likewise, the county will not be able to designate CRAs in areas already designated as such by townships.
One major beneficiary of S.B. 33 is commercial and industrial recipients of CRA exemptions. Previously, if a commercial or industrial recipient discontinues or relocates the project subject to the CRA exemption, the recipient was barred from applying for another CRA exemption for the next five years. S.B. 33 shortens this ban to only three years. Commercial and industrial recipients will also see reduced costs involved in obtaining and maintaining a CRA. While such recipients previously were required to pay annual fees to the local authority and a one-time fee to the Ohio Department of Development (ODOD) when obtaining a CRA, these fees will be discontinued under S.B. 33.
Municipalities and counties would also see their costs reduced when establishing CRAs according to the Ohio Legislative Service Commission (LSC). Correspondingly, school districts and other taxing units would see reduced revenues. Under prior law, if a commercial or industrial recipient’s project created new-employee payroll of $1 million or more, the local authority was required to reimburse the local school district for its loss in tax income from the project – S.B. 33 raises this threshold to $2 million before reimbursement is required.
At the state level, S.B. 33 eliminates a CRA fee used by ODOD to monitor tax credits and CRA and enterprise zone designations, costing the state approximately $100,000 per year, according to the LSC. The impact of this is mitigated by the reduced costs the state will incur in the creation of new CRAs as a result of the reduced role played by the state in CRA creation as a result of S.B. 33.
Efficiency and Transparency
One of the aims of S.B. 33 is to streamline the review and approval process of CRAs, which it accomplishes in several ways.
First, when S.B. 33 goes into effect, local authorities will no longer require the approval of ODOD to grant a CRA, although they must still provide ODOD a copy of the CRA resolution and a map of the CRA area.
Second, S.B. 33 limits the rights that local school boards have to review and approve CRAs. While the actual tax exemption percentage varies between CRAs, and the exact percentage in each case is set by agreement between the local authority and the recipient, previously, the local school board’s consent was required for a CRA with a tax emption of 50% or more. S.B. 33 ups that threshold to 75%. However, these thresholds are not applicable in the event the local school board has waived its rights to review and approve CRA exemptions, or in the event the recipient holds the district harmless for excess revenue it forgoes as a result of an exemption percentage above the 75% threshold. Further, local authorities are no longer required to submit annual CRA reports to the local school board, only ODOD.
Third, to facilitate this new expanded approach to granting CRAs, S.B. 33 requires ODOD to publish a model CRA exemption agreement for commercial and industrial recipients. Although ODOD may include any model provisions it deems necessary, S.B. 33 requires the model agreement to include:
- A description of the exempted property and the property’s owner.
- The exemption percentage and the period for which the exemption is granted.
- A requirement that the owner pay any unexempted property taxes and that the agreement be rescinded if the owner does not.
- A requirement that the owner, at the time the agreement is executed, not owe any delinquent property or state taxes.
- A prohibition on transferring the agreement to a new owner without the local authority’s approval.
- A requirement that the owner provide the property tax incentive review council – a local body charged with reviewing locally granted economic tax exemptions – with any information it requires to evaluate the applicant’s agreement compliance.
- A description of the circumstances under which an agreement may be revoked by the local authority for noncompliance and the manner for recovering already-received benefits.
- A requirement that the owner provide an estimate of the number of jobs that will be created and retained due to the project, as well as the payroll attributable to those jobs.
Local authorities granting a CRA may use the model agreement, or supplement the model agreement with its own terms, but a local authority may not omit, contradict or circumvent the mandatory elements of the model agreement.
Finally, S.B. 33 requires ODOD to publish an annual update on its website showing the location of each CRA throughout the state and providing a copy of the underlying resolutions for each CRA. Although ODOD has provided such information previously, this was not a requirement of prior law.
As these new and expanded CRA benefits and requirements roll out under S.B. 33, KJK’s attorneys can help you navigate and benefit from increased availability, frequency and efficiency of the CRA benefits and processes. Contact Rich Morehouse (RAM@kjk.com; 216.736.7292) or Jim Scherer at (JJS@kjk.com; 216.736.7296) for more information.