Cleveland City Council passed Emergency Ordinance 297-2023 (the Ordinance), described as community benefits agreement (CBA) legislation on Monday, June 5th. The Ordinance focuses on improving construction contract work allocated to certified Minority Business Enterprises (MBEs), Female Business Enterprises (FBEs) and Cleveland Area Small Businesses (CSBs). The Ordinance enacts new Codified Ordinance Sections 190A.01 through 190A.07 and focuses on development projects where developers receive defined City Financial Assistance in excess of $250,000. The Ordinance is effective September 6, 2023.
Legislative Findings
The Ordinance comes after Council enacted an Emergency Resolution (954-2022) to establish a working committee to study CBA policies and ordinances and improve data reporting practices and public accessibility to workforce and community benefits data. Coming out of the working committee’s efforts, the text of the legislation mentions legacy industry challenges, barriers to entry, racial and socioeconomic disparities and principles of diversity, equity and inclusion as fueling legislative intent. Amongst other reported data referenced, the Ordinance cites low reported percentages of both contracts awarded in 2021 and contract values for MBE, FBE and CSBs as a percentage of awarded contract amounts from 2014 to 2018. A summary of the data is shown in the following chart:
|
City of Cleveland Office of Equal Opportunity Reporting Data in Ordinance No. 297-2023 |
| 2021 Prime Contract Reporting – Numbers of Contracts | |||
| MBE | FBE | CSB | Other |
| 6.50% | 21.00% | 45.00% | 27.50% |
| 2014 to 2018 Prime Contract Spending – Contract Amounts | |||
| MBE or FBE | White FBEs | MBEs | Other |
| 4.62% | 4.03% | 0.59% | 95.38% |
What Is a Community Benefits Agreement?
Nationally, the definition of CBA seems to vary by city. The Cleveland Ordinance defines Community Benefits Agreement to be:
“A legally enforceable agreement between the City of Cleveland and the Developer that provides community benefits.”
In St. Louis, CBAs “are contracts signed by community groups and a developer that require the developer to provide a range of specific community benefits related to a proposed development project,” according to Equitable St. Louis. In 2007, a national philanthropically funded collaborative venture headed by the Partnership for Working Families and the SPIN Project produced a communications toolkit that defined CBA as a:
“Powerful new tool being used by organizations working for economic justice to ensure that large-scale developments serve not only the corporations that underwrite them, but also the communities that surround them.”
This toolkit, titled Words that Work, further stated that CBAs:
“Ensure that development provides quality jobs, community services, local hiring, environmental protections and improvements, affordable housing and a voice for the community in the development process itself.”
Cities such as Detroit (2021) have adopted similar ordinances. Philadelphia’s City Council passed CBA legislation in 2019, but the legislation was subsequently pocket vetoed. Nonetheless, the effort for a new basketball stadium in Philadelphia appears to be incorporating community benefit agreement practices. CBAs have a decades long presence in California where the CBA movement originated with the CBA for the Staples Center development. Notably, many of the California CBAs were achieved without ordinances, but these CBA were used as tools to avoid or diffuse litigation. Looking across the country, CBAs have been reached in cities without ordinance mandate where community groups have leverage to influence decisions related to development entitlements or city actions related to development as noted by the Association of the Bar of the City of New York’s Land Use Committee in its 2010 report titled The Role of Community Benefit Agreements in New York City’s Land Use Process.
What is City Financial Assistance?
The Ordinance’s CBA requirement is triggered when a development receives over $250,000 in City Financial Assistance, which is generally defined as any City funded grant, loan, tax increment financing, residential multi-family tax abatement (Ordinance No.482-2022), below market-value land transfer, or City-funded capital infrastructure improvements associated with a development project. Ostensibly, any project receiving two or more City incentives individually less than $250,000, but altogether totaling more than $250,000, would invoke the new CBA requirement.
Base CBA Requirements
The following base elements are required for all CBA impacted projects:
- A plan to meet Cleveland Business Code MBE, FBE and CSB participation goals from the following categories:
- Team leadership
- Preconstruction
- Construction
- Trade and craft sub-contractor
- Professional services including architectural and engineering design
- Real estate and property management, or post-project hiring levels
- A plan to meet resident and low-income resident employment goals established by the City for each Development Project, which is defined as “new construction of an alterations to buildings and structures located in the City
- Registered apprenticeship and internship opportunities for Cleveland Residents
- Pre-apprenticeship, internship, or information and networking session opportunities for City high school graduates and Cleveland resident students
- Commitment to meet periodically with community stakeholders to gain community input on Development Projects
- Quarterly reporting to the City’s Office of Equal Opportunity (OEO)
Requirements for Projects Costing $20,000,000 or More
In addition to the base CBA requirements, Development Projects expected to cost $20,000,000 or more, the following development-specific CBA provisions as determined by the City in consultation with the Developer are:
- Joint-venture, co-development, and owner’s representative opportunities for MBEs, FBEs, and CSBs
- Associate partner opportunities for MBEs, FBEs and CSBs
- Promotion, support, and participation in workforce collaborations that expand job opportunities for “communities of color and women”
- Hosting job fairs, contractor information and networking sessions about upcoming contracting opportunities
- Unbundling construction work into smaller bid packages suitable for MBEs, FBEs and CSBs
- Facilitating access to bonding, financing, insurance and other capacity building assistance to MBEs, FBEs and CSBs
- Promoting opportunities for investment in Development Projects, “including but not limited to community investment trusts and community land ownership”
- Incorporating LEED principles and other additional sustainable business practices into the design and construction of Development Projects
- Providing neighborhood infrastructure and safety improvements to the extent such are not provided by the City or other public entity
- Affordable housing units or contributions to a fund for affordable housing
- Use of project financing from a financial institution complying with Codified Ordinance Sections 178.05 and Section 178.07 in support of residential and commercial development in
- Cleveland’s neighborhoods
- Use of Cleveland Public Power
- Commitment to enter into a Project Labor Agreement (PLA) with one or more construction unions for Development Projects
- Work opportunities for “formerly incarcerated persons and at-risk youth”
- Contributions to a community equity fund
- Any other negotiated community benefits
- An implementation plan for negotiated provisions
Development projects that cost less than $75,000,000 and receive only multi-family residential tax abatement as City Financial Assistance are exempt from the new requirements. However, both the community benefit requirements applicable to the City abatement program, and the new base CBA requirements still apply.
Penalties for Noncompliance
The CBA Ordinance gives the City sole discretion to determine compliance with the provisions of a negotiated community benefits agreement, subject to applicable notice and cure provisions. Negotiated penalties for non-compliance may include:
- Denial or termination of City Financial Assistance
- Proportional recovery of distributed financial assistance
- Stipulated damages that would be deposited into a community equity fund
Other Notable Items
Additionally, the Ordinance outlines various notable items, including:
- The Ordinance does not apply to Development Projects where the City issues a commitment letter for City Financial Assistance prior to September 6, 2023; however, the Ordinance would apply where such project would apply to additional City Financial Assistance for the same Development Project the City commits to after September 6, 2023
- Cleveland Citywide Development Corporation (CDC) is charged with advising the City in reviewing CBA commitments for Development Projects based on community and developer input prior to Council enactment of legislation authorizing City Financial Assistance.
- OEO is required to report workforce and community benefit compliance data to Council’s Finance, Diversity, Equity and Inclusion Committee for review.
- OEO is required to develop and maintain on a quarterly basis the following lists on City websites:
- Certified MBEs, FBEs and CSBs and their services provided
- Mentorship and apprenticeship programs
- Workforce training programs
- The above-mentioned listings are subject to annual review by CCDC and Council
KJK will continue to monitor the new CBA environment in the City of Cleveland. If you have any questions, please contact Economic Development Partner Richard Morehouse at (RAM@kjk.com; 216.736.7292).