Incentives Policy Evaluation
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Incentives Policy Evaluation Final Report Table of Contents I. Introduction 2 II. Overview: Incentive Toolkit & Policy Goals 8 III. Residential Abatement Analysis & Recommendations 14 Effectiveness in Supporting Neighborhood Revitalization 16 The Role of Incentives in Driving Development Feasibility 35 Residential Incentives Recommendations 44 IV. Commercial Incentives & Recommendations 53 Commercial Incentive Overview 55 National Peers and Neighbors 69 Best Practices to Ensure Competitiveness 76 Appendix I. Neighborhood Decision Support Tool 88 Appendix II. Advisory Committee Acknowledgements 94 Appendix III. Study Timeline 96 HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 1 I. Introduction HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 2 Columbus is in the midst of a sustained period of urban revitalization. Columbus is in the midst of a sustained period of urban Columbus has also made a series of investments that have revitalization, having seen significant growth in residents and capitalized and spurred this interest. For example, the jobs over the past decade, supported by strong investment in Columbus Commons, a 9-acre park in the heart of downtown, its downtown and core neighborhoods. is a popular open space that has drawn families into the downtown core with its robust programming schedule. As both the capital of Ohio and the home of The Ohio State Additionally, development of the Scioto Mile has facilitated University, Columbus has established itself as one of the new investments along the Scioto River. major Midwestern centers for young college graduates to launch their careers. Its strong sectoral base in education, The renewed interest in urban living in Columbus has professional services, and government makes it a natural translated into the revitalization of several of Columbus’s destination for college graduates. core neighborhoods. Short North, which has received significant investment, is a prime example of a core Columbus is also attracting a host of new jobs to the city. neighborhood that has experienced a rebirth. With a bustling Between 2004 and 2014, total employment in Columbus arts district, Short North has become one of the most vibrant increased by 9%, or approximately 38,000 jobs. The fastest neighborhoods in Columbus, including a sizable residential growing sectors include corporate management, health care population in addition to a multitude of options for shopping, and social assistance, educational services, transportation and dining, and leisure. warehousing, and finance and insurance. Photo: Wikimedia Photo: Wikimedia Photo: Columbus Parks and Recreation Short North Revitalization Scioto Mile Columbus Commons HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 3 The city’s population growth is emblematic of its success among Midwestern cities. With a population of 860,000 as of 2016, Columbus has added more than 140,000 residents since 2000, far outpacing the population growth rate in the State of Ohio. Additionally, within the past six years, the City of Columbus has seen faster growth than the overall Columbus MSA, indicating renewed demand for urban living. Population Trends & Projections City of Columbus & Columbus MSA 12.0% 11.1% 10.0% 9.4% 9.7% 8.0% 7.3% 6.0% 6.0% 5.1% 4.8% 4.3% 4.2% 4.0% 1.6% 2.0% 1.3% 1.2% 0.0% 2000-2010 2010-2016 2016-2021 Columbus Columbus MSA Ohio United States Source: U.S. Census, ESRI HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 4 Despite significant progress, there are still several areas where Columbus is experiencing challenges that threaten its overall prosperity. Though Columbus has seen strong job growth in the past Additionally, though some neighborhoods have seen decade, adding approximately 38,000 jobs between significant recent revitalization, others still struggle with 2004 and 2014, real household income growth has realizing new investment. The Columbus MSA is ranked as lagged behind. Real household incomes fell on an inflation the 5th most segregated large metro area by income adjusted basis during the great-recession and have yet to according to the Martin Prosperity Institute. This indicates recover to their 2008 levels. That said, there have been that there is more that can be done to ensure that economic noticeable gains in the past two years. prosperity in Columbus is shared by all. Moreover, though it has attracted some residential investment, Columbus has failed to attract significant downtown commercial investment relative to its Midwestern peers. According to CRBE’s 2015 report “Resurgence in Midwest Secondary Markets,” Columbus had only $250 million worth of commercial real estate under construction in its downtown, compared to more than $1,250 million for Indianapolis, $1,100 million for Cleveland, and $800 million for Cincinnati. Source: U.S. Census, CRBE, Martin Prosperity Institute, ESRI HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 5 This study assessed how Columbus can best utilize its incentive portfolio to realize community and development objectives and to remain competitive. Columbus’s success raises important questions about both the role of the City’s incentive policies in continuing to support investment and unlocking opportunities to deepen and broaden revitalization across the City. With that in mind, the City developed a series of four key questions to be explored further for both its residential- and commercial-focused incentives. Residential Commercial How effective have incentives been in supporting How competitive are Columbus’s commercial neighborhood revitalization to date? incentives in a regional and national context? How can Columbus support inclusive growth across How can the portfolio best support achievement neighborhoods, and what should the role of of the City’s economic objectives? incentives be in that process? Photo: Wikimedia Photo: VSI Photo: ODSA Photo: Wikimedia HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 6 This study proceeded across a five-stage process to lead to affirmative recommendations for the City. Stage 1 Existing Data Review & Project Kickoff The HR&A team reviewed existing policy documents and analyzed incentive data to assess the contours of the City’s incentive deployment in recent years. We convened a meeting of the Advisory Committee, comprised of local experts in the fields of real estate, community and economic development, to confirm study objectives and align on City economic and community development goals. Stage 2 Residential & Commercial Market Scan The team led a market study to understand market conditions citywide and in four neighborhoods selected by the City for more detailed analysis: Hilltop, Linden, the East Side, and Short North. Stage 3 Neighborhood-Based Incentive Analysis HR&A analyzed the use and impact of residential abatements in the four neighborhoods to date, and created a series of pro formas to demonstrate the role of the incentives in driving the financial feasibility of prototypical projects. Stage 4 Benchmarking of Office & Industrial Incentives HR&A reviewed the commercial office and industrial incentive portfolios of three neighboring municipalities and three national peers, and interviewed leaders from these cities to understand their approach to incentive deployment and derive best practices. Stage 5 Incentive Policy Recommendations HR&A synthesized the findings from the analysis to offer recommendations for re-positioning Columbus’s incentive portfolio in order to better align its incentive offerings with community and development goals. HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 7 II. Overview: Incentive Toolkit & Policy Goals HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 8 This study is focused on evaluating the City’s property tax abatements and performance-based incentives. The City has a toolkit of incentives that it deploys across The programs seek to achieve three core objectives, each Columbus, utilizing three broad mechanisms: of which is color-coded with the incentive programs below: • Property tax incentives: Incentives for real estate • Support property value growth through capital investments that reduce the property taxes that owners investments that produce high-quality residential, otherwise would owe on new investments; commercial office, and industrial real estate; • Performance-based incentives: Incentives for • Create jobs by facilitating business attraction and businesses to relocate to or expand within Columbus, retention; and typically structured as either cash payments or tax • Enable inclusive economic growth and vibrant credits; and neighborhoods across the City. • Property tax redirection: Incentives for real estate investments that redirect incremental property tax revenues to fund private improvements with public benefits. Property Tax Enterprise Zone Commercial CRA Residential CRA Incentive Performance- Downtown Office Based Jobs Growth Incentive Job Creation Tax Credit Incentives Incentive Property Tax TIF Redirection HR&A Advisors, Inc. Columbus Incentives Policy Evaluation | 9 Each program has a distinct structure reflecting its purpose. Property Tax Incentives • Enterprise Zone (EZ): Negotiated property tax abatement of up to 75% on incremental value of commercial and industrial improvements for up to 10 years. For rates above 75% and terms above 10 years, School Board permission is required. • Commercial CRA (C-CRA): Negotiated property tax abatement of up to 100% on incremental value of commercial and industrial