South Euclid’s elected wrecking crew

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The city of South Euclid has sold 1.4 acres of its vacant Cedar Center North property to Gordon Food Service for $2 million – plus $300,000 in site improvements.

The deal closed Feb. 14, according to a Plain Dealer report. The property will be used for a GFS Marketplace store, which sells food and kitchen supplies.

The purchase must come as a great relief to South Euclid, which is in a deep financial hole after spending nearly $17 million to buy and clear the land for development by a private developer.

South Euclid Mayor Georgine Welo

Among those who do not necessarily have reason to be relieved are members of the Cleveland Heights-University Heights City School District, and anyone who is interested in seeing an increasing sense of regionalism among the Heights-area communities.

Four years ago, before South Euclid bought the 12-acre Cedar Center parcel and then the ecoomy went south, the dreary-but-occupied retail plaza’s property taxes contributed roughly $320,000 a year to operation of the  CH-UH school district.

Soon after South Euclid razed the plaza, it asked the Cuyahoga County Board of Revision to reduce the property tax assessment to $3 million – a mere 18% of the purchase price. The now-tarnished Board of Revision granted the request, and property tax revenue to the CH-UH schools immediately dropped to $125,000 a year.

Some reduction in assessed value would seem to be reasonable, but why would anyone tear down buildings if they really represented 82% of the property’s $17 million price tag? In a tear-down situation, the value is in the land – not the structures.

Apparently, even the gracious ruling by the Board of Revision was too much. South Euclid subsequently transferred the parcel into a municipal land bank – a vehicle authorized under state law to help bring vacant, foreclosed and abandoned properties back into productive use.

The issue is twofold: First, while the property has undeniably been vacant and unproductive, it was neither until South Euclid made it so.

Second, this action took the property off the tax duplicate, meaning South Euclid stopped paying taxes on it altogether. According to information provided by the school district on request, the city hadn’t made a property tax payment on the parcel since early 2008.

Recently, I’m told, the new county auditor placed the land back on the tax duplicate; someone seems to believe South Euclid was acting outside of regulatory boundaries by land-banking the property.

Now South Euclid has to begin paying taxes again, which will be delivered to the CH-UH schools. But what about the $320,000 that should have been paid between mid-2008 and the end of 2010?

While all of this was going on, South Euclid also asked the school district for tax-increment financing (TIF) for 100% of the property’s incremental value over the next 30 years. So even when Gordon Food Service and others begin putting the land back into productive use, no additional revenue would accrue to the schools to replace the revenue stream that South Euclid dismantled. Not, at least, until 2041 or so.

The TIF request is the maximum allowed under TIF rules, and CH-UH is unlikely to agree to it.

Midterm review: South Euclid paid $17 million for 12 acres; claimed the property was worth only $3 million; avoided paying property taxes on the $3 million; and then sold one-twelfth of the parcel for $2 million.

Simple math ($2 million x 12) would seem to put the parcel’s value at $24 million. It can’t really be worth that much, but it clarifies why the $3 million assessment is too low.

The school district believes the parcel is worth at least $6 million and has asked the county auditor to rule on it. Meanwhile, as it awaits that decision, the CH-UH school district educates more than 220 children who live both within the boundaries of South Euclid and the CH-UH district. Homes in that part of town, of course, continue to pay property taxes for the schools.

At the end of January, South Euclid repeated its request to CH-UH for tax-increment financing on the property. Inevitably, South Euclid will get its way – again. Under the law, any city may authorize a 15-year 50% TIF without any approval or involvement from the affected school district. If the CH-UH denies the larger request, that’s probably what South Euclid will do. The real question is whether CH-UH can find a way to get the $320,000 that should have been paid since 2008.

Looking beyond that, South Euclid also is fast-tracking development of the old Oakwood Club golf course – a development that is likely to take business and tenants away from University Square and Severance, cutting into the tax revenue they provide to the CH-UH schools.

It’s true that the Oakwood development falls inside the CH-UH school district too, and therefore would contribute property taxes to the school district – far more, one would expect, than the golf course ever generated. The Oakwood developer has said he isn’t asking for any tax breaks, which is upstanding of him and welcome news for the community.

But if South Euclid grants TIF to the Cedar Center development, the Oakwood developer would merely need to ask for the same consideration and South Euclid would have little legal standing to refuse.

I believe South Euclid’s elected officials have gotten themselves in so deep on a bad real estate deal at the wrong time that they don’t care about any widespread damage that results from their effort to dig out. And they certainly don’t seem concerned about the school system that educates a small group of their own constituents.

However, if they were deliberately trying to do everything possible to screw their neighbors, you could make the case that they’re doing a flawless job.

Comments

  1. bfw says

    “But if South Euclid grants TIF to the Cedar Center development, the Oakwood developer would merely need to ask for the same consideration and South Euclid would have little legal standing to refuse.”

    There’s no legal right to TIF or an obligation to offer it. TIF’s are offered/requested based on the two parties’ (the developer and the city) relative perceptions of their own interests. The two factors are how badly does the city want the development and how critical is it to the developer’s success. Offering TIF to one project doesn’t obligate the city to offer it, or any other subsidies or incentives, to another one, any more than writing poetry to your first girlfriend means you have to write it for subsequent ones (and that’s very close to the dynamic with the TIF.)

    What S. Euclid is doing really stinks. They take a property, destroy its value on the tax duplicate, and then ask for the school district to finance the restoration of that value. I think we have a new examplar for chutzpah. Add to that the loss of a lot of local businesses that served the neighborhood, which will never be able to afford the rent in the new boutique, Legacy-Village-style shopping center Welo has visions of building there.

    Welo probably doesn’t care much about the residents whose kids attend CHUH – she probably sees them as more of the sort of people she’s tried to exclude from her city by abusing eminent domain to eliminate their housing.

    • says

      Thanks for the comment. You may be right about there being no legal obligation to offer a TIF. However, I also believe there is much precedent throughout the Heights suburbs of using the possible threat of legal action as an excuse to ignore principle. If South Euclid refuses a TIF for Oakwood after granting one on Cedar Center, it could open the city to a lawsuit. The reasoning would be, “Why take even a remote risk when it costs nothing to avoid the lawsuit by giving away CH-UH tax revenue?”
      If MItch Schneider, the would-be developer of Oakwood, is the man I believe him to be, it will never come to that.

  2. bfw says

    I agree it won’t come to that. Coral got TIF financing, which is really a form of corporate welfare, because they are very cozy with CH, UH, and S. Euc city governments. First Interstate is not, and I get the sense that they are very sensitive to the cost in citizen good will, if not opposed to such handouts on principle. The whole situation has me conflicted because FI is the developer I would like to have seen develop existing shopping centers, and now that we have a developer who doesn’t play those games, the only property available is the last scrap of greenspace. It would be great if S. Euc. would trade First Interstate Cedar Center for the Oakwood property, and make the latter a city park, but I don’t see it happening.

  3. says

    Unfortunately, as much as many members of the public want to see Oakwood remain green, it strikes me as unlikely. There is no interest by Cleveland Heights, South Euclid or the County Metroparks System in taking on that kind of cost. Apparently, they’re not even interested in floating the trial balloon to see if they could round up the money to buy the property – let along maintain, manage and police it.
    It’s hard to blame any government entity for such reticence right now.
    My fear is that someday Cleveland Heights may still have to pay to create a park – where Severance stands today.

    • Citizens for Oakwood says

      Thanks, Bob, for the very informative article.
      Just a few clarifications.

      Oakwood can and will become a Metropark.
      We are already paying to maintain it via our taxes (we pay Metroparks $52 per $100,000 valuation of our property).

      Metroparks is in conversation with us about Oakwood.

      If citizens of Cleveland Heights want to buy it to hand it over to Metroparks, we can do that.

      We can pass an initiative to tax ourselves to buy Oakwood and then give it to Metroparks to care for it. It would probably cost each homeowner about $20 a year for 5 years.

      Creating Oakwood Park is within easy grasp. Many other communities have done things like this .

      So can we.

  4. Joe J. Liptow says

    I’m from South Euclid. Count me in!
    Check out this math:
    South Euclid Mayor, administration, councilpersons and committee folks taxed the 20,000 residents, man, woman & child, with probably (well?) over $1000/ each to get 12 acre Ceder Center to where it is today. This was forced upon residents and yet the artist renderings showed such a magnificant concept and eminent domain was avoided. Yippy! Well imagine 20,000 people buying $1,000 shares to create something very different……….wait for it ……………………….
    …….Grand Oak Park…….all 150 acres of it. That $60,000 bungalow just doubled in price.
    I’ll be kind and stop now.

  5. bfw says

    Or, you could establish a land conservancy, where those who want the park could voluntarily donate to buy the land, instead of forcibly taking money from those who might not support the idea. I’d give twice as much to that.

  6. bfw says

    You know, one would think that Oakwood’s members are mostly golf enthusiasts. A lot of Country Clubs are closing, even as clubs with a non-golf orientation are popping up in the outer suburbs. One of the reasons for this is a lack of affordable golf courses open to the public. If I was a member of a failing country club, I’d seriously consider donating it to the city on the condition it remain a municipal golf course that would cultivate the next generation of golfers. IF I cared about golf – I’m just saying.

  7. hrearden says

    Bob,

    Excellent post, and thank you for being the only journalist out there in the area who is actually willing to dig into this story. The Sunmessenger has willingly and blindly goose-stepped along with the South Euclid administration and council when it comes to Cedar Center, carefully screening and crafting the message. It’s sick.

    The reality is this: South Euclid dug themselves a monstrous hole with this project and they’re entering a state of desperation as the city’s finances deteriorate at a rapid clip as a result.

    I would also like to mention that the city has yet to release a full accounting of what the total costs have been on this project since it began: legal fees, lost income, remediation and most of all, interest on the bonds that were issued.

    It would be wonderful to see the Sun papers and Plain Dealer dig into this one, but I am eternally grateful to have come across your post on the subject. The reality-distortion-field of South Euclid’s representatives is mind boggling, with the possible exception of Jane Goodman who seems to be the only person willing to at least question these projects.

    • says

      I did read it. I just haven’t had a moment to figure out what to do with it; so thanks for bringing it up.
      The article indicated that since 2007, CH-UH schools have lost more than $1.4 million in revenue due to botched or delayed valuation assessments by the Board of Revision, which at one point had a backlog of more than 29,000 cases.
      The CH-UH district was the third-hardest hit entity in the county – behind Cleveland and Cleveland Schools, if I recall correctly.
      It’s devastating. In November, the schools are likely to need to ask for a levy increase – in significant part because the government entity assigned to dole out tax revenue to the schools has failed to do its job.

  8. Jim Simpson says

    I read this yesterday and woke up early with the need to say something in defense of South Euclid, of which I’m not a resident. Nor do I know Ms. Welo. However, I do know that Cleveland Heights and University Heights and Lyndhurst have all built out shopping areas with national big box stores and that SE residents frequent those venues. When Severance opened with Home Depot, WalMart, Borders, etc., did it then draw shoppers from S. Euclid and reduce traffic for SE hardware, gen’l merchandise and book sellers? I think so. Did it reduce sales taxes and (somewhat) contribute to the weakening of local merchants? Without a doubt. I don’t remember SE or its elected officials accusing their neighbors in any way as they being accused here.

    Since SE had no hand in closing Oakwood and is responsible to its residents for continuing to develop their community and increase tax base, how is SE any different than neighboring communities who did that?

    It appears to me that condemning a community or its elected officials who are only doing what they are elected and mandated to do in a legal and ethical manner that failed only because of economic challenges beyond their own control is misguided and does not contribute to building solutions.

  9. bfw says

    Joe Simpson wrote:

    “It appears to me that condemning a community or its elected officials who are only doing what they are elected and mandated to do in a legal and ethical manner that failed only because of economic challenges beyond their own control is misguided and does not contribute to building solutions.”

    There’s only one problem – they acted in an unethical manner to do other than their proper role, and the failure is due to their plan being flawed from the beginning, as such plans inevitably are when undertaken by politicians with no grasp of market economics.

    Welo didn’t act ethically in threatening eminent domain in order to intimidate property owners to sell and lease holders to give up their contractual rights. Businesses that served the community were forced out of business to serve the mayor’s magpie attraction for bright shiny boutique shopping centers like Legacy Village. One of the most important roles of government is to enforce property and contract rights, and S.Euclid City Hall not only failed on both, they were the ones doing the violating. The Welo regime is no stranger to eminent domain abuse – having used it to get rid of housing based on its occupants being ‘undesirables.’

    Retail management and development are properly the domain of the private sector, where individuals whose access to capital is based on their proven ability to judge and meet market demand are best equipped to develop and manage for success. It is not the role of elected officials who have never faced the sort of financial accountability that defines the free enterprise.

    The failure of the Cedar Center project is not a consequence of economic challenges beyond the city’s control. The fact that First Interstate is fully capitalized to execute their plan at Oakwood, without any government subsidies or incentives, along with several other such developments in progress in the Greater Cleveland area, prove that WELL-CONCEIVED retail developments can proceed just fine in the current economic climate. The Cedar Center project was flawed from the beginning – the volume and quality of retail consumer traffic to be found that far from a freeway interchange simply will not support a reasonable return on the investment necessary for the type of development they planned. On the other side of Cedar, Whole Foods had to cut hours and staffing a short time after opening. There is already a glut of vacant, newly constructed retail space at Cedar Center and University Square. With City Hall’s outrageous subsidizing of the property acquisition and demolition, AND in the crazy, free money financial climate at the time the project was conceived, Coral was able to find someone foolhardy enough to finance the venture. Now, however, no source of financing is willing to overlook all those flaws.

    So, in light of this, S.Euclid is looking for another government entity (CHUH schools) to throw more subsidies into their boondoggle. As a property owner, they destroyed the taxable value, and now they want the taxpayers to finance the restoration of that value. Plus, in the process, they made multiple plays at weasling out of paying the legitimate taxes on the propery altogether. There’s too much sleaziness not to condemn them.

    • hrearden says

      bfw –

      Brilliantly written and I could not agree more. Cedar Center was a vanity project, pure and simple. South Euclid has never had the same strong retail presence that Lyndhurst, UH or CH had, and they saw an opportunity to jump on the bandwagon REGARDLESS whether that was a prudent thing to do or not. “Just because Johnny and Jane are doing it doesn’t mean it’s the right thing for little Timmy to do.”

      Furthermore, in light of very compelling evidence from NOACA, whose study showed excessive retail development and vacancies in the near eastern suburbs, the city pushed ahead. In light of buying at the very top of the commercial market in 2006/2007, in light of Coral’s trouble at Shaker Square, Severance Mall and being rebuked by Solon to redevelop at 422 and Rt. 91, in light of the previous developer dropping out of the Cedar Center Project, in light of the monstrous legal fees the city paid to perform the eminent domain – they’ve pushed ahead and have never been able to show the public just how much money has been spent to date, nor what the potential revenues would be to justify the expense.

      At the current carrying cost levels the city will not recoup its investment for over 20 years. Hardly worth the lost good will and financial drain that it has been.

  10. bfw says

    You raise yet another aspect unrelated to the impact on CH – the epic level of irresponsibility with the taxpayers money.

    I don’t think S.Euclid has any obligation to consider CH’s tax base or any other aspect of CH’s well being. Government is a service, and residents are the consumers. Does GM care about Ford’s revenue stream? Competition benefits the consumer. Inner ring suburbs worry about losing residents/customers to their outer ring competitors, just like Detroit worries about the imports, and that motivates them to try and entice those customers to stay with them. This doesn’t rule out cooperative ventures when it’s in the best interest of both cities/vendors, but in situations where it’s a zero sum game, like where there’s not enough retail business to supply every city’s desired revenue, each city needs to look out for number one. CH has no room to talk about other cities being considerate neighbors. They bought the former dairy property in the Warrensville/Noble triangle and turned it into a festering crap hole of storage for road maintenance goods, right on S.Euc’s doorstep, and then had the audacity to threaten lawsuits when UH wanted to put a new, modern salt dome near their border.

    It’s South Euclid’s conduct as a property owner, trying to avoid their legitimate property tax responsibilities, and looking for government handouts, that is reprehensible. It’s their meddling in the affairs of a privately owned shopping center that caused their problems. It’s their mayor’s utter lack of respect for property and contract rights that is offensive to America’s founding principles.

    If it weren’t for all that, if the only issue was their throwing CH’s retail districts under the bus by developing retail at Oakwood, even though it is against my personal interests as a CH property owner, I’d have to merely say “well played.” As much as I would personally prefer Oakwood become a park, from everything I’ve read, the First Interstate project is the only part of this multifaceted controversy where South Euclid has played by the rules. If South Euclid continues to leave that development up to the private sector, it should succeed, and if Severance loses its WalMart to a Super Center at Oakwood, it serves CH right for demanding ideologically driven PC restriction on WalMart’s product mix when they first opened, and hastening the death of Severance in the first place by trying to bully Dillards.

  11. pspaeth says

    about Oakwood:

    How’s this for a next step: start a petition asking South Euclid and Cleveland Heights for a moratorium on rezoning the property, and convene a community process to find the best regional use for it?

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