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.
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.