On February 16, 2021, Ohio House Bill 123 was introduced. The bill proposes significant reforms to the provisions and approval of Ohio’s community reinvestment area abatements (CRA). These changes can be organized into the following categories: (1) Facilitation of the creation and implementation of a CRA, (2) Benefits to project owners; (3) New allocation of tax revenue and potential impact to school districts; and (4) Increased access to CRA information. As of March 16, Ohio House Bill 123 is before the House Ways and Means Committee.
What is a CRA?
A CRA is an economic development program first introduced in Ohio over 50 years ago and governed by Ohio Revised Code Sections 3735.65 to 3735.70 (the “Act”). A CRA is a bounded area within either a municipality or county that has been designated through an ordinance (municipality) or resolution (county) as “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)).
Once designated, the CRA allows the granting of real property tax exemptions of up to 100% on residential, commercial, or industrial projects within the bounded area for the building of new structures or the remodeling of existing structures. Depending on the nature of the project, tax exemptions granted under the CRA program can extend up to 15 years. (R.C. 3735.67(D)(1)).
History of CRA Legislation: The Two Programs
Prior to legislation enacted in 1994, CRAs did not require state approval of the creation of a CRA. Real property tax exemptions were 100% of the value of the project, and no agreements were required between the property owner and the municipality or the county. In 1994, the CRA program was overhauled and significant procedural safeguards and limitations were put in place. Pre-’94 CRAs were grandfathered into the prior set of regulations, now existing under Section 3735.661 of the Act, noting certain limitations. HB 123 attempts to bridge the gap between the two programs, maintaining some oversight and lessening the burden on municipalities and counties.
Proposed Effect of HB 123
(1) Facilitation of the Creation and Implementation of CRAs
The current process for establishing a CRA involves a petition to the Ohio Development Services Agency (DSA) for the certification of the area. (R.C. 3735.66). Under HB 123, this requirement would be eliminated, and the municipality or county would simply be required to send a copy of the resolution and the map of the CRA to the DSA. While the DSA would no longer be involved in the determination of the validity of the CRA, the DSA would still need to provide a unique designation for each CRA prior to the grant of any tax exemption.
Under Section 3735.671(A) of the Act, proposed commercial and industrial projects for tax exemption within a CRA require a written agreement between the project owner and the legislative authority of the municipality or county. HB 123 would require the DSA to adopt a model agreement in conformity with the requirements as outlined in Section 3735.671.
Under Section 3735.671(A)(1) of the Act, approval is required by the school district’s board of education in which the project property is located within the territory. However, this is only required if the exemption exceeds 50% of the project’s value. (R.C. 3735.671(A)(2)). HB 123 would reduce this approval requirement only if the exemption exceeds 75% of the project’s value. Note, this would not revoke the notice requirement to the board of education as required by R.C. 5709.83.
Under Section 3735.672 of the Act, the municipality or county is required to send an annual report to the DSA and the board of education of each school district. Under HB 123, the municipality or the county would only be required to send the annual report to the DSA.
(2) Benefits to Project Owners
Under Section 3735.671(D) of the Act, commercial and industrial project owners are required to send a CRA fee to the state annually. Under HB 123, this annual fee would be eliminated.
Under Section 3735.671(E) of the Act, for a period of five years following the discontinuation of operations or the expiration of the term of the agreement, the parties to the CRA agreement may not enter into another agreement under the CRA program or an enterprise zone agreement under R.C. Section 5709.62, 5709.63, or 5709.632. HB 123 reduces this period from five to two years.
Under Section 3537.673 of the Act, commercial and industrial project owners are required to notify the DSA and municipality or county of the relocation of the project to another CRA with the intention of entering into a new CRA agreement. Under HB 123, this advance notice requirement would be eliminated.
(3) New Allocation of Tax Revenue and Potential Impact to School Districts
As previously discussed, HB 123 would increase the approval threshold by an affected school district’s board of education to exemptions which exceed 75% of the project’s value. This could lead to higher tax exemptions on real property for CRA projects, potentially reducing the tax base of school districts and other political subdivisions.
Under R.C. 5709.82(C) and (D), municipalities are required to provide school districts compensation if the exemption granted under a CRA would create $1 million or more in increased municipal income tax revenue due to new employees in the commercial or industrial project. Under HB 123, this requirement would be eliminated, which would benefit municipalities, but could reduce property tax revenues available to school districts.
(4) Increased Access to CRA Information
Under HB 123, the DSA would be required to publish and update annually on its website a list of all Ohio CRAs, including for each CRA: (a) boundaries on a map, (b) authorizing resolutions, and (c) applicable agreements for any commercial or industrial properties.
For more information, please contact Emmett Kelly, Emma Mulvaney, Thad Boggs, Yaz Ashrawi, Alex Ewing, or any attorney with Frost Brown Todd’s Government Services practice group or Public Finance practice groups.