- Economic Development
- Development Projects
- Top of the Hill
- TOH Economic Impact and TIF Information
Top of The hill Economic Impact and Tax Increment Financing Information
Developing the Top of the Hill site has been a long-time goal of the City; The City has owned the Top of the Hill site since 1968, when it was developed into the municipal surface parking lot that exists today; the City has attempted to redevelop the site on four (4) separate occasions since (1972, 1982, 1990, and 2008), without success.
The proposed $83,000,000 mixed-use redevelopment of the site by Flaherty & Collins is consistent with the City’s Master Plan and zoning requirements; Flaherty & Collins was selected as the City’s development partner in May of 2017 after a robust vetting process; Since that time, the City has held 46 separate community engagement meetings which have resulted in the plans currently under review for final construction approval.
To make the redevelopment of the site feasible, the City incentivized the proposed project by providing the Developer land, Tax Increment Financing (TIF) and cash; the Developer is providing debt and equity to the project. Nearly every mixed-use development like this in Ohio has required some public-private partnership with public subsidies of various types in order to be a viable project. This is true in Cleveland Heights, but it is also true in Shaker Heights, Beachwood, Strongsville, Avon Lake, Westlake and all other Cleveland-area suburbs that are seriously working to spur economic development.
If a project cannot be done with at least a reasonable expectation of profitability, developers will, unfortunately, find other projects to focus their attention and capital on, and as we have experienced, parcels like Top of the Hill can remain undeveloped for decades. Rents in our part of the country are often not high enough to allow a developer of this type of mixed-use project to pay debt service on the project financing and still have some ability to recoup a profit on the investment of time and money the developer will be required to put into the project. The Top of the Hill project cannot be developed into the vibrant mixed-use project the City envisions without the City providing a reasonable level of assistance.
The City will lease the project site to the Developer, but will retain ownership of the property per the Development Agreement approved in 2018; Also, in that year, the City and the CHUH School District approved the creation of a TIF District. A TIF is an economic development tool provided in the Ohio Revised Code to local governments to assist in financing new development.
A TIF has two basic components: the property tax generated before the site is developed (existing base value); and the property tax generated after the improvements are made (increased value). A TIF allows the future revenues from the increased value of the site as a result of the proposed improvements to be used upfront to help finance the project. The projected stream of future revenue from the increased value is borrowed against by issuing bonds and the tax payments that would have been made as a result of the improvements are instead directed towards payment of the debt service for the bonds.
For this project these payments are made by the developer in an amount equal to the real property tax liability that otherwise would have been due had the property not been exempted. The payments will then be directed towards a separate fund to be used to pay the debt service for project improvements and to make annual compensation payments to the school district as part of an agreement between the City and CHUH.
Currently, the project site yields approximately $30,000 in annual revenue from taxes on the project parcels to the school district. The proposed TIF has been structured in such a way as to yield an estimated $410,000 annually to the school district consisting of $39,000 from the existing parcel values and $371,000 in future service payments from the TIF. This is a conservative estimate, as it does not consider additional school compensation that would result from future levies that may be passed by the District. The Schools will receive the full value of the taxes after the TIF expires.
As previously mentioned, TIF’s are monetized by issuing bonds. The Ohio Revised Code authorizes political subdivisions, including municipalities like the City, to issue conduit bonds, much like the Port Authority can do, to support redevelopment projects like the Top of the Hill. This commonly used economic development finance tool enables the City to be a “conduit” issuer. This means that the City has no obligation for repayment of the bonds. The City will loan the bond proceeds to the developer who will be obligated to pay the debt service on the bonds. The bonds will be secured only from the TIF revenues generated from the increased value of the improvements from the Top of the Hill project and are the obligation of the developer, not the City. As the conduit issuer, the City’s only financial responsibility would be to use any dollars it receives from the developer (likely as loan payments) to pay debt service on the bonds. If the developer does not pay, the City has no obligation to make debt service payments. As is typically the case with this type of financing, the City intends to charge a fee to the developer as part of issuing the bond along with other requirements such as the payment of all of the costs of issuance.
In 2018, a shortfall of $7,000,000 was identified in the funding of the project. In response, the Developer reduced their rate of return from 8.0% to 7.5% and pledged an additional $2,150,000 towards the project. In the 1st amendment of the Development Agreement, City Council authorized the City to commit $1,850,000 to the project shortfall. While the City explored and continues to explore other sources of funds to reimburse the City, it was always the intent to consider issuing debt to cover its $1,850,000 commitment. The City’s debt will be repaid with proceeds from the project such as permit fees and the fees we will receive for being the conduit issuer for the TIF Bonds.
This project is anticipated to have approximately 261 market-rate luxury apartments, over 11,000 sq. ft. of new first floor commercial space, close to 25,000 sq. ft. of green space, and a structured parking garage, resulting in approximately 550 parking spaces. The project is expected to create 65 permanent jobs and 455 construction jobs when being built. Total tax revenues from the project to the City are projected to be $350,000 annually, with an additional one-time influx of revenue from construction payroll estimated at $550,800.
The overall projected benefit to the City and Schools for the first 32 years of the project is estimated to be $26,600,000. The projected net benefit to the City (minus the debt service associated with the City’s contribution) is $11,900,000 over 32 years for all project-related revenues and $3,400,000 if non-tax revenues are isolated.
The project represents a catalytic & transformative mixed-use gateway redevelopment bringing new residents, businesses, vibrancy, economic activity and tax revenue to our City.
Additional information and links to related Top of the Hill Economic Impact and TIF information can be found below:
- Top of the Hill Project - Flow of Funds Charts
- Term Sheet
- Project Economic Impact
- Responses to Recent Comments & Questions on the Top of the Hill Redevelopment Project
- Top of the Hill Economic Impact and TIF Information
- TIF School Compensation Agreement
- TIF School Compensation Agreement Addendum
- TIF Ordinance March 19, 2018
- TIF Ordinance December 2, 2019
- Why is a TIF being used for this project?
- TIF presentation to the CHUH School Board
- TIF Summary