Cincinnati Change

Tax Increment Financing (TIF) is a way for Cincinnati to intercept some of the taxes that would be paid by owners of real estate. TIF uses the additional property taxes paid as a result of development in the district to pay for part of the re-development costs that will make this city great.

When a Cincinnati Change Change Agent Developer renovates and or constructs a new building, the market value of the property and its property taxes typically rise. Classic examples would be building a new store on an undeveloped parcel or replacing one or more old buildings with a renovated and or new, larger building.

In both of these instances, the market value of the property will rise because the improvements add value to the parcel.

Tax increment financing (TIF) is a way for governments to help finance new capital projects by taking advantage of expected property tax returns.

When a TIF district is created, the county auditor certifies the current tax capacity of the properties in the district as the TIF district's "original tax capacity." As the property in the district increases in value, these increases above the original tax capacity are "captured." The law refers to this amount as the district's "captured tax capacity."

If we fiully impliment the Cincinnati Change plan of action then we expect to redirects payment of property taxes in the amount of the value of new improvements. TIF does not exempt public improvements from taxation. Rather, the taxes continue to be paid but are redirected to the City rather than the tradition disbursement among the City, County and Board of Education.

[Note: In most cases, 25% of the incremental revenues are dedicated to the Schools and should be factored into any calculations about the amount of revenue available for public infrastructure. We hope that this will increase the funds to the public schools to lower the deficiet they are experiencing for the next 20 years.]

Based upon the terms/conditions of a negotiated Redevelopment Agreement between the City and a Cincinnati Change Agent Developer, Cincinnati Change, as a partner in the development, would look to invest in the people who need it most through a coalition of non governmental agencies and for profit businsses who will look to change the lives of residents of some of the areas wih the worst crime, old public infrastructure and provide support for young people and seniors.

Past program examples include Taft Broadcasting Corp., Village at Stetson Square: Luxury Apartments, Queen City Square, Atrium 1, The McAlpin Development, Shillito Lofts, Amantea Nonwovens Company Creation , Bridge Worldwide Office Expansion, CBS Personnel Holdings Expansion, Cinergy Center Expansion and Renovation, Convergys Corporation Retention and Expansion, Formica Corporation Relocation, Lab One Relocation & Expansion, Sun Chemical Corporation Expansion and Westin Hotel.

Lets give a current real world example, how the Cincinnati Change TIF Plan would work in Over the Rhine (OTR).

OTR Housing Capacity (drawn from the 2002 OTR Plan)

We can start from the premise that we want to maintain at least 5,000 of the existing habitable units. Most in some need of renovation. The pool of available housing options can be increased through renovating vacant buildings and developing vacant lots for housing.

There are approximately 500 vacant residential buildings in the neighborhood. These buildings originally included a minimum of 1 to a maximum of 20 housing units.

These units were small and often composed of multiple small rooms. For today’s purposes, if we assume that each building could contain between one and four units, there would be capacity for an average of an additional 1,000 units created in existing vacant buildings.

The vacant land inventory identified approximately 700 vacant parcels in the neighborhood. If those vacant parcels provided for even 200 building sites with one to two units each, there is the capacity for another 300 units of new construction.

In addition we envision the conversion of large institutional and commercial buildings retail spaces with OTR based creative class and or third frontier small office home offices.

Based on the many assumptions provided above, it is reasonable to consider that OTR has the capacity for approximately 6,300 housing units. At an average household size of 2.2, these 6,300 units could house a population of over 13,830 people, which would be similar to the neighborhood’s population of 15,025 in 1970’s (or about 10% less).

OTR is today a neighborhood of renters with a current homeownership rate of less than 5%, which is considerably lower than the approximately
38% homeownership rate for the City of Cincinnati.

Under the Cincinnati Change TIF Plan home ownership would rise over the next decade to over 40% through buy ins from current residents anfd those who move into the neighborhood and support home ownership by capture of the TIF revenues that lket us develop low moderate income hosuing for families in the coummunity now.

Through the Cincinnati Change TIF program we expect to support the creation of over $600M in public investment in over 1,000 Over the Rhine Businesses - all of whom would be required to be OTR homeowners.

Procedures

The Internal Finance Review Committee is to review each project. It is expected that the requesting Department will have requested, documented, reviewed, and formulated a recommendation based on the City's Investment Information Guidelines.

Then city council decides.

LETS ROLL

Establishing Authority of the Port of Greater Cincinnati Development Authority: Ohio Revised Code Section 4582.22 authorizes counties and municipal corporations to act jointly to create a "Port Authority" as defined in those sections.

The Board of County Commissioners (BOCC) of Hamilton County, Ohio, Resolution (Volume 280, Image 5-15) dated October 4, 2000, approved an agreement for the creation of a new Port Authority between the BOCC of Hamilton County and the City of Cincinnati.

Purpose: To implement the redevelopment of the Riverfront and continue the efforts of brownfields redevelopment in Cincinnati and Hamilton County.

The Port Authority was chosen as a development mechanism by the city of Cincinnati because its unique “tool kit” could be used to assemble the necessary pieces of the development puzzle.

Nowhere else has approximately 15 acres – eight city blocks – of prominent waterfront property been pre-assembled, at one time, with the opportunity to tap into surrounding anchors that will, by 2009, generate approximately a million visitors annually to the area.

Cincinnati Change will propose that we create the following on this space:

Science Museum & Third Frontier Research Center

Global Communications Network Operations Center

African American Museum and Culture Center

Mixture of 20 plus Food, Beverage and Entertainment Sites

Multimedia Production Center

Downtown University Center

Professional Conference Center

Offices including International Center

Presidential Suites Hotel

Upscale Professional Suite Hotel

Extended Stay Hotel

Upscale Condo

Market Rate Condo

Graduate Student Housing

First Responder Housing

This project under our direction will create over 600 FTE jobs (and up to 1,000 PTE's) for people living in the Empowerment Zone of Cincinnati.

We will house over 200 businesses here including over 100 creative class third frontier multimedia production companies.

Tax-Exempt Bond Examination Results Used to Focus Customer Education Programs

August 2003

Reference Number: 2003-10-172


This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

August 19, 2003


MEMORANDUM FOR COMMISSIONER, TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION

FROM: Gordon C. Milbourn III /s/ Gordon C. Milbourn III
Assistant Inspector General for Audit (Small Business and
Corporate Programs)

SUBJECT: Final Audit Report – Tax-Exempt Bond Examination Results Are Used to Focus Customer Education Programs (Audit # 200210050)

This report presents the results of our review to determine if Office of Tax Exempt Bonds (TEB) management uses the results of tax-exempt bond examinations to focus their taxpayer education and outreach efforts in order to provide Tax Exempt and Government Entities (TE/GE) Division customers with top quality service by helping them to understand and comply with the applicable tax laws.

In summary, we found that TEB function management adequately used the results of examinations to focus their taxpayer education and outreach programs. Interpretive guidance had been developed for all examination issues involving noncompliance that we reviewed. The TE/GE Division’s Internet website provides customers with links to interpretative documents related to tax-exempt bonds, such as Private Letter Rulings and Field Service Advice.

However, the website does not have interpretative guidance for all applicable Internal Revenue Code (I.R.C.) sections related to tax-exempt bonds, nor does it have direct links to the applicable I.R.C. sections. Consequently, we recommended that the Director, TEB, modify the TE/GE Division’s Internet website to provide direct links to applicable I.R.C. sections.

Management’s Response: The Commissioner, TE/GE Division, agreed with our recommendation and will modify the website to include links to applicable I.R.C. sections. Management’s complete response to the draft report is included as Appendix IV.


Table of Contents
Background
Tax-Exempt Bond Examination Results Are Used to Focus Customer Education Programs, but Additional Information Should be Provided to Improve Customer Service
Recommendation 1:
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Management’s Response to the Draft Report

Background
The Office of Tax Exempt Bonds (TEB) within the Tax Exempt and Government Entities (TE/GE) Division administers the Federal tax laws applicable to tax-exempt bonds. Tax-exempt bonds include governmental and qualified private activity certificates of debt that are issued by state and local governments or by organizations acting on their behalf, such as universities and non-profit organizations. They are used to finance various tax-exempt projects, such as courthouses, hospitals, airport expansions, and highways.

Bond issuers are required to meet certain requirements under the Internal Revenue Code (I.R.C.) for the interest received by the bondholders to be exempt from Federal income tax. If the proceeds of the tax-exempt bonds are not used for their intended purpose, the bond may no longer be tax-exempt, and the issuing organization may be liable for the taxes as well as paying sanctions.

TEB function management stated that bond customers paid $9.9 million in sanctions in Fiscal Year (FY) 2000, $5.7 million in FY 2001, and $31.7 million in FY 2002.

The tax-exempt bond sector is experiencing dramatic growth.

Between 1985 and 2000, more than 400,000 Information Returns for Tax-Exempt Bonds (Form 8038) were filed with the Internal Revenue Service (IRS). During the same period, the value of outstanding bonds grew by more than 125 percent, from $650 billion to nearly $1.5 trillion. In addition to the growth, regulations governing tax-exempt bonds are among the most complex in tax administration.

The goal of the TEB function is to provide its customers with top quality service by helping them understand and comply with the applicable tax laws and protect the public’s interest by applying the tax laws with integrity and fairness. To achieve this goal, the TEB function has concentrated its efforts in three areas:

· The Customer Education and Outreach Program is designed to assist members of the bond industry in understanding their tax responsibilities. TEB function management believes that one potential reason for noncompliance is a lack of understanding of the complex legal requirements.

· The Voluntary Compliance Program is designed to foster voluntary resolution of violations of the I.R.C.

· The Examination Program is designed to determine if bond issuers comply with the legal guidelines for tax-exempt bonds. The TEB function completed 344 examinations in FY 2002, which included both correspondence examinations and field examinations.

Ø A correspondence examination is a limited scope examination conducted via correspondence. If significant tax issues are identified during a correspondence examination, the examination may be converted to a field examination of the bond issuance.

Ø A field examination is a broader scope examination that ensures bond issuers comply with the pre- and post-issuance requirements necessary for the bond issuance to qualify for and maintain tax-exempt status.

The TEB function tracks noncompliance issues identified from examinations to determine where to focus future educational efforts in order to reduce noncompliance. At the time we began our audit, principal issues of potential noncompliance were input to the Quarterly Field Reports and forwarded to the TEB function headquarters office each quarter.

During our audit fieldwork, the TEB function began using the Audit Information Management System (AIMS) to manage its inventory of open examination cases and capture information about issues that were identified during examinations.

In addition, examiners prepared Exempt Organization Examined Closing Records (Form 5599) to record and capture primary issue codes that indicate specific areas of noncompliance. Periodically, TEB function examiners and management have focus group meetings to identify the prevalent issues that should be addressed through customer education.