Equal Opportunity Economic Development

This is a primary goal for my first year as a Dayton City Commissioner. It is a framework of an idea. Your input is welcome in the comments (On the blog- not on Facebook please).

You want to open a bar in Dayton. You go and buy an old building that needs a total renovation, you go into debt to finance the construction work, you then open the business with no guarantee of success, You’ve never run a bar.  Banks don’t treat you well. You open up, already deep into debt, and build a thriving business. You took a risk, and it paid off.

A few years later, some “developer” from out of town comes to Dayton. He want’s to open a bar. He already has a bar. You get a building given to you for $10. Banks line up to give you low-interest money, the government gives you tax breaks and grants. They throw in a huge extra piece of real estate for free. You open up and build a thriving business- you took minimal risk and it paid off. The government money came out of the pockets of the poorest people in the region. The politicians pat themselves on the back- and get money put into their campaign funds.

Did I mention the taxpayers paid $450K for that building that the politicians gave away? Did I mention this is a true story in Dayton Ohio that gets repeated over and over?

This is an example of NOT equal opportunity economic development. We can cite many examples, the Fairgrounds project being one of the biggest. How did the two known developers who submitted proposals feel when they were rejected out of hand- and then the property was handed off to Premier Health and the University of Dayton for a fraction of the cost- without a plan in sight? Same problem. Same payola at play.

The final nail in the coffin on each of these deals? After the anointed no-risk taking “developer” gets done, the surrounding neighbors then get saddled with a larger tax bill because “their property is now worth more.” The new development was paid for by the neighbors, and then they have to pay more because their “value” went up? So you have to pay twice? All the while the “developer” has a 15 year tax abatement? Do you see the absurdity of this?

There has to be a set of rules that level the playing field.

Enter, the Esrati plan for “Equal Opportunity Economic Development®.”

Tax dollars are for the public good- not individual gains. We pay taxes for public services, things essential to the community. If you are a “non-profit” we can make a donation to you ourselves- we shouldn’t have our tax dollars being given to you- especially if your CEO or Basketball Coach makes more than a million a year (Premier Health, UD, Caresource- I’m talking to you). We don’t care how many employees you have that contribute tax dollars to our city through taxation without representation- you don’t get to make that argument while we have a city besieged by poverty, a wealth gap that is defined by racism going back a century. And, on top of that, you don’t get to have a private police department to protect your property while we can’t afford to staff our own with the property tax dollars that are left over after all the other businesses that paid taxes left town (GM, NCR, Mead, Reynolds and Reynolds being prime examples). Those “for profit businesses” couldn’t afford to support your tax exemptions so they left- often enticed by other better run cities that didn’t work on a pay to play basis (now known as the “culture of corruption” in Dayton).

The poor aren’t supposed to support the rich getting richer- and it’s a bad idea because eventually, there are riots and no army of police can stop what happens. It is in the best interest of the wealthy that they do their part in making sure all hope isn’t lost. To protect those who struggle every day.

The first rule of Equal Opportunity Economic Development® is that my neighbor no longer affects my property value. Appraisers of Dayton, your fraudulent profession that has lead to redlining and racist lending is done. There will be no appraisals based on thy neighbors property anymore- not for lending and not for tax purposes. This is to undo decades of injustice. When most of the city is listed by the Small Business Administration as a Historically Underutilized Business Zone (HUBzone) eligible for special preferences due to past practices you have a problem.

Appraisals will only be allowed based on a simple formula of square feet of building, lot size, and condition of building, times a formula for renovation based on condition times square feet. The condition will be rated on a 6 step scale.

  1. Needs total renovation, structural issues. No mechanicals, utility hook ups, unsound envelope. Vacant for at least 5 years.
  2. Vacant, sound envelope, structurally adaptable, outdated mechanicals, needs to be brought to current code for return to inventory.
  3. Occupied, poor condition, needs major work to bring to code/safe habitable market rate value.
  4. Occupied, servicable as is, changes are for cosmetic reasons, or change in use.
  5. Occupied- no major changes needed to be sold and used in some capacity. Exterior needs cosmetic help.
  6. Sound, functional, cosmetically respectable. Saleable.

The cost of renovation will be figured on a formula per square foot, as will the value of the property based on square foot by condition.

The other value is per square foot by type of space: residential, retail, commercial, industrial, agricultural, non-profit.

And here’s a kicker: if the CEO makes more than 10x the average wage of their employees, or any employee makes below a living wage (eligible for public assistance) they are not eligible for any tax breaks, grants, assistance. This can be verified by tax rolls. Non-profits, CEO can’t make more than 5x.

Also- if the average wage is more than 10x the average wage in the city of Dayton, the organization can’t claim non-profit status for taxes or benefits.

Here is the second part of real estate valuation, when it comes to your investment, the value is what you paid for it in an arms length transaction (ie- fair market price at the time- from someone not related). That value will not change for the length of time you own the home no matter what happens to your neighbors property. It will be adjusted for current value based on the inflation rate every three years automatically, but never more than 3% at a time. No longer will your neighbors loss or gain rule your destiny. Gentrification should be able to benefit the poor- not tax them out of their investments and their homes. No longer will we penalize people for fixing up their homes by taxing them more. It’s counter-productive and has lead to the disastrous state of affairs we’re in now.

The Bankers Dilemma

When any of us little folks get a judgement against a debtor, we’re forced to fend for ourselves in collection. Banks have had the special privilege of having the Sheriff forcibly remove people from homes when payments aren’t made. It’s time to stop having the Sheriff be the bad guy for the banks bad business decisions. And it’s time that their bad business decision stops costing the neighbors.

Right now, vacating a property in Dayton almost instantly guarantees a $50K drop in the value of the neighbors property because of our inability to protect private property from scrappers. (See lack of police due to private police by rich institutions above). This has to stop. Just as the sheriff can kick people out- the bank has to take responsibility for keeping the property in at least the same condition it was when the former tenants were in it. Secure, habitable, intact, insured and able to be occupied. A complete inventory of the property will be made by the sheriff upon emptying the home, and unless the bank has tenants in the property within 30 days, they will be assessed a monthly fee of at least $100 a month or 10% of the previous mortgage to cover monthly inspections to make sure the property is secure, maintained and not depreciating- or that they have made arrangements to pay an immediate neighbor to manage the property and maintain it. If the property hasn’t been re-occupied within 180 days, the neighbors will have the right to negotiate acquisition for no more than the outstanding balance at the time of vacation. If the immediate neighbors don’t take the offer, the property must be put up for auction, with anyone owning well maintained property within 1000 feet getting the opportunity to buy it at a 10% discount over the final price.

(I made this video in 2012. The houses that were filmed inside and out- have been fixed up and are occupied, without government help).

Also- any questions of title on any property seized by foreclosure will be null and void after a foreclosure.

As to distressed properties, the rules need to be thrown out the window in Dayton. Zombie deeds, shell company owners that can’t be located, tax sales, all need to be revised. There is a house across the street from me that has been sitting vacant for over a decade, that someone bought- rehabbed, and can’t sell because a company that bought some junk paper claims a lien for a full amount- without any documentation of any payments. The neighbor who did the work, who saved a potential demolition and loss of value- is getting jerked around. In most neighborhoods, buildings like this- never come back. Here, because of historic zoning and the “South Park Renaissance” people are willing to invest because the return is there. Not so in Five Oaks where Mayor Nan lives.

Any home that has been vacant for over a year, has a failing envelope (windows, doors, roof, siding, gutters) and has no sign listing for sale with contact information, should be able to be bought by an investor who has already made an investment and maintains property in the neighborhood first, or in the city second. They will have to meet strict timelines to seal and secure any purchase, with complete occupancy ready construction done within a year for single family homes and at least one unit in multi-family homes. They will never be taxed on more than the property purchase price for the length of time they own the building and keep it in good repair. However, if the renovation is used to receive Section 8 assistance, HEAP funds or other housing/utility assistance, the value will be determined to be 10% of the annual rents received or the purchase price, whichever is higher. This is because they are getting assistance from the taxpayers to keep it occupied.

Bankers will no longer want to lend in Dayton Ohio because of these additional conditions is the argument that you will hear. That’s fine. There are private investment funds called REITS (Real Estate Investment Trusts) that will be happy to invest- because along with the HUBzone status- we’re also an “Opportunity Zone”- where they can invest and dodge taxes on their profits from sales of other real estate holdings that profited greatly. When you buy a home in DC for $400K and sell it for $1.7M- you are normally taxed on the change in value, less what you buy your next property for. So if you leave DC and come to Dayton, and buy a nice Oakwood home for $700K the remaining $600K that you would be taxed on, can be invested in Dayton Opportunity Zones and protected – and at the end of 10 years, you no longer are liable for the rise in value from your last home sale. The money you make on the investment in Dayton is taxed as ordinary income, for those 10 years, and if you chose to sell afterward, it’s not a capital gain. Sorry bankers.

The Goal is Reinvestment

Currently, the goal of “Economic Development” seems to be “job creation” and construction. The new Equal Opportunity Economic Development® is to encourage reinvestment by existing owners and protection of new owners investment. No longer will tax breaks be given for promises- tax breaks will be earned by actions. Need an example of failed promises? Look at the Gettysburg Kroger store the city funded with a 20 year tax break, after the tax break expired, they left. That, and the “Wayne Avenue Kroger” that never materialized were nothing but corporate welfare- being paid by the poorest to support the wealthy.

If you buy a property in the opportunity zone that is in disrepair and put it back on the market- you will not be taxed on the capital gains if the money isn’t being protected from a previous sale (in that case, you have to hold it for 10 years). You will be rewarded for the sale, and the new owner will pay taxes based on the purchase price. The neighbors tax values won’t change, and they will benefit from their foresight and good investment. They will be rewarded for sticking through the bad mismanagement by past governments. There will not be people like my friends parents who built a home in Westwood in 1963 for $20K who now still have a $20K house, despite taking good care of it.

Tax dollars will be spent on providing parks and rec, street maintenance, public safety, marketing the opportunities, public schools, programs that benefit all, instead of a few.

Any project labeled for the public good- that is to receive tax investment- the opportunity must be widely posted, open to multiple bidders, all with the same opportunities to invest and all with the same rules. It must also demonstrate a long lasting benefit to the community- outside of increased tax collection. And, any bidder, who has already invested within the city and has a proven track record of rehabbing or maintaining quality investments, will be given preference within 10% of the best bid.

We will also recognize federal standards for minority participation not just for women owned or minority owned businesses but also to veteran, service disabled veteran owned and HUBzone qualified businesses. 8A firms will NOT be recognized by the city for participation.

A Focus on Small Business

One last thing, I had to fight tooth and nail to open a small ad agency in the middle of South Park. The building had been vacant for over 8 years when I bought it and the zoning had “reverted” to R-1 single family residential even though it was always intended to be a corner store (it was a church for a minute after WWII). Our zoning laws are archaic and creating a dependence on cars and parking, homogeneity and conformance. It’s too hard to open up a neighborhood coffee shop (both Ghostlight and Wholly Grounds took over a year to open) and yet both have been amazing additions. My office has brought people into South Park that never would have come before. A printing rep bought a home that had been burned down just as it was completing its first return from the grave- only to have risen again to become her home. A military couple loved my place- and ended up investing in 4 other properties for themselves and his parents bought another. That wouldn’t have happened without my “non-conforming” use.

It’s time to remove all parking requirements, use restrictions on small storefronts in the city and return the premise of walkable residential neighborhoods with community gathering spots on every other corner. A corner bar is as much the neighborhoods as it is the owners, yet, we fight them for the wrong reasons. Look at the bars in German Village in Columbus- they were the bedrock of the revival.

Modern building codes are great, as is ADA compatibility, however, it’s time to stop allowing new rules to invalidate history- at least until the entire community isn’t undervalued by the passage of time. Small business has been and always will be the bedrock of capitalism and the American dream. It’s our job to encourage it and enrich our community via small dreams, one person and one building at a time. We have to rely on ourselves and our smarts- not on the generosity of either big companies or charity or the taxpayers.

If you have suggestions, revisions, or ways to improve this plan, please share in the comments on this post (not facebook). Thank you.

 

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