Sharon Coolidge

scoolidge@enquirer.com

City of Cincinnati officials improperly borrowed millions of dollars designated for neighborhood projects to pay its taxes to Cincinnati Public Schools, a judge ruled Monday.

Calling the city's actions "creative financing," Hamilton County Common Pleas Judge Robert Gorman ordered the city to repay $4 million to neighborhoods – and forbid officials from making similar internal loans in the future.

Taxpayers must also pay the plaintiff, developer Hyde Park Circle, almost $250,000 in damages and cover the developer's attorney fees, an amount that will be determined later.

It's a blow to the city.

While City Council insisted it had always intended to pay the money back, it did not set aside the money for the repayment in the 2015 operating budget.

The budget, which emphasizes public safety and other core services, is balanced down to the dollar in the wake of cuts.

The court will set the repayment schedule. A final judgment from the court is expected sometime after Aug. 8.

City officials say the repayment won't affect operations.

The money will be a boon to the 12 neighborhood districts missing money. Community leaders can start planning projects.

City lawyers argued the loan was OK because it was an "internal loan."

Gorman, in the scathing decision, called it something else.

"By creative financing the city has in reality unlawfully loaned itself money from the TIF accounts so that it could pay other lawful obligations from the general fund," Gorman wrote in the decision.

Tax-increment financing (TIF) enables a local government to set aside property taxes from increases in assessed value as a result of new private development in a defined area. That revenue goes into a separate fund, which can be used for public improvements.

"The city's apparent unwillingness to work with Hyde Park (Circle) to complete the development is difficult to comprehend," he added. "Hyde Park is transforming a blighted area into a productive and economically desirable urban space."

City officials are weighing whether to appeal, which could delay payment two to three years.

Joe Braun, the attorney for Hyde Park Circle, said the decision confirms what he's been saying for years.

"The city of Cincinnati has been balancing its budget since 2012 on the backs of neighborhoods," Braun said. "The city essentially stole TIF money from its neighborhoods, and this decision confirms it."

Mayor John Cranley agrees with the court's decision and is against appealing, he told The Enquirer. He helped create TIF districts a decade ago as a councilman, but was not part of the city administration when the money was borrowed from them.

The neighborhood money wasn't intended to be used in this manner, Cranley said.

In 2006, the city entered into a development agreement with Hyde Park Circle to finance a portion of its development at the site of the former Oakley Drive-In.

The city would provide $4 million from the TIF funds for the development, which is home to a Christ Hospital speech and hearing facility, an athletic training facility, a senior living facility and Red Dog Pet Resort.

Cost overruns would be covered by developer Ray Schneider.

The 2011 lawsuit specifically alleged the city forced Schneider to pay more than he was supposed to for sewer and water improvements, money that should have also come from the Madisonville neighborhood fund.

The city had already used it to help cover general budget operations, in this case a $5 million payment to Cincinnati Public Schools in lieu of property taxes on land where the Downtown professional sports stadiums sit.

It is unclear how much money is in Madisonville's fund. It's owed $794,490.

When it borrowed the money, city officials promised to pay the money back by 2015. But during this year's budget process, officials delayed the second of three payments until 2017.

So far, $1 million of the $5 million lent in 2011 has been repaid.

The plan had called for a $2 million repayment to be made in 2017. ■

Neighborhoods owed money

Queensgate

Carthage

Walnut Hills

East Walnut Hills

Bond Hill

Evanston

Price Hill

Lower Price Hill

Westwood

Madisonville

Oakley

Avondale