Tax Incentives Minus Oversight

YOUNGSTOWN, Ohio – The city of Youngstown’s Tax Incentive Review Council – the board charged to meet annually to monitor whether companies comply with their promised investment and job targets in exchange for property tax incentives – has not convened for more than two years, flouting state law in the process.

As a result, companies that might have failed to meet their hiring or investment pledges still enjoy tax breaks that might otherwise be rescinded.

One needs to look no further than the overgrown Chill-Can site on the city’s East Side – approximately 22 acres of land and three empty buildings that is still receiving sizeable tax breaks after more than five years of non-compliance, according to city records.

The developer of the stalled project has failed to meet its investment targets, its promises of job creation, and is delinquent thousands of dollars in property taxes at or near the 22-acre site just off Oak Street. 

Nevertheless, the project still enjoys tax incentives of 75% over 10 years as part of an enterprise zone agreement that the developer – M.J. Joseph Development Corp. – signed with the city in 2017. 

Violation of State Law?

Absent a meeting over the course of two years, the city has ignored state law that specifically states these boards convene on an annual basis. “Annually, the tax incentive review council shall review all agreements granting exemptions from property taxation and any performance or audit reports required to be submitted pursuant to those agreements,” according to the Ohio Revised Code. 

The city’s last Tax Incentive Review Council (TIRC) meeting was Dec. 9, 2021, according to records.

Enterprise zone agreements allow property tax inducements to assist businesses that are looking to construct a new facility or undergo a major expansion of an existing building. The city has used the state program since the late 1980s and early 1990s, as it began redevelopment of former steel mill sites along Salt Springs Road and Poland Avenue. Often, the city has awarded companies property tax reductions of 75% over 10 years on new construction in return for significant investment by these businesses and a pledge to create a specific number of jobs.

Each year, the city hires an accounting firm to compile a report of past and existing agreements that detail the name of the company, how many jobs it has created as a result of the agreements compared to how many it promised, the number of city residents hired, and a breakdown of minority, male and female hires. 

Over the past several years, the city has contracted with Packer Thomas, certified public accountants based in Canfield, to compile these reports. The firm has finished two years of reporting for 2021 and 2022, according to records provided by the city, but the TIRC has not made any formal recommendations whether to continue or discontinue active EZ agreements. Meanwhile, bad actors such as M.J. Joseph have enjoyed tax breaks when clearly they have not met their obligations.

“We’re starting to gain momentum and we’re getting it back together,” Stephanie Gilchrist, the city’s economic development director, says of the TIRC. Gilchrist assumed the job in September 2023, a year and-a-half after T. Sharon Woodberry left that position for a job outside Ohio. 

Gilchrist says she’s not sure why the Tax Incentive Review Council did not meet in 2022 or 2023, since it predates her role as economic development director.  “The reports are done, but there was no meeting. I don’t know why that didn’t happen,” she says. 

Data for 2023 is still being collected, and she says the TIRC is expected to convene sometime during the second or third quarter of this year.  That meeting would also formally review reports for 2021 and 2022, she says.

According to the Packer Thomas reports for those two years, the collective number of jobs created under active EZ agreements fell well short of their targets.  In 2021, the 13 companies with existing tax incentives committed to create a total of 639 jobs, according to the report.  As of Dec. 31, 2021, just 211 jobs were created, the report shows. 

The following year, 10 remaining companies under EZ agreements with the city – three agreements had expired in 2021 – reported creating 230 jobs after committing to an aggregate of 499 positions.

Total investments by these companies were more in line with commitments during both years. In 2021, the 13 companies had pledged to invest $158.8 million into operations. Collectively, these businesses exceeded their targets, with a reported investment of $173.4 million as of Dec. 31, 2021, the report shows. In 2022, 10 companies promised to invest $143.8 million. By the end of that year, these businesses reported investments of $116.9 million.

During the last TIRC meeting in December 2021, the board recommended the city continue all 13 existing enterprise zone agreements, including Chill-Can. Then, TIRC members explained that some companies were still struggling from the pandemic, and thereby missed their benchmarks. 

As for Chill-Can, the TIRC deferred the matter to the law department.  Since 2021, the developer and the city have been locked in litigation over the stalled project.

Nikki Posterli, Mayor Jamael Tito Brown’s chief of staff and the director of the Department of Community Planning and Economic Development, says it’s been difficult to gather a quorum for a meeting over the last two years, since the city did not have an economic development director on staff. The city also lacked a human relations commission director, she says.

In November, the city hired Brian Clinkscale for that job, Posterli says.  Part of the human relations director’s duties, she says, is to canvass companies with EZ agreements and ascertain whether these businesses have acted in good faith to hire city residents or minorities for new positions. 

“We haven’t had the key people in those roles to do the work,” Posterli says.  “We needed an economic development director and a human relations person. We haven’t had a quorum because we haven’t had the people. Now we have those appointed people.”

Ohio law does not require that an economic development director or a human relations director sit as a TIRC member. Those required to sit on a TIRC board are the municipality’s chief executive officer or their designee – in this case the mayor or the mayor’s designee; a member of City Council; the city finance director or their designee; an individual appointed by the board of education; the county auditor or the auditor’s designee; and two members of the public appointed by the mayor with City Council’s approval. At least one of the two members of the public appointed by the mayor is to be a minority, according to law.

Attendance of a majority of TIRC members constitutes a quorum, according to statute.  It’s unclear whether the city would face any penalties for failing to convene its TIRC. Emails to the Ohio Department of Development requesting clarification on this matter were not answered.

When the TIRC meets, it makes a recommendation to either continue or cancel an agreement. City Council would then vote on the recommended action.

“The state hasn’t raised any issues,” Posterli says.  “Any reporting that needs to be done to the state through Packer Thomas has been done.”

Mahoning County Auditor Ralph Meacham says that city officials hosted a video conference call with him approximately a month ago regarding the Tax Incentive Review Council.

“I urged them to get going,” Meacham says. As county auditor, Meacham chairs both the city’s TIRC as well as Mahoning County’s Tax Incentive Review Council. 

He says Mahoning County’s TIRC has convened every year without difficulty. On March 14, the Mahoning TIRC approved enterprise zone and Community Reinvestment Area agreements with 14 companies receiving tax incentives. 

That same day, Trumbull County’s TIRC, which also includes projects in the city of Warren, reviewed 22 agreements. However, the Trumbull TIRC recommended modifying one CRA agreement based on insufficient job creation. Trumbull County’s TIRC also has met on an annual basis without interruption.

Chill-Can Tax Incentives

The annual report for 2022 – the latest compiled – shows that most companies receiving tax incentives in Youngstown met or came close to satisfying their investment numbers.  Still, several businesses fell short of their job creation and investment goals.

M.J. Joseph Development’s shortfall is the most glaring. The company had pledged in 2017 to invest $18.8 million to build a manufacturing campus dedicated to producing the world’s first self-chilling can.  The developer and its CEO, Mitchell Joseph, also promised to hire 237 people within three years.

At the close of 2022, the company listed a single job created as a result of the project and an investment of $4.7 million. 

It’s unclear whether this investment includes a $1.5 million city development grant the company received based on those job projections. In any case, three empty buildings stand on the site, now engulfed by scrub brush and weeds.  A Mahoning County Common Pleas Court has since ruled that the company is responsible for repaying the city its $1.5 million for breach of contract. A court magistrate has also ordered M.J. Joseph to pay the city an additional $733,480.80 in sanctions. On March 29, Judge Maureen Sweeney affirmed the magistrate’s ruling, ordering the company to pay the city.

Joseph has not paid anything to satisfy these court orders, records show. Nor has the company bothered to pay its property taxes on a timely basis. 

According to the Mahoning County Auditor’s website, the 89 parcels owned by either Mitchell Joseph personally or M.J. Joseph Development are delinquent to the tune of $24,803.76.  Most of this delinquency is tied to a parcel at 118 N. Lane Ave. where the three buildings sit. Auditor’s records show that the developer currently owes a tax bill of $41,118.54 on the parcel, of which $22,813.14 is considered delinquent.  Records show the company’s last tax payments came in two installments of $5,821.36 on Aug. 5, 2022.

Another tax report on a parcel along Hubbard Road shows the developer owes at total of $2,217.98 in property taxes, $1,328.56 of which is delinquent. Dozens of smaller parcels post delinquencies ranging from $3.36 to $15.41, records show.

At present, it appears that the company, based in Irvine, Cal., has walked away from the project completely. 

Efforts to contact the company’s headquarters were fruitless, since its phone number appears to be disconnected. The company’s website that once touted the Chill Can has also been removed.  As of March, the company’s attorneys had withdrawn from its case against the city, as well as another lawsuit it was handling.

During the last TIRC meeting in 2021, then-economic director Woodberry estimated that the abatement on the Chill-Can project reduced the developer’s tax bill in 2020 by approximately $55,000 and was based on the value of two of the three buildings.

The Business Journal has requested comment or clarification from the city’s law department as to why these abatements were never addressed and why the TIRC had not addressed them.  At press time, the law department had not responded.

Pictured at top: The abandoned, weed-choked Chill-Can site is emblematic of lax tax abatement enforcement.