Cleveland’s use of stimulus money for revenue recovery outpaces other Northeast Ohio cities: Stimulus Watch

CLEVELAND, Ohio – About 70% of Cleveland’s first installment of American Rescue Plan stimulus money is going toward government services to make up for revenue lost during the pandemic, setting it apart from other large Northeast Ohio cities which have dedicated far less, if any, of their funds toward revenue recovery.

Cleveland is receiving a total $511 million over two years. Of the first $255 million, $108 million has been earmarked to offset lost revenue attributed to decreases in income tax.

But some cities are not planning on spending any of their initial stimulus dollars on revenue recovery, and many are still deciding whether that’s the best use of the one-time money.

Making up for revenue loss is one of the main priorities of the American Rescue Plan’s funds for local governments, many of which collected less money in 2020 in taxes – including income tax – and other sources, such as building permits and parking violations, due to closures, shutdowns and other impacts of the pandemic.

Since Cleveland is the heart of most of Northeast Ohio’s industries, it makes sense that the city stood to lose more from revenue streams that don’t exist or are much smaller in other communities, including admissions taxes, hotel taxes and casino revenue.

“I think people tend to minimize the enormous impact that it had,” Sharon Dumas, Cleveland Mayor Frank Jackson’s chief of staff and finance director, previously told cleveland.com. “All the momentum stopped.”

The U.S. Treasury has provided cities with a calculator to determine the amount they can recoup using stimulus money, based on the difference between what was collected in 2019 – adjusted for inflation – and what was collected in 2020.

The money must then be spent on government services, which could include expenses to maintain or build new infrastructure, including roads; modernizing cybersecurity; health services; environmental remediation; school or educational services; and public safety. Cleveland intends to spend its recouped money on hiring for unfilled jobs, restoring fire and emergency medical services that were pared back in 2020 and filling in funding gaps in areas where spending was reduced.

But officials in the suburbs have been less decisive about how to plug those gaps.

Parma will use $5.3 million of its $23.7 million on revenue recovery – about 22% of its total windfall, or 44% of its first installment.

“The main driver behind the city’s revenue loss was the loss in income tax,” Parma Auditor Brian Day said. “As far as how the revenue replacement dollars will be utilized, that is currently being discussed between the Mayor and City Council.”

Cuyahoga Falls Finance Director Bryan Hoffman estimates that his city will allocate about half of its $16.5 million windfall on revenue recovery – but that could change based on how much the city collects over the next four years, he said.

Lakewood calculated its loss to approximately $3.4 million, but Finance Director Peter Rancatore said the city has yet to determine whether it will seek to recoup that money using its $47 million in American Rescue Plan funds.

Barberton has also not yet allocated any of its $16.4 million for revenue recovery, with Finance Director Jeremy Flaker saying the city is “looking at various other uses before earmarking it for revenue loss.”

Cleveland Heights Finance Director Amy Himmelein said her city is not going to seek to recoup revenue loss, because other funding streams have already supplemented the eligible deficits.

Most notably, Himmelein said, the city received about $3.3 million from the Bureau of Workers’ Compensation in 2020. Coupled with greater-than-normal permit revenue due to some larger construction projects, the city received so much in one-time revenues that it is not currently allowed by Treasury guidelines to use any of its $38.8 million in stimulus money for revenue recovery.

Akron Mayor Dan Horrigan’s Press Secretary Ellen Lander Nischt said the city will be using some of its stimulus money to replace lost revenue – up to $16.7 million of its total $145 million, or 11% – but is waiting to see how the “work from home” trend continues and potentially affects income tax revenue in the coming years.

Other cities, including Euclid and Kent, also have yet to decide whether they will seek to recoup lost revenue incurred due to the pandemic.

If governments opt not to use the stimulus dollars for revenue recovery, it could leave more money on the table for innovative projects. Some of the Treasury’s broad categories of eligible spending include investments in public health, addressing negative economic impacts, providing services to disproportionately affected communities and infrastructure improvements.

Cities might also need to reevaluate their revenue needs in the spring, when the second half of the stimulus funds arrive, and finance administrators potentially grapple with additional revenue loss in 2021.

In Cleveland, for example, hospitality revenue in 2021 is still lagging projections, as theaters and other venues struggled to open and fill seats. The city had hoped to collect about $31 million from those taxes this year, but that number is now expected to be closer to $21 million.

Governments must earmark their American Rescue Plan money by the end of 2024, and spend it by the end of 2026.

Stimulus Watch is a public-service journalism project from cleveland.com and The Plain Dealer to track federal stimulus money coming into Northeast Ohio through the American Rescue Plan. Read more at cleveland.com/stimulus-watch.

https://www.cleveland.com/stimulus-watch/2021/11/clevelands-use-of-stimulus-money-for-revenue-recovery-outpaces-other-northeast-ohio-cities-stimulus-watch.html