What to watch for: The effect of the pandemic on Cuyahoga County’s finances

The COVID-19 pandemic has affected the health and economic fabric of the State of Ohio, the United States, and the world. Labeled by policy experts as “an economic catastrophe,”[1] the crisis has impacted finances and services at each level of government, including the county level. In this post, we will examine the fiscal picture of the county prior to the pandemic, the current circumstances the county faces as a result of the pandemic, as well as key economic figures to watch in the coming weeks. [bctt tweet="The pandemic will affect many things for @CuyahogaCounty—including its budget. Explore how in @WillTarter’s #countybudget piece" username="CommunitySols"]

The Health and Human Services Levy fund

The Center for Community Solutions has previously written articles about budget decisions that affect the Health and Human Service (HHS) levy fund, as well as the general fund. In 2019, Cuyahoga County moved $15 million from the general fund to the HHS levy fund to avoid a deficit at the end of the year.[2] Even with the transfer, the HHS levy fund for Cuyahoga County ended with a $7.9 million deficit, according to the 2019 Cuyahoga County Results of Operations.

In 2019, Cuyahoga County moved $15 million from the general fund to the HHS levy fund to avoid a deficit at the end of the year.

The county is in the middle of a campaign for Issue 33, a replacement 4.8 mill levy[3] which would be an increase of .9 mills. If passed, the county would have brought in an additional $35 million annually, beginning in 2021. Since the deadline for voting in the primary was pushed back to April 28 because of the pandemic, the county will have to wait until then to find out if HHS levy revenue will increase. The campaign continues to get the levy passed, but it has taken on a new level of urgency because of the likely impact from the pandemic.

What to watch for: The outcome of Issue 33 on April 28.

General Fund

Sales tax revenue, which has been pretty healthy over the past few years, accounts for 56 percent of the general fund[4] of Cuyahoga County. However, with the slowdown of the local economy, this revenue will be markedly lower. While the exact county sales tax revenue decrease is not yet clear, according to Cuyahoga County Fiscal Officer Michael Chambers, the county projects to see a loss of 20 to 35 percent of sales tax revenue.[5] The county received $253 million in sales tax revenue in 2019, according to the 2019 Results of Operations. The overall fiscal health of the general fund is important, as it acts as the fiscal backstop to the HHS levy fund.

Sales tax revenue accounts for 56 percent of the general fund.

In anticipation of lower revenue at the state level, Governor Mike DeWine has instituted a hiring freeze, as well as directed state agencies to cut unnecessary spending by 20 percent.[6] Cuyahoga County has also instituted a hiring freeze, asked county agencies to look at departmental cuts of up to 15 percent, and announced recently that all full-time non-bargaining employees will have to take 80 hours of unpaid furlough time.[7]

Previously, the county already had to combine the .25 percent sales tax fund with the general fund. The county currently has $1.44 billion[8] in outstanding debt (principal and interest), with $74 million of the annual debt service coming from the general fund in 2020.

The county currently has $1.44 billion in outstanding debt.

The county is required to keep a certain amount of cash on hand in the general fund. This cash is known as the “reserves.” At the end of the year, the county had an ending cash balance of $120.6 million, which is roughly 25 percent of the total expenditures, the minimum cash balance allowed by county code.[9] Now in 2020, the county is already spending money from those reserves. At the most recent Cuyahoga County Council meeting, the county had to dip into the general fund reserves for the $1 million COVID-19 fund donation,[10] as well as $7 million for the economic development incentive package offered to Sherwin-Williams.[11] Moving forward, the county must make difficult and painful decisions to reduce expenditures, increase revenue, or both.

Another thing to watch for is the Local Government Fund (LGF). The LGF are dollars allocated from the State of Ohio. Last year, according to the 2019 Results of Operations, the county received approximately $20 million from the LGF. Given that the state is expected to see a drastic reduction in revenue, the county is likely to see a decrease in LGF funding, which also impacts the general fund.

What to watch for: The March sales tax revenue report in mid-May 2020.

Federal Support

In the Coronavirus Aid, Relief and Economic Security Act (CARES) Act[12] the federal government earmarked $150 billion for state and local governments. According to the Center on Budget and Policy Priorities, Ohio will receive $4.3 billion[13] of that money. Of the money that is allocated by state, municipalities with populations of 500,000 or more will receive an increased portion of the funding. Whether Cuyahoga County (population 1.2 million) will be considered a “local government” or if the City of Cleveland (population 400,000) will be beneath the population threshold and not eligible for an increased allocation remains unclear. How much money the county receives to help offset the economic losses will be a significant decision.

What to watch for: How much money Cuyahoga County receives from the CARES Act.

Hotel Bed Taxes

The pandemic will have a ripple effect across the county’s finances. The county levies a 6.5 percent hotel bed tax, with the vast majority of the revenue going to Destination Cleveland - the county’s visitor and tourism bureau. Additionally, the hotel bed tax is used for the Rock and Roll Hall of Fame Induction ceremony and to pay for bonds issued for the Quicken Loans Arena renovation. The revenue from the hotel bed tax has plummeted,[14] leading to furloughs of the majority of the staff at Destination Cleveland, and the county will have to figure out how to maintain its other commitments. Although some county reserves are in place, the fiscal backup for the loans of the Quicken Loans renovation is, ultimately, the county general fund.

What to watch for: The hotel bed tax revenue report in mid-May 2020.

Justice Center

The Cuyahoga County Justice Center was an important topic of conversation prior to the pandemic, this included the conditions for inmates inside the Justice Center, as well as the deteriorating condition of the building itself. The county hired a consultant for the project, and they have been convening the Justice Center Executive Steering Committee over the past few months. Some estimates to build a new jail campus have ranged from $700 million to $800 million.[15] The committee has postponed their meetings indefinitely. As has been noted in previous meetings, the longer the committee delays decisions on how and when to move forward, the more expensive the project will become. However, the county did make a concerted effort to reduce the number of inmates in the Cuyahoga County Justice Center, from 2100 to 1100, because of the pandemic.

What to watch for: The next convening of principal stakeholders on the Executive Steering Committee.

Excise Taxes

With the closure of the bars and most of the restaurants, county revenue from the sale of alcohol (a.k.a. “sin taxes”) could be down as well. However, state liquor sales were up in March,[16] as people prepared to spend more time at home, so it is not yet known exactly what the difference in funding will be. Knowing the decrease in revenue will be important because the backup reserve for the sin tax is…the county’s general fund.

The COVID-19 pandemic is like nothing else seen in our lifetimes.

Conclusion

The COVID-19 pandemic is like nothing else seen in our lifetimes. The pressure on the general fund, and by extension the HHS levy fund, could be enormous. The Center for Community Solutions will continue to monitor and advocate for the strengthening of our local and state health and human services social safety net, both now and in the future.

[1] https://podcasts.google.com/?feed=aHR0cHM6Ly93d3cuY2l0eWNsdWIub3JnL01lZGlhL1Jzcy9DaXR5Q2x1YlBvZGNhc3QueG1s&episode=aHR0cHM6Ly93d3cuY2l0eWNsdWIub3JnL2ZpbGVzL2F1ZGlvL3kybWF0ZS5jb20taGlzdG9yaWNyZWxpZWZicmVha2luZ2Rvd250aGVjYXJlc2FjdDMuMzEuMjAyMG9ubGluZS1hdWRpby1jb252ZXJ0ZXIuY29tLm1wMw&hl=en&ved=2ahUKEwjW0Zvn9cnoAhVDWqwKHWTpCJAQieUEegQIBBAE&ep=6

[2] https://fiscalofficer.cuyahogacounty.us/pdf%5Ffiscalofficer/en-US/obm/2019/2019-3rdQuarter.pdf

[3] https://comsolutionst.wpengine.com/levy-increase-ballot-next-year/

[4] https://www.ideastream.org/news/very-very-difficult-year-expected-for-cuyahoga-county-finances

[5] https://www.cleveland.com/news/2020/04/cuyahoga-county-considering-15-cuts-across-all-executive-agencies.html

[6] https://www.cleveland.com/coronavirus/2020/03/ohio-gov-mike-dewine-will-freeze-state-government-hiring-seek-big-spending-cuts.html

[7] https://www.news5cleveland.com/news/local-news/oh-cuyahoga/cuyahoga-county-furloughing-employees-sources-say?fbclid=IwAR2u8OMFuI7nxDI13tB9C8dEqnQhYMYECqJq-DGsZmA3e12%5F36XXZ0TfIE4

[8] 2019 Cuyahoga County Results of Operations, page 21

[9] Cuyahoga County Ordinance 02011-0056

[10] https://youtu.be/X7nzuOlQ-JA

[11] https://www.cleveland.com/news/2020/02/cuyahoga-county-proposes-14m-incentive-package-for-sherwin-williams.html

[12] https://www.congress.gov/bill/116th-congress/senate-bill/3548/text