CLEVELAND, Ohio – Cleveland spent $13 million more than it collected in revenues through July, reflecting the impact of the coronavirus pandemic, Mayor Frank Jackson reported Thursday.
The budget remains in the black, thanks to reserves Cleveland had on hand coming into 2020, but the finances are constantly being analyzed, Jackson said during a call with media.
And while no job cuts are planned for now, Jackson would not rule out the possibility of layoffs down the road.
“It is something that we look at on a weekly basis,” Jackson said. “When we see that we don’t have an option but that, then we’ll take that option.”
Cleveland must finish the year with a balanced budget and must have some carryover money to start 2021, Jackson said. But he wasn’t ready to commit to a specific level of funding that could trigger job reductions.
The budget approved in March for 2020 forecast about $671 million in general fund spending covered by revenues of about $672 million. The city took steps early into the pandemic to cut costs, instituting a hiring freeze and restricting spending to what the administration considers to be essential needs, in anticipation of revenue dropping.
Two sources that together could be down by more than $50 million are income taxes – principally withheld from paychecks of people whose offices are in the city – and hospitality taxes.
Both have been hit by coronavirus health mandates that forced people to shelter in place, restricted mass gatherings and required social distancing, said Sharon Dumas, the city’s finance director and Jackson’s interim chief of staff.
The city’s 2.5% income tax is Cleveland’s largest source of revenue. Coming into 2020, it was expected to generate more than $444 million.
But with unemployment up and many businesses shuttered by the pandemic, collections will be lower – down perhaps 6% to 8%. Dumas said.
That would translate to a cut of $26 million to $35 million in revenue.
Hospitality taxes – levied on tickets to professional sporting events and theaters, on rental cars, on hotel rooms and on parking – are expected to be half of what was forecast.
Those taxes were expected to generate $40 million. Now the city expects about $20 million, Dumas said.
The budget forecast could change quickly, depending on what happens with the pandemic. While recent income tax collections have been slowly trending upward, Dumas said, another shutdown of the economy would quickly change the picture.
“To identify these times as unprecedented and unparalleled is probably the understatement of all time,” Dumas said. “We’ve never seen a situation like this and never had to monitor and survive in this situation financially.”
Cleveland entered 2020 with a $43-million reserve as a cushion against a potential recession. That has kept the city in the black.
But looming on the horizon is another budgetary threat.
The Ohio General Assembly in March approved legislation, signed by Gov. Mike DeWine, that allowed employers to continue withholding income taxes from home-bound employee paychecks as if they were still working in their offices while the state’s emergency health declaration continues.
Nearly 85% of Cleveland’s income taxes are collected from paycheck withholding, and about 85% of those workers are commuters. Those who have been working from home have continued to have Cleveland tax withheld, even though they are not physically working in the city.
The conservative Buckeye Institute sued in Franklin County last month, hoping to strike down that language. This week, State Sen. Kristina Roegner, a Hudson Republican, introduced legislation to repeal that provision in the law.
Either way, the impact on revenues to cities like Cleveland could be huge. And even if the provisions stand, eventually workers might seek refunds from Cleveland and sue if the city denies the requests.
Jackson has said in the past that the law is on Cleveland’s side, right now. He acknowledged Thursday that a change in the law would hurt Cleveland.
“Our thoughts on that are that it should not happen,” Jackson said. “We do know it would have a negative impact.”
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