DALLAS -- East Cleveland's plan to avert bankruptcy by merging with neighbor Cleveland is back to the drawing board after terms were rejected by the Cleveland City Council.

Cleveland council president Kevin Kelley said the terms proposed by East Cleveland city council members were "not a starting point for negotiations" and the council voted the proposal down Thursday.

East Cleveland is awaiting word from Ohio on its request to file for Chapter 9. The city of 18,000 has no outstanding bonds. The merger proposal offers an alternative to bankruptcy.

East Cleveland delivered its list of demands in a memorandum of understanding between East Cleveland city council members and three newly appointed commissioners that are representing the city in negotiations with Cleveland.

Among the conditions for the merger with Cleveland, East Cleveland wanted to preserve the powers of its incumbent mayor – Gary Norton – and the council, as well as their salaries as members of an advisory council.

Current East Cleveland council members would become members of an East Cleveland Advisory Council and would continue to be elected and compensated at the same level as current East Cleveland Council Members. The East Cleveland Advisory Council members would become voting members of the East Cleveland Community Development Corporation and the five members of the advisory council would be the majority of the CDC's voting members.

East Cleveland also asked to continue operating its own municipal court and wants to maintain its red-light camera program – even though voters banned the cameras in Cleveland in 2014.

Council members also want their residents to pay less in income tax than the rest of Cleveland. The memorandum demands a 1 % tax credit for East Cleveland residents.

Norton described the list as "unrealistic, impractical and illegal in some cases."

Cleveland now has 30 days to choose its appointees to the commission and another 120 days to determine if they can reach agreement on terms for an annexation. If East Cleveland voters approve the proposal, Cleveland City Council members would either vote to adopt it or send the issue to the ballot.

In May, East Cleveland formally petitioned State Tax Commissioner Joseph Testa to file for Chapter 9. Testa must sign off on a local government Chapter 9 filing under state law.

The city said it is struggling to meet payroll and benefit obligations because of a revenue crunch that is not likely to ease.

"Despite the city's best efforts, East Cleveland is insolvent. Based upon financial appropriations projections for the years 2016, 2017, 2018 and 2019, the city will be unable to sustain basic fire, police, EMS [emergency services] or rubbish collection services," according to its April 27 letter to the tax commissioner. "The city has tried to negotiate with its creditors in good faith…It has been a somewhat impracticable effort."

The city had adopted a financial recovery plan that was signed off by a state-appointed fiscal commission that was intended to restore the city to fiscal solvency but would have decimated the city's public safety forces.

The city has experienced a steep reduction in revenue collections in the past few years. The Cleveland Clinic-owned Huron Hospital shut down in 2011 and has since been demolished. Losing the hospital cost East Cleveland about $10 million a year in income tax, the city's finance director Jack Johnson said in an interview Friday.

The city has also suffered a disproportionate loss in state funds in recent years relative to other communities in Ohio and its population is down about a third from 2000. About 40% of East Cleveland's residents live below the poverty line.

East Cleveland was placed in a state of fiscal watch in 2012 after the city failed to provide an acceptable plan for tackling its deficit. Ohio State Auditor David Yost declared the city in fiscal emergency later that year after officials failed to present a feasible recovery plan. A special supervision commission was formed to review and make suggestions on a recovery plan. Last year Yost's office issued a statement that municipal bankruptcy or merging with the city of Cleveland likely offered the most viable options for the city.

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