CHICAGO — Cleveland is considering imposing new taxes, requiring the city’s hospitals and other nonprofit organizations to pay an annual fee, and selling or leasing its cemeteries as part of an effort to shore up its fiscal position.
Faced with declining revenue stemming from weak regional and national economies, Cleveland Mayor Frank Jackson commissioned a group of consultants — led by Public Financial Management Inc. — to examine ways the city can eliminate its current budget shortfall and maintain a structural balance over the long term.
In a 344-page report released this week, the consultants recommend 175 measures they say could have an impact of up to $82 million and help the city live within its “new diminished means.”
Jackson, who was re-elected last week, said he would review the report and ask the City Council to enact some of its recommendations as soon as next week. On Tuesday he told city workers that he would not lay off any employees or cut services in 2010, despite facing a deficit that could reach $50 million. Jackson’s proposed 2010 all-funds budget totals $1.2 billion.
The consultant team crafted the report in the midst of a severe national recession and as Cleveland faces “tremendous financial challenges in 2009, 2010 and beyond,” the report says.
“The looming financial challenges in Cleveland — and most other American cities — will require a major change in how local government operates,” the report said. “Government will have to focus more carefully on the most essential services, no longer providing support in other areas. … These changes can not only balance the 2010 budget, but create the foundation for a financially stronger Cleveland government in the future.”
In addition to declines in its general fund sources, Cleveland faces big drops in its capital improvement plan funding sources, the report warns. The city’s current capital improvement plan through 2013 totals $1.62 billion in spending, including $336 million of general obligation bonds “or comparable local funding sources.”
Starting next year through 2013, the city faces a more than 50% drop in its capital program funding. Most is due to a decline in a large one-time federal funding source, but is also due to the city’s decision to limit its GOs over the next 20 years.
To cope with the diminished funding, the city needs to prioritize those projects that can be financed with alternative funding sources and that have a minimal impact on the city’s overall operating budget, the consultants said. Revenue-raising proposals include imposing a restaurant tax, a real estate transfer tax, and raising the current hotel/motel tax.
The city should also consider requiring some of its nonprofit organizations to pay the city an annual fee in lieu of taxes. Noting that other cities impose the fee — Madison, Wis., generates 8.9% of its general fund revenue through such fees — the consultants estimate Cleveland could raise $5 million annually, or 1% of its general fund revenue, with such a program after a four-year phase-in.
