Can Cuyahoga County Take on More Debt? Exec Budish used to say no. Now he says yes.
CLEVELAND, Ohio – Cuyahoga County Armond Budish recently said the county could handle an additional $ 1 billion in debt – despite Budish’s claim in 2015 that the county had “very little capacity to undertake new projects for about a decade or more “.
So which view is correct? The answer, unfortunately, is not clear.
It is likely that the county will still be able to issue new debt, in addition to its current debt of over $ 1 billion. But how much more – and how the county would pay it back – remains in question, as the county plans to build a new jail at the expected price of $ 500 million.
Potential Progressive Field upgrades are also on the horizon, which could see a taxpayer-backed fundraising plan similar to the overhaul of Rocket Mortgage Fieldhouse.
County debt is already a major topic in the 2022 race for the county executive. Budish, a Democrat, has not said whether he will run for a third term, but Republican nominee Lee Weingart said the county can barely afford its current debt, let alone take on more.
Cleveland.com and The Plain Dealer sought to make sense of the county’s debt situation and what seemed like a change in Budish’s outlook between his first term and today. Here is what we learned.
As of Jan. 1, the county had $ 1.26 billion in overdue principal and interest payments, made up of bonds backed by various taxes and other debt instruments. The last bill is due in 2044, according to county budget records.
Annual debt payments peaked in 2020 at $ 119 million. From this year until 2027, the annual payment will be around $ 104 million, depending on the county. About half of the debt – $ 519 million – will be paid off by 2027.
Annual payments are expected to drop significantly after this year, averaging just under $ 60 million through the mid-1930s, with further declines through the mid-2040s.
Much of the debt is related to the construction of the Global Center for Health Innovation and the renovation of the adjoining convention center – a $ 465 million project completed in 2013. Another big chunk is the convention center hotel of $ 240 million, completed in 2016.
Other contributors include the basketball arena renovation and a MetroHealth campus transformation line of credit, both approved by Budish and the Council in 2017.
Budish’s perspective in 2015
Budish started his first year in office with saying warnings on the county’s debt, largely attributing the situation to the former county rulers. At a meeting in 2015 with cleveland.com reporters and editors, Budish wondered if the county could follow through on some of its plans, including the demolition of dilapidated buildings. He predicted low debt capacity for at least the next decade.
Budish made similar remarks to the county council.
“Our credit card is at the maximum,” he wrote in his 2016-2017 budget plan to the Council. “The borrow pit is dry. To put it simply, we cannot borrow more money for the foreseeable future. “
The Council, which controls the budget, held a lengthy hearing into Budish’s claims and ultimately released a 215-page report refuting many of the assumptions that appeared to fuel Budish’s warning.
During the hearing, council members did not dispute the county’s high indebtedness, but argued that the existing debt had been structured in a manageable way. For example, the debt issued in 2014 included deferred payments that would not occur until 2027, after debt repayment of the convention and the world center.
In a question-and-answer session after the county’s state address last month, Budish said the county had “over $ 1 billion” in additional debt capacity.
He was responding to a question from Weingart, who asked how the county would pay for a new prison without raising taxes, given that its “debt capacity is exhausted.”
“The premise of this question is completely wrong; our debt capacity is not exhausted, ”replied Budish. “Whoever asked this doesn’t know anything about where we are. We have a lot of capacity to build a new prison and pay for it. “
Budish also said he would not raise taxes to pay for jail.
When asked to explain her shifting perspective, a spokeswoman for Budish said that Budish, in 2015, “remarked … that the county was unable to incur additional debt without identifying a way to pay it back. He never said that the county did not have the legal capacity to borrow. That is the constant position of the administration.
“For example, in 2017 the county issued bonds, taking on additional debt for renovations from Q, only after identifying a repayment plan,” she said.
The spokeswoman also said the county has improved its financial situation since 2015, in part thanks to Budish’s “very tight” 2016-2017 budget.
“The budget has been balanced every year, our reserves are strong, we have refinanced some of our debt, saving millions of dollars, and other debt obligations have been reduced by paying it down,” she said. declared. “The county bond rating is excellent.”
Some debts have been refinanced and others have been paid.
But the general fund was not balanced in 2018 and 2019, according to budget records. And although there was a surplus in 2020 due to reduced pandemic-related spending and an injection of federal aid, Budish’s budget manager said in May that the general fund was due to end in 2021. with a deficit of $ 20 million.
As for the county bond rating: it’s still relatively good, but it was downgraded in 2017, coinciding with new debt for Rocket Mortgage Fieldhouse and MetroHealth.
And the county’s reserves have grown from $ 200 million in 2015 to $ 120 million at the end of 2019, according to reports. Federal coronavirus aid raised reserves to $ 192 million in 2020, but without such help reserves would have been $ 103 million, the budget director told the council in March.
A billion dollars
So, could the county really take on more than $ 1 billion in debt?
Legally yes, County Financial Advisor Bob Franz told Council in February, citing debt limits imposed by Ohio law.
But the most important question, Franz had said, is whether the county can pay off this debt.
“It’s really based on the ability to pay, as opposed to meeting a legally imposed or self-imposed limitation,” Franz told the council. “We have the ability to fund capital projects, but that doesn’t necessarily mean we have affordability. “
Affordability depends on how the debt is structured, and Budish has yet to say how he might do it for a new prison. (Budish recently said those details are still being worked out. The plan will be subject to Council approval.)
One option could be general bonds, which are backed by property taxes. The county could mine up to $ 580 million in such bonds over a 20-year term, based on Franz’s calculations.
Weingart’s point of view
Weingart, a former county commissioner, said the county could not afford any new debt – a position similar to Budish’s in 2015.
But Weingart goes further. He said the debt payments could contribute to “major deficits” until 2023, “which could easily make the county insolvent” by 2024.
“It is debt that is driving the budget deficit this year and will lead to endless deficits unless the county drastically restructures its spending,” Weingart said recently. cleveland.com.
But Weingart’s argument assumes the county is collecting less revenue and spending more money in 2021 than the Budish administration’s most recent forecast predicts. Weingart’s view also assumes that none of the county’s $ 240 million in American Rescue Plan Act money is used to pay for the county’s running expenses.
This week, Budish’s budget manager said the county was considering that option. Last year, the county used $ 100 million of federal funds from the CARES Act to cover costs normally paid for out of the general fund – a strategy that Weingart says “masks” a deficit problem.