Federal stimulus dollars prevented financial ‘disaster’ at Cleveland, finance chief says
CLEVELAND, Ohio — The city of Cleveland would have faced financial chaos and potential layoffs had it not received hundreds of millions of dollars in COVID-19 stimulus from the federal government, a senior official said Thursday.
Cleveland’s chief finance officer Ahmed Abonamah told cleveland.com that a combination of federal programs to alleviate the city’s financial woes from COVID-19 have prevented the city from cutting wages and potentially even laying off employees.
Cleveland received $60 million from the CARES Act in 2020, approximately $512 million from the American Rescue Plan Act in 2021. From the ARPA dollars, Cleveland used a legal mechanism known as “revenue recovery” to to effectively pour $340 million into the city’s general fund, a common tactic used by local governments to increase fiscal flexibility.
“Without the CARES Act funds that the city used to support the budget, there would have been a combination of furloughs, hiring freezes, pay cuts and possible layoffs (in 2020),” Abonamah said. “Without the ARPA money that was transferred to the general fund in 2021, we would have faced similar choices in 2021-2022 given the structural deficiencies we faced. And so this money in the general fund really averted disaster for the city and its workforce.”
The revenue recovery portion of ARPA aimed to prevent the financial ruin described by Abonamah. However, Abonamah said at a previous city council committee meeting that Cleveland likely didn’t lose $340 million in revenue due to the pandemic. However, Cleveland came up with the $340 million figure based on a formula set out in ARPA.
Local governments had the option of either declaring $10 million in lost revenue or following a formula established by Congress to determine the amount of revenue a local government lost due to COVID-19, regardless of government size. While many small governments chose to declare $10 million in lost revenue, larger localities like Cleveland followed the formula that allowed them to declare more money as “recovery revenue” — a distinction that gave cities more flexibility in how they do business expenses allowed.
Once designated as a “revenue recovery” fund, ARPA dollars can be spent as a government would normally spend its general fund money. The revenue reclamation portion of the bill is why projects that appear to have little to do with the pandemic have been funded with stimulus dollars.