The Numbers Behind East Cleveland's Financial Predicament

ideastream file photo by Nick Castele
ideastream file photo by Nick Castele

At a meeting one evening in mid-March, East Cleveland Mayor Gary Norton urged residents to take the first step toward merging their financially destitute city with neighboring Cleveland.

“We can, and we should, create a commission to study merger,” Norton said at the meeting. “We can get the costs of merger, we can get the benefits of merger. We can get the facts about merger, We can get rid of the fiction about merger.”

This week, Norton said he will soon begin collecting petition signatures to impanel this commission. State law says this six-member group would negotiate a merger agreement, which then goes to the voters.

At the same time, another group is collecting signatures to recall the mayor, accusing him of mismanagement. (The effort failed to collect enough signatures, the county board of elections announced in early April, but the campaign's leader has said he will try again.)

The story of East Cleveland’s finances is one of long-vanishing revenues and overspending—followed by deep cuts since 2012.

East Cleveland whittled the police department to a fraction of its former size. The city handed its recreation center over to a nonprofit and soon will do the same with the senior center. Potholes have gone unfilled for months. Norton said city workers can no longer keep up with the grass and weeds choking the city’s many abandoned properties.

“High grass is going to be a problem this summer,” the mayor said at the meeting, asking for volunteers to step in with lawnmowers where service workers fall short. “We need some people, because it’s going to be tough this summer to cut all that high grass.”

To date, East Cleveland owes $3.2 million in unpaid bills—a big number compared to the city’s current $11 million general fund budget. The city owes money to employees for healthcare claims, in court judgments over police and traffic cameras, to Morton for road salt, to the gas company, to the electric company, to some city contractors, to the Cleveland water department, to the regional sewer district, to ADP for personnel services, to private garbage collector Rumpke and—in a stroke of misfortune—East Cleveland is even behind in its payments to the accountants who audited the city’s vanishing budget.

And as the city shaves its barebones services down to slivers, residents like Juanita Gowdy are feeling squeezed.

“We’re paying taxes like it’s a suburb,” Gowdy said at a council meeting. “But it don’t look like a suburb.”

The following charts give a sense of how the bottom fell out from under East Cleveland’s finances:

Population Decline

Today, East Cleveland is home to half as many people as in 1980. In the past 15 years, the pace of population loss accelerated. The pool of working residents has dwindled steadily since 1970, sapping the strength of the city’s income tax collections.

Falling Incomes, Rising Poverty

Adjusting for inflation, East Cleveland’s median household income is now half of its level in 1969. A larger share of the city’s population lives in poverty today—43 percent—than at any other time in the last half century.

Plummeting Tax Revenue

For most of the past 15 years, income tax collections have made up the biggest source of revenue into the general fund, the city’s main operating budget. East Cleveland’s general fund is making half as much money today from income taxes as it was in 2000, according to state audit numbers adjusted for inflation.

The city also lost around $1 million in revenue in 2012 when the state cut aid to local governments.

“Their income tax and property tax and other taxes they have are continuing to go down, while the cost of delivering service—or at least the way that they’re doing it—is not going down,” said Benjamin Y. Clark, a professor at Cleveland State University who has studied the city budget. “That’s why they’re having a problem paying their phone bills and their healthcare.”

‘Flying Blind’

Audits say the accounting systems used by East Cleveland city hall didn’t keep adequate records. And through much of the last decade, the state auditor was years behind in completing financial audits of the city. Mayor Gary Norton and former mayor Eric Brewer, who don’t agree on very much, have both said it was harder to track East Cleveland’s money without these state records.

“Without reliable financial data, you’re flying blind,” Norton said.

Ohio Auditor Dave Yost’s office has since finished and published audits that had been delayed. He said it took so long to produce these reports because the city’s financial records were “inauditable.”

“The books were a mess,” Yost said. “They hadn’t been reconciled. There were all kinds of issues with them.” (Brewer disputes this.)

During both Brewer’s and Norton’s times in office, state audits cite the city for exceeding some appropriations, for appropriating more than available in revenue and for errors in keeping track of spending. (Brewer said he couldn’t have known this at the time, because the audits for his term weren’t completed until after he left office.)

“There were things that weren’t being entered, appropriations that weren’t being entered into the system,” Yost said. “You don’t know if you’re overspending if you don’t know what the appropriation is.”

Before turning to the numbers in the audits, a caveat. Yost said the numbers his office produced are reasonably accurate. But given the reported issues with the city’s record-keeping, it may be worth taking these with a grain of salt. They are, at the end of the day, the most comprehensive historical numbers readily available to the public.

Structural Imbalance in the General Fund

East Cleveland divides its money into several funds, of which the general fund is the largest. That fund takes care of the city’s bread-and-butter expenses—such as salaries and benefits for police officers, firefighters and service workers.

To be clear: What’s displayed above is not the only money that comes into the general fund. But the above chart shows the essential sources of revenue plotted against East Cleveland’s primary expenses. If these are out of balance, it spells trouble for the city.

Huron Hospital

When the Cleveland Clinic shut down Huron Hospital in 2011, the company agreed to pay East Cleveland for tax revenue the city would be missing. That payment came out to $7.8 million, paid out over three years. The Clinic also demolished the hospital at its own expense. The land is now vacant.

It’s a political hotspot in East Cleveland. Residents and council members often demand an accounting of the Huron Hospital payment. State audits don’t break down how the money was spent.

As the above graph shows, the Clinic payments did cushion East Cleveland’s budget from the blow of its structural deficit. But even still, expenditures exceeded revenues in 2012, the year the city entered fiscal emergency.

End-of-Year Balances

Another way to look at the health of the general fund is to examine end-of-year balances. This is how much money is left over in the general fund after the revenue has come in and the bills have been paid. Generally speaking, when the line goes down, money is getting tighter.

This balance grew after the city was released from fiscal emergency in 2006, but city leaders soon spent it down again. In 2012, the year the state auditor placed East Cleveland in fiscal emergency, the end-of-year general fund balance shot below zero.

Although East Cleveland’s general fund revenue collections have been sinking for years, the city hiked spending in 2012. This tore open a hole in the budget. Auditor Yost cited this deficit as one of his reasons for declaring the city in fiscal emergency that year.

“Certainly revenue is an issue,” Yost said. “But here’s the thing: You’ve got to cut your spending more quickly than the revenue falls off. And the mayor and council didn’t do that in a timely fashion.”

Budget records show overtime and benefit payments to the fire department grew in 2012, as did general fund spending on the senior center and on other employee benefits.

Over the past dozen years, the city spent more money than council members had appropriated in some areas of the budget—a practice audits suggest is in conflict with state budget laws. Council members also appropriated more money, in some cases, than the city could back up in revenue.

At times, city leaders tried to make up for deficits by moving money between funds. That’s another frowned-upon practice, and state audits have chastised them for it.

Brewer, the former mayor and a vocal critic of Norton, accuses his successor of allowing expenditures to rise and not aggressively collecting fees.

“You can blame it on blockbusting, you can blame it on me, you can blame it on (former mayors) Wallace Davis and Emmanuel Onunwor,” Brewer said. “But from 2010 until today, Gary Norton’s been mayor, the budget shows that council told him to cut spending and he didn’t.”

Norton’s opponents have long criticized city spending. They often zero in on one expense in particular: a white Dodge Durango Citadel that Norton can often be seen driving.

Norton insisted the car is a police vehicle—he also serves as the city safety director—and that he’s not the first mayor to buy such a car. He paid for it not out of the general fund, he said, but out of a police account funded by forfeitures of money from accused criminals.

Asked why the city spent more than it took in, Norton said disappearing revenues forced him to choose between maintaining basic city services or gutting them—and he chose the former.

“To say that we could have or should have shut down or cut back in all these areas, that’s someone’s point of view,” Norton said. “But from my point of view, Americans who live in the city of East Cleveland deserve more than that.”

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