Osupa 22 December 2009 Breaking News, MXO News No Comment

By Henry J. Gomez, The Plain Dealer

December 22, 2009, 4:00AM

CLEVELAND, Ohio — For the second time in six years, money woes could force Cleveland leaders to drain most of the city’s rainy-day fund.

Mayor Frank Jackson, who has made fiscal stability the bedrock of his administration, said last month that he needs $7.5 million from the reserves to help balance the 2010 budget.

The move, combined with others, could keep the city from laying off workers and reducing services. But the move also would leave little — about $1 million — to spend in a pinch and could hurt bond ratings that determine how much the city can borrow for public projects.

Those thoughts are unsettling to some members of the City Council, which will tackle Jackson’s rainy-day recommendation once budget discussions begin in February.

“I would prefer that we don’t do that,” said Council Majority Whip Kevin Kelley. “But I know that we’re pulling out everything we can to pass a balanced budget next year.”

Added Jeffrey Johnson, a councilman-elect from Ward 8, the Glenville area: “Few can argue that the rain is falling on Cleveland right now. Whether I would take all but $1 million from the fund … that seems right now like something that I would have a problem with.”

As state and local governments scramble to balance budgets against a battered economy, rainy-day funds have emerged as popular targets. Ohio, for example, had only 89 cents in its fund this year after using $1 billion to cover shortfalls. Cuyahoga County, conversely, boasts a healthy cash reserve of $130 million — or 24 percent of its budget.

City officials acknowledge that a general rule of thumb is to maintain a rainy-day fund equal to 5 percent of the total spending budget. For Cleveland, that would amount to $25 million. But the city in recent history has struggled mightily to come close to that benchmark.

In 2004, then-Mayor Jane Campbell, who two years earlier inherited a $16.6 million fund, gutted what was left to pay laid-off workers for their unused vacation and compensatory time, as well as unemployment benefits. Since then, officials have tried to set aside at least $1 million a year to replenish the fund, but under Jackson’s plan, that probably won’t happen in 2010.

The mayor, in addition to favoring a run on the reserves, pushed for a fee on home garbage collection to help shore up cash and is leaning on unions for financial concessions.

As for bond ratings, Cleveland has maintained medium- to high-quality investment grades. As recently as Nov. 18, Standard & Poor’s, one of several agencies that rate the city’s general obligation bonds, forecast a “stable” outlook. Analysts reported that they expect income-tax collections, mostly from people who work in the city but live in the suburbs, to remain steady.

S&P does weigh the health of rainy-day and reserve funds, but history is on Cleveland’s side. The city’s ratings did not slip in 2004, said Sharon Dumas, Jackson’s finance director.

Other factors are equally — if not more — important to analysts, Dumas added. “What they’re trying to rate is your long-term stability and solvency and your fiscal plan,” she said.

“It’s an overall fiscal examination.”

Plain Dealer reporter Laura Johnston contributed to this story.