Cleveland proposes using $89 million in carryover to fund 2026 capital projects, then reimburse with bonds

Cleveland's finance team told City Council it will use roughly $89 million in unspent 2025 carryover to fund capital projects in 2026 and then replenish that cash by issuing debt only for projects actually executed during the year.

Finance staff described the approach as a temporary, self-repaying funding strategy intended to avoid borrowing in advance and to lower long-term interest costs. “You can think of it as sort of a loan to ourselves for a year,” the director said when explaining that the city will encumber carryover cash, spend it on approved capital contracts and then complete a bond deal toward the end of the calendar year to restore the general fund balance.

Why it matters: Council members pressed for clarity on how the move affects near-term flexibility and long-term obligations. The finance director said the approach avoids roughly $68 million of additional borrowed principal that would otherwise have led to about $2.2 million in added annual debt service over 30 years under the old pattern of borrowing in advance. He emphasized the authority limit for general obligation (GO) bonds tied to a 10% cap on appraised value and said reappraisal results have left the city below that ceiling (about 6.8–6.9% as estimated in the presentation).

Key details and workforce impacts - The administration built 3% salary increases into the 2026 budget for union and non‑union employees. Council was told the operating budget is otherwise tight. - The finance team said carryover cash is not "gone" permanently: those dollars remain in the general fund until reimbursed; the plan assumes reimbursement when bond proceeds are available late in the year. - If actual contract execution is less than $89 million, less borrowing will be required; the city will only issue bonds for executed contracts and will use short‑term instruments as a temporary backstop when timing requires it.

Reserves, borrowing capacity and risks - Rainy day or reserve balances were discussed separately: finance staff described a rainy day fund around $70 million and a payroll reserve around $73 million (figures given as approximate and subject to final audit adjustments). - Council members asked how the approach affects liquidity during the year and whether typical flexible spending (the council's "dry powder") will be constrained. Staff said roughly $2 million could remain unencumbered in the carryover after the $89 million transfer, and they acknowledged the tradeoff between lower interest costs and reducing on‑hand flexibility until reimbursement. - The administration noted alternatives — subordinate lien instruments, taxable debt and short‑term notes — that don't count toward the GO limit and can provide liquidity if future carryover is smaller than anticipated.

Larger capital picture - The conversation also touched on major infrastructure projects. Finance staff and the mayor's office said federal and state awards for the North Coast Connector and other shore/lakefront projects are largely reimbursement grants; one staff member said the city has $20 million in hand from state capital funds and more than $130 million in federal awards by way of reimbursement letters.

What's next - Council members asked for follow-up materials: detailed spreadsheets and the retreat presentation with the underlying revenue assumptions and debt schedules. The finance office agreed to supply the data and to bring the eventual borrowing legislation to council with a list of executed contracts attached so members can see what is being financed.

Provenance: finance director presentation and Q&A (topic intro SEG 047, discussion and follow-up through SEG 1814).