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It’s Unclear How Cuyahoga County Will Pay for New Jail

The county is beginning to develop plans for a new $500 million jail, but it remains unclear how officials will pay for the project. The building will be the most expensive and consequential in county history.

(TNS) — Cuyahoga County, Ohio, is already spending millions on early plans for a new jail even though county leaders have said virtually nothing about how taxpayers will finance the roughly $500 million project.

County Executive Armond Budish and County Council say they must — and will — find a way to pay for a jail. But it could be months before the public learns how they intend to do it.

Given elected leaders' silence on what's expected to be one of the most expensive and consequential building projects in county history, and The Plain Dealer examined how the county could raise money for the project and how it could pay off the debt.

The county could sell general obligation bonds secured by property taxes to raise the initial capital needed to pay for the jail.

Its options for raising money to pay off those bonds include, but are not limited to:

Some combination of methods is likely.

There are some legal limits on the county's ability to borrow money to pay for a jail. Cuyahoga County already has an existing debt level of $1.26 billion, which is largely tied to past construction projects like the convention and Global centers.

Despite the outstanding balance, the county could still legally take on another $1 billion-plus in debt, according to county financial advisor Bob Franz.

Arguably more important than legal limits, however, are the practical limits to the county's borrowing capacity. Franz, in a February committee hearing, likened the situation to a mortgage — just because a homebuyer is approved for a loan doesn't necessarily mean they can afford monthly payments.
So, what revenue streams could the county use to pay off jail debt over the coming years or decades?

The answer to that question is what taxpayers ought to keep an eye on as Budish and the council begin to publicly discuss financing options.

Budish has refused to say when that might be, but the current construction timeline would require a plan to be in place by mid-2022. Some clarity could come as early as next month, when council's Finance and Budgeting Committee intends to hold a hearing about the county's debt situation.

Here's a look at some of the options.

Bonding Options

What is the county's legal capacity to issue bonds in the first place?

Franz in February shared some rough math on the three types of bond financing most commonly used by counties. His estimates — which assume a 4 percent interest rate over 20 years — also account for the county's existing debt and legal limits imposed by Ohio law:

—General obligation bonds, which are backed by property tax collections, could yield up to $580 million for the county

—Bonds backed by sales tax revenue could yield up to $950 million

—Bonds backed by non-tax revenue, such as fines and fees for services, could yield up to $800 million

Raising the sales tax

Budish in May pledged not to raise taxes to pay for the jail. But if he goes back on his word, it could offer a way to finance the jail.

The 20-year, 0.25 percent sales tax hike imposed to pay for the convention and Global centers is set to expire in 2027.

If approved by County Council, that tax could be extended to help pay for the jail.

The tax generated about $490 million for the county from 2011 to 2020 — a bit less than $50 million per year. So, it could likely raise enough money to pay for much of the project.

And depending on the length of an extension, it could also raise money for other looming capital costs, such as a renovation of Progressive Field.

Redirecting The Existing Budget

Jail planners and county officials expect a new jail to be more efficient and require far fewer guards compared to the current facility.

Estimates vary, but Jeff Appelbaum, the county's point-man on the project, told County Council last month that such efficiencies should save the county at least $15 million per year.

It is likely the county would use those annual savings to pay off a portion of the jail debt, Councilman Dale Miller, chair of the finance committee, told

Said Miller: "If you ask yourself how much money could you borrow if you had the capacity to pay $10 to $15 million a year in debt service — I'm not an expert enough to give an exact number, but it's at least $100 million and probably a couple hundred million."

If the math shakes out as county officials hope, such a plan could cover a "decent chunk" of the jail's total cost, Miller said.

"I think you're going to see that kind of a mechanism, plus some other kind of issuance of bonds," Miller said, noting that he has already participated in "some discussion of the financing plan."

Selling Real Estate

The jail, common pleas courthouse, prosecutor's office, and other justice services are all currently housed in the downtown Justice Center on Lakeside Avenue. Appelbaum has described the land on which the complex sits as "extraordinarily valuable" and perhaps the most valuable piece of property in the area. It is exempt from property taxes because it is publicly owned.

How much money the sale could generate for the county has not been discussed publicly, but the county could use that money to offset jail costs. And if the site were to be privately developed, the county may be able to start collecting property taxes on it, too, Councilman Jack Schron noted during a recent committee hearing.

"Selling the land and translating that into real estate taxes — that really is something that helps us to sell this concept to the taxpayers," Schron said.

But there is one major caveat to this potential option: Whether the Cuyahoga County Court of Common Pleas and other court-related functions remain in place at the Justice Center site. No final decisions have been made about the court's future location.

(c)2021 Advance Ohio Media, Cleveland Distributed by Tribune Content Agency, LLC.
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