CLEVELAND — Cleveland City Councilmembers had questions and concerns at City Hall on Monday, after they said the city was hit with a $404,000 federal penalty and Mayor Justin Bibb's office didn’t tell them about it.
Officials in the finance department could not confirm whether the arbitrage rebate penalty had been paid, but said it was the result of interest rates rising quickly over the last couple of years. Administrative Manager James Gentile said the city was required to give the money to the federal government because the city cannot profit off higher interest rates.
"I don't necessarily see this as a bad thing," Gentile told 3News following a meeting before legislators. "You're just not allowed to profit off of tax-exempt status, so whatever you earn above and beyond what you pay the bond holders, you have to pay it back to the IRS."
But some vocal councilmembers were not satisfied — Councilman Brian Kazy (Ward 16) and others were upset the mayor's office never notified Council about the payment. Their concerns went beyond the IRS.
"We're going to earn more interest if we don't spend the money down in time, because the money is going to stay in our account unspent," Councilman Kris Harsh (Ward 13) told city finance officials. "If we're spending the money on time, there's less money in the account to earn interest."
The $404,000 penalty put millions of unused bond dollars in the spotlight, adding to some members' worries about the system and operation of the city's finances.
"I'm a little confused as to why we are using discretionary funds or general funds for our street resurfacing when there appears to be bond dollars available on just any number of needs," Councilman Charles J. Slife said. "You mentioned the streets. I mean, the police stations look like they were built by the Soviets outside of the Third (District). Why are there all of these dollars unspent, and why is my street still not surfaced? So there's a credibility issue to all of this that is pretty galling, in my opinion."
The city is required to spend 85% of that money within three years — something it has not done — or it could face a fine, though Gentile said that was unlikely.
"It's clear we do have efficiency issues and because this money is not out the door," Council President Blaine Griffin said, adding that the city is sitting on $200 million of bond funds. "Cleveland can't wait. We've got to really make sure that we have a sense of urgency in getting this money out the door."