CLEVELAND, Ohio -- Since the Shaker Square shopping complex on Cleveland’s East Side was in financial distress before the COVID-19 pandemic, Cleveland officials determined the city could not use American Rescue Plan stimulus money toward a deal to pay off the mortgage on the troubled property.
But the city is now seeking to issue a $12 million loan to prevent a sheriff’s sale, using some of the $108 million in American Rescue Plan dollars moved to the city’s general fund to make up for lost revenue incurred due to the pandemic.
The proposed creative accounting came to light during the most recent meeting of Cleveland City Council’s Development, Planning and Sustainability Committee. The plan put forth by the city and nonprofits — Cleveland Neighborhood Progress and the Burten, Bell, Carr community development corporation — involves the city fronting the money to Shaker Square’s current owner, The Coral Co., to pay off the mortgage.
Coral’s amount owed has grown to about $11.2 million and $12 million on the property valued at about $5.6 million, according to Cleveland Neighborhood Progress President and CEO Tania Menesse. But Menesse and other nonprofit representatives, along with the city’s community development director and some council members, argue that Shaker Square’s worth as a historic East Side asset exceeds that amount because of its importance to the community.
Sharon Dumas, outgoing Mayor Frank Jackson’s chief of staff and finance director, said during the committee meeting that the city initially intended to use American Rescue Plan money to pay for the loan. However, the city’s outside lawyers said the project would be ineligible for the federal pandemic relief money because Shaker Square had been declining and plagued with issues including bankruptcy and financial instability long before the pandemic.
“They would have approved bonds directly to vendors that are part of Shaker Square, in order to revive their businesses due to COVID,” Dumas said. “But the project in and of itself that would pay off debt service and buy the asset was not eligible for ARPA funding, so we were instructed to find funding from another source.”
The source the city selected, Dumas said, is the general fund, by using American Rescue Plan dollars set aside for “revenue recovery,” to make up for less money coming into city coffers in 2020 from streams including income taxes, admissions taxes and casino revenue.
Of Cleveland’s first installment of about $255 million of stimulus money, about $108 million was set aside for revenue recovery, which guidelines from the U.S. Treasury say should go toward bolstering municipal services, especially those that were pared back during the pandemic.
“We were able to devote that funding to public safety, supporting the public safety department and some of the mandates of the ARPA recovery fund eligibility, and so we then are transferring that $12 million out of the general fund to support this project,” Dumas said.
The legislation requires Cleveland to enter into two loans totaling up to $12 million. The first loan, up to $6 million, would be a “first position” loan and repaid once Shaker Square transfers to a new, permanent owner, which nonprofit and city leaders expect to happen in about three to five years. The second loan -- for the remaining balance, expected to be about $6 million -- would be forgiven once the property sells.
City Council members remarked during the meeting about the confusing and complex nature of the deal, which is being expedited through the council for two reasons. The legislative year is coming to a close, and the property – currently managed by a “receiver” – could soon go to a sheriff’s sale.
“The challenge with the foreclosure sale is that there’s really no control over who will be the bidder, and there’s the potential not only for maybe not the ideal bidder but also that the center may be sort of stripped and parceled out and sold bit-by-bits and pieces, rather than maintained as a substantial anchor for the neighborhood,” Ebersole said.
By fronting the loan, the city would get to remain involved in reviewing and analyzing the offers put forth by potential buyers of the Square, Ebersole said.
Menesse, of Cleveland Neighborhood Progress, also emphasized the sense of urgency and the merit of the city potentially paying more than what the property is worth.
“While this is a very difficult step to take, it’s a courageous step that the City of Cleveland is taking to do what cities and community and economic development practitioners do, which is to overpay for an asset that’s so important to a neighborhood that you have faith that you can build it up,” Menesse said.
The proposal is expected to be discussed Monday during a joint meeting of the City Council’s Finance Committee and Development, Planning and Sustainability Committee.
Stimulus Watch is a public-service journalism project from cleveland.com and The Plain Dealer to track federal stimulus money coming into Northeast Ohio through the American Rescue Plan. Read more at cleveland.com/stimulus-watch.
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