Cleveland’s Boy Mayor Battles with Default in 1978
Most Clevelanders are aware of the city's most infamous embarrassments, such as the many times the Cuyahoga River caught fire, making the city the butt of many a joke nationwide.
However, as we all know, Cleveland has worked long and hard to change its image from the dark, disparate look of the 60s and 70s to what has become the shining destination city it is today, one that attracts Hollywood productions, political conventions, Rock Hall inductions, and more. And who can forget the revival the city has enjoyed because of the successes our professional sports teams have enjoyed beginning in the mid-1990s?
But - and there is always a but - you might be surprised to learn that even most lifelong Clevelanders seem to have forgotten about the fact that Cleveland was the first major city since the Great Depression to have financially defaulted.
Let that sink in for a minute and we will walk through it a bit.
How Did Cleveland Default on Its Loans?
It's important to note first that the city never actually went bankrupt; bankruptcy and default are two different things. However, the fact remains that Cleveland in December 1978 was unable to meet its financial obligations on loans to six Ohio banks.
Dennis Kucinich, the native Clevelander and city’s “boy mayor" elected at a mere 31 years old in 1977, burst onto the political landscape with an aggressive, sometimes abrasive style that created deep political divisions with just about everyone in the city from city council members to those within the safety forces. He even fired the police chief while live on television.
When looking back at 1978, it's not hard to see that the city with its young firebrand of a mayor was indeed a dam ready to burst, as he constantly challenged the city's long-standing political elites and the handshake deals that went along with them.
It was an especially turbulent year for Cleveland, starting with the historic blizzard in January and moving on to the transition out of a 35-year forced school busing plan and city council members being indicted on kickback charges related to neighborhood events (important to note: no council members were convicted of any charges).
The turmoil that was 1978 in Cleveland even saw Kucinich facing a recall effort, an effort that failed on August 13th by just 236 votes.
All of this led to the city losing population at rapid, huge levels over a 30-year plus period as residents fled to the suburbs for what they felt would be a brighter future.
So as you can see, with the year not starting well, combined with the daily antics and animosity between the mayor and the council, it's not hard to see how the reckless fiscal policies of the many previous years created the financial mess that Kucinich inherited when he took office on a wave of enthusiasm and optimism. Sadly, and everyone has their own opinion here, it was either through Kucinich constantly battling controversy or his own inexperience, but nothing seemed to brighten the city’s financial fortunes.
The First Signs of Cleveland's Financial Collapse
Backing up just a bit to June of 1978, that is when the first signs of financial distress became very ominous, as that is when Moody’s Investor Service lowered the city’s bond rating on June 8th and then again on the 11th while also predicting that the city would not be able to meet financial obligations.
Then, just two days before his narrow recall victory, on August 11th, the city’s financial advisement group, First Boston Corp. strongly advised selling off Muny Light to Cleveland Illuminating Company to start to reverse the city’s fortunes.
One might think that when Kucinich survived recall two days later that the city’s creditors might see this as the young mayor beginning to reverse fortunes and it would be time to line up behind him.
Not so fast, as Cleveland Trust and five other banks demanded the city pay off $15 million in outstanding debt immediately to try and force the sale of Muny Light that was supported by (not surprisingly) the majority of the city council members. It seemingly became a game of chicken to see who would blink first, Kucinich or city council.
Kucinich dug in on his refusal to sell Muny Light, and because of the default announced plans to lay off 2,000 city employees, which included police officers and firefighters. This may have become the point at which the remaining city residents began to believe in their mayor. With residents being faced with the loss of this many positions vital to the city’s safety, they rallied and passed two bond issues in February of 1979 to raise the city income tax and preserve Muny Light.
So even though Kucinich saved Muny Light from having Cleveland become dependent upon the Illuminating Company for electricity at higher rates, it was not enough to save his re-election bid against George Voinovich and his short and turbulent tenure as mayor was over as quickly as it began.
Time, as it does with most things, changes perspectives, and Cleveland’s default history is no exception. Many now see Kucinich as being “ganged” up on at the time, with him being bold and steadfast in his resolve to preserve Muny Light for the city’s residents.
Kucinich at that time absorbed pretty much all the blame, but over the past 40+ years, that view has softened quite a bit, enough to have Kucinich remain popular enough to run for and win a seat in the United States Congress.
Today, Kucinich remains popular enough to make one more run at a congressional seat, as he will be challenging Max Miller as an independent candidate. It may be an uphill battle, but as history clearly shows, Kucinich has never been one to back down from a fight.
(Photo credit: Michael Schwartz Library, Cleveland State University)