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i am from cleveland just to let you all know what kucinich did back here 25 years ago!

Default crisis 25 years ago not as bad as today's woes


Angela Townsend

Plain Dealer Reporter

Hundreds of Cleveland police and firefighter jobs were at risk.

Layoff notices went out.

From Our Advertiser

Trash collection and recreation programs could be cut back.

Critics huffed that the mayor didn't have a prayer to be re-elected.

The year was 1978, not 2003. Dennis Kucinich was the mayor of Cleveland, not Jane Campbell.

On Dec. 15, 1978, the city was held captive by fears of default. At 12:01 a.m. on Dec. 16, it was official: Cleveland plunged into its worst fiscal crisis to date when it defaulted on $15 million in loans owed to six banks.

Cleveland was already strapped for cash when Kucinich, the 31-year-old "boy mayor," refused to give in to the banks' demand that he sell the city's electric plant. The banks refused to extend the time the city could repay its debt.

And so Cleveland became the first major city since the Depression to slide into default.

Today, on the 25-year anniversary of that embarrassing distinction, Cleveland again finds itself in another crisis, adding yet another dark chapter to its history.

Councilman Mike Polensek was a newcomer on the city's political scene in 1978, and he is the only council member remaining from the Kucinich era. Late last month, as City Council met for hours to discuss budget cuts, Polensek looked up at the clock in council chambers as it approached midnight.

He flashed back to the moment 25 years ago when he stood in the same room and looked at the same clock, minutes before it struck midnight.

"I had such a weird feeling in my stomach because it brought me back to that time," he said.

Many of the details might sound the same, but there is one critical difference: In 1978, the crisis was more about politics than money. Today, the crisis is all about money.

Brent Larkin, who covered the default as a reporter for the Cleveland Press, believes the city's future is much bleaker than in 1978, partly because the economy moves faster today - and leaves cities behind much more quickly.

"The city of Cleveland today is in considerably worse financial condition than it was 25 years ago," said Larkin, now director of The Plain Dealer's editorial page. "It didn't take the city that long to recover from default."

Kucinich, the central player in the default drama, now running for president, agrees that Campbell is wrestling with a far more complex situation in 2003.

"The deficit is there [today] because the tax base has fallen apart," he said. "You can't draw a comparison."

The default left an enduring legacy, and it directly and indirectly helped shape the Cleveland of today.

Acrimony between business leaders and politicians, for example, gave way to the public-private partnerships that drove some of Cleveland's biggest successes in the 1980s and 1990s.

Self-sustaining "enterprise funds" were set up for the departments of public utilities, including Cleveland Public Power, the Water Division and the airport. The idea was to separate those operations from the city's general fund, which pays for day-to-day operations such as police and trash collection.

"The default was like a wake-up call," said Joe Tegreene, the city's finance director 25 years ago. "It crystallized the need for additional revenue for the city and for political stability."

The fight over Muny Light

The roots of default came from Kucinich's mayoral campaign promise to never sell the Municipal Light Plant (today called Cleveland Public Power) to the Cleveland Electric Illuminating Co.

Even though the sale would have generated badly needed revenue, Kucinich feared that CEI would abuse monopoly status.

City Council wanted to sell Municipal Light because it was draining the city's treasury. If Kucinich refused, council was ready to block his plan to place an income tax increase on the ballot.

"Somebody had to blink," recalled Tegreene, now a partner in the Cleveland law firm of Benesch Friedlander Coplan and Aronoff. "The mayor didn't blink. Council didn't blink."

Bank executives didn't blink, either. They, too, wanted the mayor to sell Muny Light, and Kucinich accused them of being in cahoots with CEI.

It didn't help that Kucinich, who swept into office on a populist platform, had often clashed with business leaders. He was often combative and prone to grandstanding and bombastic speeches.

It didn't help that his top administrators were 20- and 30-somethings - dubbed "the kiddie corps" - with little or no political experience.

And it didn't help that money was tight. Selling bonds to raise cash to cover a projected deficit and asking voters to raise the income tax might have worked, Tegreene said, but the issue of Muny Light hung over Kucinich's head like a dark cloud.

George Forbes, at the time City Council president, had no qualms about selling the utility, in large part because it served predominantly white neighborhoods like Collinwood and Old Brooklyn, not the black neighborhoods that made up his political base.

Kucinich still blames Cleveland Trust Co. - and its then-President M. Brock Weir - for forcing the city into default by refusing to extend the time the city could repay the $5 million debt it owed the bank. Other banks followed Cleveland Trust's lead.

But contrary to rampant fears at the time, Cleveland was never in danger of going broke overnight. It had enough money in the bank to pay the bills for a couple of months.

And the city never laid off workers while Kucinich was in office, even though he constantly threatened to.

Days after the default, Kucinich announced that he needed to lay off 3,500 people - 35 percent of the city's work force - including half of the city's police and firefighters.

The number quickly dropped to 2,000, and Kucinich canceled layoff notices after Cleveland Trust announced it would delay collecting the $5 million owed by the city. By January 1979, the number fell to 400, but those layoffs became unnecessary when voters approved an increase in the municipal income tax from 1 percent to 1.5 percent.

"We came back, raised taxes, restructured some things and the city stayed open for the next 15 years," Forbes said.

Predictably, Kucinich lost a re-election bid in 1979, and it took him years to resurrect his political career.

"Anyone who said Kucinich's fiscal policies put the city in default would be mistaken," Polensek said. "But did his folks help the situation? No."

Larkin agrees, saying that Kucinich needlessly irritated business leaders with his "often immature behavior."

"He was a very skilled politician, but not ready to be mayor at age 31," Larkin said.

For his part, Kucinich still says, "I was right."

He continues to paint his battle with council and business leaders as a heroic fight to save a city utility. In fact, he sees it as a cause worthy of celebration, even 25 years later.

His presidential campaign is holding a public forum and fund-raiser tonight in San Francisco, and author Alice Walker will be Kucinich's featured guest.

The campaign's depiction of the event: "A celebration to mark the 25th anniversary of his stand to save Cleveland's public power utilities."

Plain Dealer reporter Mike Tobin and researcher Jo Ellen Corrigan contributed to this story.

To reach this Plain Dealer reporter:

atownsend@plaind.com, 216-999-3894

© 2003 The Plain Dealer. Used with permission.

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