The Storm Clouds Build

Cleveland became the center of national attention in 1977 with the election of Dennis Kucinich, at age 31 the youngest mayor of a major city, on a promise to preserve public control of the municipal power system (U.S. Congress, House 1979b, 6; see Dramatis Personae 4). The son of a Croatian-American truck driver, Kucinich studiously maintained his working-class allegiance and life-style. He saw himself as something of a maverick, a populist who championed the interests of the city's working class, which formed the basis of his political power. Some observers point to this populist activism as the cause of the business and banking communities' antagonism to his administration, arguing that these economic elites (led by Cleveland Trust Company, Cleveland's largest bank) tried "to capsize it through default" (Branfman 1979, 44). Others

fault Kucinich's aggressive, strident manner for the city's contentious relations. Indeed, Kucinich's periodic clashes throughout his term were frequently reported as interpersonl struggles touched off by his abrasive style. But much evidence indicates that the conflicts and struggles were politically and economically motivated by powerful vested interests in the city.

Fierce attempts to remove Kucinich from office with a special recall election laid bare the fusion of the electoral political process with powerful economic interests. The recall movement was financially supported by the banks and the Greater Cleveland Growth Association (GCGA), a business organization composed of the city's large businesses. In addition, the banks' officers and directors personally helped finance the recall (see Table 8): "When an effort to recall the Mayor [in the summer of 1978] was underway . . . [m]uch of the banking fraternity—from which the Mayor was seeking an extension of the city's credit—lined up to support his ouster."

Four of the six banks and the GCGA provided a total of $20,228 to various campaign committees formed to recall Kucinich. The officers and directors of four of the six banks also contributed at least an additional $8,750 to these committees, as did the wives of two other directors of National City Bank and the wife of an ex officio board member of GCGA (U.S. Congress, House 1979b, 4, 772–773).

The list of contributors to the recall campaign was a Who's Who of corporate Cleveland. Many donors had corporate connections to Cleveland Electric Illuminating Company (CEI), an investor-owned utility. For example, White Consolidated Industries had officers sitting on CEI's board of directors. A partner of Squire, Sanders, and Dempsey, the law firm representing CEI, was a former chairman of CEI and an advisory director of Cleveland Trust Company. Another partner sat on Central National Bank's board and a third on CEI's board. Jones, Day, Reavis, and Pogue were the legal representatives of Ohio Edison (codefendants with CEI in Cleveland's anti-trust suit). Partners of this law firm sat on the boards of Central National Bank, National City Bank, and Cleveland Trust (U.S. Congress, House 1979b, 207). Together with the banks and GCGA, these major business interests contributed 31.3 percent of the total $128,681 in recall campaign funds. The remainder of the recall campaign contributions came primarily from suburbanites, prominent businesspeople, and other corporations (see Plain Dealer , 28 Sept. 1978, 22 Apr. 1979).

In contrast, much of the $102,000 raised to defend Kucinich's job came from the city's working class and unions and from the law firm Hahn, Loeser, Freedheim, Dean, and Wellman, which represented Cleveland in its anti-trust suit against the utilities (Plain Dealer , 28 Sept. 1978; see Table 9). Together labor and legal groups contributed 71.6 percent of the campaign funds raised in support of Kucinich. This evidence undermines the widely held argument that a ground swell of popular opinion forced the recall election. On the contrary, the citizens and their representatives appeared to rally to Kucinich's defense against Cleveland's corporate power brokers.

Of the six banks in Cleveland's lending consortium, Cleveland Trust Company (CTC) has been identified as the city's dominant power broker. In addition to its web of interlocking directorate re-

lations, twenty-four of its twenty-six directors were executives of firms whose single largest stockholder or principal stockholder was CTC. A 1968 congressional investigation noted that CTC, together with Cleveland's other major banks, "is probably the single most influential element in the entire economy of the area." Other bankers widely acknowledged the dominating influence of CTC. As one banker asserted, "No one can ignore the voting power they hold" on corporate boards. One businessman grumbled that CTC's dominating influence was "one of the greatest deterrents to the economic growth of Cleveland," an assessment with which many other businesspeople in Cleveland agreed (U.S. Congress, House 1979b, 195a, 196). During congressional hearings a businessman testified that CTC and its chief executive officer and chairman, M. Brock Weir, did not hesitate to exercise this power in determining the city's political leadership:

There's enough conviction in the financial community of Cleveland and enough resources to fill the short-term need with their own resources, provided we have confidence in whom we're dealing with. I have said I would personally undertake a program to develop an enthusiasm for the banks to recognize the possibility in the right circumstances of putting together a consortium that could provide up to $50 million. (Financier, Apr. 1979; cited in U.S. Congress, House 1979b, 196–197)

Clearly the banking and business communities had much at stake in the recall effort; in pressing their agenda, they contradicted any notion of the electoral process as a simple expression of the will of the people. But despite their powerful opposition, Kucinich prevailed by a slim margin in the special recall election (New York Times, 15 Aug. 1978, 127; 18 Aug. 1978, 30).

While Kucinich's political troubles brewed, Cleveland's economic problems continued. Part of the city's woes could be traced to a national trend of runaway shops. Many industries that had operated in the northern Midwest and Northeast of the United States were moving to the South and Southwest or overseas.^[1] Since 1969 this trend had cost Cleveland 17,000 jobs a year. The city's population was declining at a rate of 20,000 annually (New York Times, 13 Nov. 1978, 1). Consequently, city tax revenues were also in decline.

Despite these signals of economic erosion, Cleveland's default was not necessarily inevitable. Most damaging to the city were the spending habits of the previous administration of Mayor Ralph Perk (1971–1977). Perk responded to the city's revenue loss by using "bond funds, borrowed to pay for capital improvement projects, to finance daily operating expenses" (Marschall 1979, 54). This policy left the Kucinich administration with the task of replacing $52 million in missing bond funds. Although an earlier city administration under Mayor Carl Stokes had also used federal funds to pay for Cleveland's operating costs, Perk's spending "more than doubled that of . . . Stokes" (Whelan 1975, 72). City Council President George Forbes admitted in 1978 that the city was paying for the Perk administration's misuse of bond funds and implied that the council could have "brought the city to a halt then instead of today" (Plain Dealer, 3 Aug. 1978). Perk also quadrupled Cleveland's short-term debt, from $22 million to $88 million, in an ill-conceived attempt to generate revenues (Marschall 1979, 54). These short-term notes, issued in 1972 and 1973, were required by law to be transferred to bonds in 1978 and 1979, foisting Perk's excesses onto the Kucinich administration.

[1] Because unions have made few inroads in the Sunbelt states, labor is generally cheaper there than in the northern tier, where organized labor is strongest and most militant.

In addition to the misuse of federal project grants to pay for Cleveland's operating expenses and the shortsighted escalation of the city's debt, Perk granted costly tax abatements for the construction of two new office towers, one of them for National City Bank. The potential revenues lost to the city because of these abatements totaled almost $35 million (Marschall 1979, 26; Clavel 1986, 78). Taken together, Perk's unsound fiscal practices set the stage for Cleveland's financial woes under the Kucinich administration. Oddly enough, the banks did not monitor Perk's spending and accounting practices.

By December 1978 the city appeared to be headed for default on $15.5 million. Kucinich recommended that voters approve a 50 percent city income tax increase. But the city council steadfastly opposed the proposal, as they opposed all proposals except the sale of the city's Municipal Electric Light Corporation, called MUNY (New York Times, 12 Dec. 1978, 18; 14 Dec. 1978, 19).

With Cleveland frustrated in its efforts to avoid default, the city's financial suppliers began to mobilize. Moody's, Standard and Poor's, and the Dreyfus Tax Exempt Fund further downgraded Cleveland's bond rating, which dropped from AA through 1969 to A in 1973–1977, and to BAA on 8 June 1978. Standard and Poor's finally suspended Cleveland's bond rating in July 1978 (U.S. Congress, House 1979c, 507; New York Times, 7 Dec. 1978, D2). Because this low rating and ultimate rating suspension forced the city out of the national bond market, the only alternative source of loans was the banks (U.S. Congress, House 1979c, 507; New York Times, 7 Dec. 1982, D2). But Cleveland's lead bank, Cleveland Trust Company (which held $5 million in loans due that December) did not approve of Kucinich's proposal for recovery. On the morning of 15 December 1978, Cleveland Trust Chairman and CEO M. Brock Weir and Councilman Forbes told Kucinich that the banks would roll over the city's debt and provide $50 million in credit if Cleveland sold MUNY. Kucinich refused, and Cleveland defaulted on $15.5 million in loans in mid-December 1978 (New York Times, 16 Dec. 1978, 1).

The Carter administration compounded Cleveland's problems by refusing Kucinich's request for an advance on the city's revenue-sharing funds (New York Times, 17 Dec. 1978, 25). Federal officials insisted that the city caused its fiscal crisis by allowing expen-

ditures to exceed revenues. Therefore, they argued, the city's fiscal problems should not be the responsibility of the federal government but should he resolved locally (New York Times, 19 Dec. 1978, 9). Ohio law left Cleveland essentially on its own, since it stipulates that the state may not intervene in the affairs of chartered cities such as Cleveland "without formal invitation." Fearing a loss of local control, Cleveland's officials did not want the state of Ohio to intervene (New York Times, 24 Dec. 1978, 12). The refusal of state and federal governments to respond on their own initiative locked Cleveland in a localized struggle with a hostile banking community.