Cleveland Mayor Dennis Kucinich accused Cleveland's banks yesterday of forcing his city into financial default last December "because we refused to come to political terms."
In testimony before a House Banking subcommittee investigating the role of those banks in Cleveland's financial crisis, Kucinich cited the largest bank, Cleveland Trust, for "deliberately and maliciously throwing the City of Cleveland into default for its own financial gain."
The feisty, self-styled populist mayor accused Cleveland Trust of "political extortion" and "corporate blackmail" because it refused to roll over $5 million of the city's $15 million debt that it held unless the city agreed to sell its municipal power system to private interests.
But the bankers, who also testified, told a different story, denying Kucinich's charge.
Sitting at the same witness table with Kucinich, officials of the five largest banks in Cleveland testified they never conditioned the rolling over of the city's debt on the sale of the municipal power system, known as Muny Light.
Rather, they said, they refused to loan the city any more money because city officials would not supply adequate financial information and could not guarantee the accuracy of the information that was supplied.
Cleveland Trust Chairman Brock Weir was the most outspoken of the bankers, accusing the Kucinich administration of "financial ineptitude, sleight-of-hand manipulation of the taxpayers' money . . . (and) rude and arrogant disdain for the basic principles of financial responsibility -- masquerading as urban populism."
Weir and the other bankers argued that the city's financial books were in a shambles when the Kucinich administration took over and continued in that condition. The bankers pointed out that a state auditor and a private accounting firm had declared the city "unauditable."
Weir said the banks could not continue to loan the city money without an adequate review of the city's ability to repay.
"Remember," Weir told the subcommittee, "we're not lending our own money; we're lending money that belongs to other people. We are acutely aware of the banking regulations that require us to have a sound financial basis on which to extend credit."
Weir also denied the continued alligation that he told Kucinich that if the city sold Muny Light, he would roll over the city's debt.
He claimed confusion over that issue because the bankers told Kucinich that if he agreed on a financial plan with the City Council, the bank would go along. The City Council, Weir claimed, proposed the sale of Muny Light.
The Cleveland electorate made the sale of Muny Light moot in February when they voted against such a sale in a public referendum.
Society National Bank president Gorden Heffern backed Weir, and said his bank's decision not to roll over city debt was "based entirely on our own internal credit analysis. and judgment without regard for political consideration."
And John A. Gelbach, chairman of the Central National Bank, said his institution also was concerned with the city's financial management, but remains willing to loan more money to the city if it demonstrates fiscal responsibility.
But for his part, Kucinich reiterated his earlier charges that the bankers, particularly Weir, wanted the city to sell Muny Light to the privately owned utility, Cleveland Electric Illuminating Co. (Cei).The banks stood to profit form such a sale.
In an extraordinary move, the subcommittee staff produced a voluminous report on the Cleveland case for subcommittee members but refused to release it to the public.
Sources said the report intricately detailed the fact that many members of the boards of the key financial institutions involved in the Cleveland fiscal crisis are members of the same social clubs and sit on many of the same corporate boards. CAPTION: Picture, Cleveland Mayor Dennis Kucinich, second from left, surrounded at hearings yesterday by his financial opponents, from left, Gordon E. Heffern, John A. Gelbach, and M. Brock Weir, all bank presidents from Cleveland. By James K. W. Atherton -- The Washington Post