The Ohio state auditor declared today that a financial emergency exists in Cleveland and placed the city's business affairs under state supervision.
Cleveland and the smaller city of Niles, 70 miles east of here, are the first municipalities to be put under the financial supervision of a state government since New York City and Yonkers were placed under emergency financial control boards in 1975.
Auditor Thomas E. Ferguson, citing authority granted him by the state legislature in November 1979, said Cleveland's default on bank loans "clearly establishes" that they city can no longer manage its own affairs.
Ferguson acted ater 19 volunteer auditors released a report showing the city had an end-of-the-year deficit of $111 million. This included $13 million in loans still in default to banks or solvent city agencies.
Under provisions of Ohio law, a seven-member financial planning and supervision commission, consisting of top-ranking state, city and private-sector representatives, will be formed within 10 days and given direct control over Cleveland's finances.
Under the emergency laws the city also is eligible for as much as $80 million in state-backed loans, a particularly attractive feature to City Hall officials who have been unable to borrow money in the bond market since early in 1978.
While the commission does not have the power its New York counterpart had to veto municipal budgets, impose taxes or increase service rates, it does have authority to require Cleveland to prepare and strictly adhere to a long-range financial plan. It also is empowered to be a watchdog over the use of city funds.
Newly elected mayor George V. Voinovich welcomed the state intervention, which had been resisted by his predecessor, Dennis J. Kucinich.
"We're on the road to financial recovery," said Voinovich, pledging to cooperate with the state government which he previously served as lieutenant governor.
Sitting on the commission will be Voinovich, city council president George L. Forbes, Ohio Treasurer Gertrude W. Donahey, and state budget director William D. Kelp.
Voinovich and Forbes will nominate five private citizens for the three remaining seats. They will be chosen by Gov. James A. Rhodes, subject to state senate confirmation.
Voinovich said that while he hopes the state intervention will enable Cleveland to regain its credit rating and reenter the national bond market, he said he doubts the city could afford any large-scale borrowing until interest rates drop.
The mayor said that he does not expect Cleveland to get out of default until later this year and that the commission will be empaneled for at least two years.