Mayor Dennis J. Kucinich proposed a 50 percent income tax increase and a $90 million debt consolidation loan tonight with hopes of persuading banks to refinance $15.5 million in loans due Friday.
Kuicinich, appearing live on a prime-time television address to 500,000 households here, said the alternatives are default, drastic reductions of already understaffed city work forces and the loss of city assets to creditors.
The City Council, which is led by Kucinich's political enemies, must approve placing the tax increase on a February ballot and also give the green light for the bond issue.Voters must approve any tax increase. They traditionally have not.
"I don't think I can get eight votes, and that's stretching it," said Councilman George L. Forbes, who presides over the 33-member kegislative body.
Kucinich said that if the tax increasse is not approved "the city will be do deeply in debt that I will be forced to cut services to such a drastic level taht everyone living and working in Cleveland will suffer."
Kucinich said he hopes bankers would be satisfied with his plan to pledge income tax receipts as collateral for the loans that are dur Friday.
There was no immediate reaction from the Cleveland banks which hold shares of the $15.5 mullion notes.
Previously, the Kucinich administration had proposed a $50 million bond issue. The larger bond sale is needen, he said, to pay off some $40 million in city funds that allegedly have been misspent since 1971.
That $50 million bond issue was never sent to market, because it lacke authorization from the City Council, and New York City credit rating agenciescut the city's credit rating.
A local banker said interest on the $90 million bond issue would be $100 million given a 25 year maturity and 10 percent interest rate.
The last-minute proposal came as one of the city's largest creditors-the locally owned electric power company-took drastic steps to collect its money by having federal* marshals seize custody of various municipal assets.
Acting as they would in any common debt collection action, armed marshals stood guard over half the city's water service truck fleet, now potentially subject to court-ordered sale to compensate the creditor.
It was yet another huniliation for a city already thoroughly embarassed by a series of episodes over the last year: corruption indictments, a noisy. recall effort against its mayor and conviction of a top school official fo baring his rear end to a passerby.
The tax increase proposal, which still faces a number of hurdles, is reported to be part of an arrangement hammered out between the city administration and Cleveland bankers, who are due about $15.5 million from the city Friday.
Currently, the city cannot repay these bank loans. Under the reported agreement, however, the banks would refinance them and get guarantee that the new tax revenue would be set aside for eventual repayment.
Clevelands 1 percent income tax is the lowest of all major cities in Ohio. The increase-to 11/2 percent-would generate $33 million.
That amount is not sufficient to resolve all of Cleveland's financial problems, according to those familiar with them, though it woull see the city through this Friday.
The proposal also appears to be one of the few avenues still open to the city. Because its books are so confused as to be literally unauditable, Cleveland's bond rating has plummeted and no one will lend the city money.
Because of heavy flight frim the city by affluent, Cleveland's property tax base has been severely eroded.
Amidst its crisis, Cleveland, unlike New York two years ago, has yet to become a cause in Washington, and federal helpis unlikely.
Washington observers attribute this to a number of factors. Cleveland neither has the clout nor the significance of New York in Congress and acroos the country.
The potential default in Cleveland involves only a fraction of the billions on the line during New York's crisis, and its impact on the bond market, the banking industry and other cities would be much less severe.
Some observers believe that kucinich's maverick reputation and disunity between the mayor and City Council are also factors.
Fearing repercussions of the default by its largest city, however, Ohio officials began moving on contingency plans, including a bill that would allow creation of an autonomous controlling board to manage the finances of Ohio cities in fiscal crisis. The board woul be patterned after similar agencies that are helping New York City and Yonkers get out of financial difficulties.
"There is a constitutional responsibility to help th epeople of this city," said stat Rep. Harry J. Lehman, who proposed the bill. "When a serious crisis hits Cleveland, the reverberations affect all cities throughout the state."
Government officials throughout Ohio said they were concerned that a default would send interest rates soaring on their bonds and notes.
The city's conflict with the Cleveland Electri Illuminating Co. arose independently of problems with the banks.
The city operates its own municipal electric company, serving about 40,000 city residents. For seven years however, the city-owned electric plant failed to generate sufficient power to service those customers, and two years ago it ceased to function.
Instead of selling the municipal company, however, the city purchased power from the private utility. The debt-between $3 million and $8 million-stems frim those purchases.
The action of the marshals freezes the use of the water service equipment as the city begins a traditionallylong and cold winter in which water main breaks are common.
"They hit us at our weakest time," said Julius Chaccia, the city's assistant property director. "They've taken 50 percent of our force off the road. This is a very irrersponsible action on their part, the act of desperate people."
"Luckily, it's only 40 degrees now. But when we get cold weather, the mains will break. The streets will be icy. Someone's going to get hurt."