The city of Cleveland at midnight became the first major city since the Depression to default on its debts.
Depending on how long the city is in default, the once thriving industrial city on Lake Erie now faces a nightmare of fiscal chaos.
Its credit rating is shot. It can no longer borrow through ordinary channels the money that is a staple of city building projects, water and sewer maintenance and many other forms of public work.
According to Mayor Dennis J. Kucinich, the city's tax receipts could be attached by creditors in the near future. In addition, he said that as of Monday, should nothing change, he would be forced to "lay off half the police force, half of the fire department, half of the snow removal crews and numerous other city employes."
There are also projections that as of February, when more city debts are due to be paid to investors, the city may face the real possibility of going bankrupt.
City officials said default occurred at midnight when Cleveland failed to pay off $15.5 million in loans to six Cleveland banks. The opportunity to find an alternative disintegrated in three days of bickering between Mayor Kucinich and the City Council during which they might have produced a proposal sufficient to convince the banks to extend the loans beyond the deadline.
There was still some hope that the banks might relent early Saturday morning or over the weekend, sparing Cleveland anything more than a momentary, but still damaging, default. But city officials had no word at midnight of any change in the bankers' plans and for all intents and purposes the city was in default at that hour.
As the clock ticked away during the day, the discussions between the council and Mayor Kucinich dissolved into the same orgy of personal abuse that has nearly paralyzed Cleveland's governmet for months. "The politics of insanity" was the way the mayor characterized it.
Kucinich accused the council of trying to swing "the most crooked deal you will find in the annals of urban politics" while Council President George Forbes dismissed Kucinich's lastest compromise proposal as unimitiated "bull-."
"I'm exhausted," Forbes said late in the afternoon. "I really just want to go home."
Appeals for help went out from the city to the White House and the Ohio statehouse. No concrete results were produced.
Early in the day, the six banks due $15.5 million from the city began a procession to the treasurer' office that lasted until late afternoon. One after another, they presented the notes officially calling in their loans. And one after another, they left empty-handed.
That in itself was as close as a major city has come to defaulting since the Depression. According to bankers here, loans are to be repayed by 3 p.m. on the day they are due.
At that hour, council members were marching out of their second meeting today without having achieved a solution while Kucinich, speaking through a dead microphone, was trying out yet another compromise proposal.
The banks were said to be willing to extend the loans if the council and mayor could reach a satisfactory agreement. The major obstacle to such an agreement was the mayor's refusal to sell the municipally owned electric power distribution company, called Muny Light, in order to raise funds and eliminate a drain on the city's finances.
Many Light serves about 20 percent of the city's residents, most of whom live in Kucinich's white ethnic power bases. The city-owned utility purchases its power from a larger, privately owned utility, Cleveland Electric Illuminating Co., which serves the rest of the Cleveland area's 800,000 residents.
For Kucinich, who ran for office vigorously opposed to the sale of vigorously opposed to the sale of Muny Light, the small company's survival is a symbol of his own struggle against "monopoly" interests, a struggle that he couches in evangelical terms.
Some of the banks and the council leaders have made the sale of Muny Light a condition for extension of the loans. Today, Kucinich equated the council with Pontius Pilate for tis insistence on the sale. He accused the banks of complicity with the private utility in a scheme to enrich themselves. Several directors of the banks also are directors of the private power company, called CEL.
"Jesus went up on the mountain and said 'Begone Satan,'" Kucinich said. "I say, 'Begon CEL . . .' Some times you don't have to go on a farm to find something that stinks," Kucinich said after telling about his reaction to fertilizer.
It was a continuation of the disharmony and rhetoric that have marked Kucinich's administration since he took office 13 months ago and have contributed to Cleveland's fiscal plight.
Kucinich inherited a municipal bookkeeping situation so tangled that outside examiners declared the city's books unauditable.
When they finally figured them out, auditors discovered that more than $40 million was missing from the city's bond fund, which is used to repay the type of loans that fell due today.
The money it turned out, had been used to finance deficits in various city departments over the past several years.
Amid these discoveries, Kucinich's combative style produced an effort to recall him from office, which he survived only by 236 votes and only after consuming three months of his time. He finance director, a 25-year-old campaign aide with no experience in city budget operation, spent much of the recall campaign passing out Kucinich literature. The fiscal situation was left in limbo.
The city's economy, while no worse than those in many other cities, was not able to generate enough revenue to make up for the growing debt, in part because Cleveland residents pay income tax at one of the lowest rates in the country-1 percent.
Just three days ago, after months of fiscal chaos, Kucinich came up with a proposal he hoped would stave off default. He would submit to referendum a 50 percent income tax increase, issue $90 million in bonds to raise funds and submit the city to strict financial oversight by a state-appointed "fiscal agent."
The council immediately rejected the proposal, largely because it had not been consulted and because the plan did not include the sale of Muny Light. The banks followed suit. Today, the council proposed its own solution: tying the tax increase referendum to the sale of Muny Light. Kucinich hinted darkly of some sort of "greed" in the council's action and dismissed its proposal as a "meaningless piece of paper."
The mayor responded later with his own proposal to establish a threemember board to run Muny Light. After 18 months the board would be empowered to sell the utility if it could not operate it profitably.
Meanwhile, one of the lending banks, the Cleveland Trust Co., said it would agree to help buy $50 million in city bonds to help repay the outstanding debts if Kucinich would agree to the sale of Muny Light.