After all the jokes are cracked and after all the political rhetoric, Cleveland's continuing financial crisis may actually be exactly what Mayor Dennis Kucinich says it is -- a classic struggle by a city to stay out of the clutches of downtown business interests.
It is surely more than just the political snowball fight the media largely have depicted.And it is more than just the personality conflict reported between boymayor Kucinich and the business community.
And now several members of Congress and the federal banking regulatory agencies are investigating Kucinich's charges of conspiracy by the city's banking community to run him out of office.
The emotional struggle by Kucinich to keep Cleveland's municipal utility under city ownership in the face of a banking and business community set on forcing him to sell that utility is at the core of these investigations. Kucinich has raised serious issues about the kind of controls business can exert on city governments around the nation.
While Kucinich, who has a largely blue-collar political base, has sought to blame much of the city's financial problems on the "unelected shadow government" of local corporate interests, including the local media, the situation is not that simple.
But what is clear is this: Cleveland Trust, the largest bank in the city, with strong financial and management ties to most major business interests, has sought to dictate, at least partially, the management of the city through conditions it set before it would roll over $5 million in notes needed to save the city from default.
And Cleveland Trust has been remarkably successful in keeping the rest of the business community in line behind it.
But Kucinich has remained unyielding. Steeped in the populist tradition of Huey Long, Kucinich has chosen to kick over the table and start throwing punches of his own. In recent visits to Washington, the mayor has allied himself with Ralph Nader and called for a congressional investigation and a probe by banking regulators into what Kucinich believes are antitrust violations by Cleveland Trust.
And the charges raise serious questions about interlocking drectors (directors who serve on boards of two or more companies), the furthering of vested interests by the private sector at the expense of the city, and the relationship between the largest bank in the city and the local utility company,which stands to benefit significantly if the bank gets its way.
At the heart of Kucinich's charges is a Dec. 15 meeting of the mayor, city council president George Forbes (a political rival of Kucinich), Cleveland Trust Co. Chairman M. Brock Weir and the man who set the meeting up, Maurice Salzman, president of Bobbie Brooks women's wear in Cleveland, and one of the few people in town who count both Weir and Kucinich as friends. The meeting was designed to get Weir to change his mind about a decision not to roll over some $5 million in city debt, thus forcing the city into default that day.
What was actually said at that meeting is disputed. Kucinich claims that Weir said he would roll over the debt and even loan the city more, but only if the city agreed to sell its municipal power system to the Cleveland Electric Illuminating Co. Weir denies making such a take-it-or-leave-it offer, but it is common knowledge that if Kucinich would agree to sell Muny Light, Weir and the rest of the banking community would likely continue their support of the city.
As of now, the decision to sell Muny Light will be up to the voters, who on Feb. 27 will be voting on two issues: should the city raise the income tax from 1 percent to 1.5 percent, and should Muny Light be sold to CEI.
Kucinich has made Muny Light an emotional issue. He has long promised to keep it under city ownership, and the idea sets well with his constituency. To sell now would be a political failure.
Kucinich contends there are several advantages in city ownership, besides the rhetorical issue of "power to the people." Residential rates under Muny Light are significantly lower than CEI's thus putting pressure on CEI to keep its rates down -- an important factor in a city where about half of all households earn less than $10,000 a year. The city also pays a smaller power bill for its own operations, Kucinich points out, and Muny Light generates more city jobs.
Further, as a city-owned operation, Muny Light pays no stockholder dividends or federal income taxes, enabling it to keep its rate low. And, Kucinich is quick to point out, an outside consultant's report shows that for the first time in years Muny Light will actually make money this year.
But others, particularly CEI and the business-oriented Citizen's League, say the report's analysis is unrealistic and call Muny Light terribly inefficient and a significant drain on city finances.
As the only private utility in town -- already serving 80 percent of Cleveland -- CEI would be the only buyer of Muny Light, and the result would be a private utility monopoly, not unlike that in most big cities today.
Although the banks have held off on calling the city on its debt until after the Feb. 27 special election, it is unclear what kind of vote will sway the bankers. If, for example, the people vote not to sell Muny Light but to raise the income tax, the banks might not roll over the debt. Sources say the banks will probably want positive votes on both issues before agreeing to help the city.
What Kucinich objects to, and what has become the most controversial aspect of the Cleveland problem, is the fact that a sale now would be a distress sale, forced by the very people who stand to gain from it. It is profit, not the health of the city, that motivates the business interests, Kucinich says.
There is a strong argument to be made that one reason the municipal utility and the city are now in financial trouble was a continuing effort by CEI to overcharge the municipal utility for power it bought.
The situation had become so bad, in fact, that federal nuclear-power regulators issued a report in 1977 saying that CEI was charging the city four times the amount it was charging its largest industrial users, and that many of CEI's actions with respect to the city were "a per se violation of antitrust laws."
Those charges provide much of the present drive behind a $330 million antitrust suit filed by the city against CEI in 1975. The suit, still pending, alleges that CEI violated federal antitrust laws by monopolizing wholesale and retail markets for electrical power and refusing to deal with the city except on CEI's own terms, which the city alleged would maintain domination by the private utility.
CEI would not comment on the suit because "it is a matter of litigation."
As Kucinch is quick to point out, CEI and Cleveland Trust have close ties (see chart). Essentially, they share two full-time directors on their boards, and Cleveland Trust controls a considerable amount of CEI's stock -- estimated by the Cleveland Plain Dealer to be at least 700,000 shares. Thus, if CEI were to get Muny Light, both CEI and Cleveland Trust could profit.
In testimony before the Federal Energy Regulatory Commission, a staff economist said "CEI appears to be behaving like a spoiled child caught cheating and declaring it will use any trick it can get away with in order to get even."
The Nuclear Regulatory Commission's Atomic Safety and Licensing Board branded CEI's activities with respect to Muny Light "cut-throat competition."
The board's report said, among other things, that CEI attempted to force Muny Light into price-fixing, caused Muny Light blackouts by avoiding proper power connections, imposed "severe operation problems" on Muny, and forced the city to buy power it did not need at unfairly high rates.
Weir, Cleveland Trust's aggressive chairman, came here from the Bank of California in 1973. Of all Cleveland's bankers, he has the strongest reputation for social involvement. In fact, he once got into hot water with his own board of directors for what they considered his imprudent decision to support the Cleveland school system when it was in dire financial straits last year.
Weir, like just about every other Cleveland businessman, doesn't like Kucinich. To them, he's a mayor who has ended tax abatements, turned down a $41 million federal grant for a downtown "people mover," and generally fought any business incentives in Cleveland. During the current administration for example, Addressograph-Multilith and Harris Corp. have moved their headquarters out of the city and Diamond Shamrock is considering a similar move.
"Corporate Cleveland is trying to overthrow the local city government," Kucinich said in an interview. "And Cleveland's corporate circuitry is interconnected, technically efficient and self-supporting."
Kucinich contends that there is a "shadow government" in Cleveland led by Cleveland Trust, CEI, Sohio, Republic Steel, two law firms and National City Bank.
"They meet every day in the Union Club," Kucinich says, adding proudly, "they used to meet right here, in this office," a reference to the closer relationship business enjoyed with previous mayors.
Squire, Sanders & Dempsey (SS&D), one of the two law firms, used to serve simultaneously as bond counsel to the city and as defense counsel for CEI in the city's antitrust suit against that company. That meant the firm had access to all the financial records and raw data the city would use in its case against CEI. SS&D is no longer the city's bond counsel.
Kucinich believes the press is also part of a conspiracy against him. Indeed, the Cleveland Plain Dealer, the largest newspaper, recently removed an aggressive reporter from covering CEI, precipitating a brief protest by staff reporters who felt the paper had acted under orders from CEI. The reporter resigned.
After a local television station reported that one of the major banks was thinking about not rolling over the city debt when it came due, merely because of Kucinich's "antagonisms towards the business community," the station -- without its reporter's knowledge -- broadcast a retraction and apology dictated word for word by the bank. That reporter also resigned.
Last month Village Voice in New York detailed internal problems in the Cleveland media, describing these two disputes and several others with management over coverage of the city's plight.
"The issue is basic," says consumer advocate Nader. "A major bank in Cleveland was not willing to settle for normal credit-worthiness standards in making a loan to the city. Cleveland Trust was basically determined to overreach and condition the rolling over of the notes on the sale of the Muny Lght system to CEI at a fire-sale evaluation, which would provide a windfall fall to Cleveland Trust's investment in that utility." CAPTION: Picture 1, MAYOR DENNIS KUCINICH... fighting Cleveland banks; Picture 2, Cleveland's city-owned electric utility is target of takeover attempt by private electric company. City of Cleveland Photo Service; Chart, Interlocking Directors;
This diagram shows major business connections, both direct and indirect, between Clevetrust Corp. (the holding company for the Cleveland Trust Bank) and Cleveland Electric & Illuminating Co. (CEI), the local private utility that stands to benefit if the city of Cleveland is forced to sell its municipal power company.
It shows that three people hold seats on both the CEI and Clevetrust boards, while a fourth spot on each board is held by a representative from Sohio Corp., a huge Cleveland oil company.
The diagram also shows that Clevetrust shares a director with North American Coal Co., the single largest supplier of coal by contract to CEI. In addition, North American coal director is a member of the prestigious Cleveland law firm of Jones, Day, Reavis and Poque, which has two members on Clevetrust's boards. Jones, Day, Reavis and Pogue is also a counsel to at least one of the CAPCO companies. CAPCO is a power pool involving CEI and the four companies listed in the lower left hand box. The five utilities share in operation of electric generation and transmission facilities. They lend a great deal money and credit to each other.
The chart reveals significant business interlocks among CEI, Clevetrust and other local power companies. It does not show connections between the firms' financial investments. For example, it has been said that Clevetrust owns, through various nominees, at least 700,000 shares of CEI., By Milton Clipper -- The Washington Post