The finances of the City of Cleveland are in such calamitous repair that now not even the city will loan itself any money.
Though faced with the prospect of a second major default on debt obligations, the city's administration is embroiled in a political battle that appears to have forestalled any substantial action to head off fiscal disaster.
The city first defaulted last Dec. 15, when it was unable to repay an estimated $15.5 million in outstanding debts that had come due. That money still has not been paid. Consequently, the city has effectively been prevented from going to the traditional money markets to raise new capital and has had to operate on a cash basis for the last eight months.
To fund day-to-day operations, the city has, among other things, borrowed money from some of its own special accounts, including revenues collected from the issuance of water department and airport division bonds. Such funds, however, are by law earmarked for projects involving their respective departments.
But the city has, since 1974, been dipping into those funds to pay for such things as a new fire station and police cars.
About $17.4 million of those loans will come due Oct. 5 and Mayor Dennis Kucinch says there is no money to pay them off. What he has proposed is that the City Council authorize the city agencies involved to roll over those loans -- that is, reissue them, thus putting off payment until the city can build up its bank account with receipts from a newly increased sales tax.
Although the notes aren't due yet, action must be taken by the end of today if Kucinich's plan is to work.
The problem is that for the water department and the airport division to extend credit legally, the city bond counsel must certify the transactions as financially feasible.
The bond counsel has refused to approve the rollover, arguing that he has no reason to think the money could be repaid. Essentially, he is telling one city agency not to loan money to another because the city is a credit risk.
Kucinich has attempted to get around this hurdle by asking the City Council to approve emergency legislation waiving those sections of law that require the approval of bond counsel for such loans.
To be effective, such emergency legislation must be approved today, because it takes 40 days for any new measure to become a law in Cleveland, and 40 days from today is Oct. 5, due-date for the money. As of late yesterday, no resolution appeared in sight.
One reason may be plainly political. The controversial Kucinich faces a reelection test in October, and much of his opposition comes from the City Council.
Accordingly, the council is trying to convince the public that it was Kucinich who led the city into default last winter, and that he may do it again. The council's own lawyer has called Kucinich's legislative proposals illegal. Only 21 council members showed up for a vote on the measures yesterday; a quorum of 22 is required before any measures can be considered.
For his part, Kucinich has accused the council of casting aside the needs of the people of Cleveland and refusing to cooperate with him merely to ensure his defeat in the fall.