DEFAULT - The Encyclopedia of Cleveland History
DEFAULT (15 Dec. 1978-16 Nov. 1980) occurred when Cleveland was unable to repay $14 million in loans owed to 6 local banks, and was subsequently unable to market its bonds for almost 2 years. The default meant that investors in the national bond markets would not risk buying the municipal bonds Cleveland needed to finance improvements, and that Cleveland must submit to financial supervision by the State of Ohio.
The city's fiscal problems had became acute during the administration of Mayor Ralph Perk, 1972-77, when general expenditures increased about 45% and revenues were unable to cover the shortfall. Using an approved procedure, $17.8 million was borrowed from Water Dept. bond funds for operational expenses. Dennis Kucinich, elected mayor in 1977, continued the practice, and when $50 million in bonds were unaccounted for in July 1978, the bond-rating agencies downgraded the city's credit rating. On 15 Dec. 1978, Cleveland was unable to pay off $15.5 million in short-term notes, of which $14 million were held by 6 local banks (the remaining $1.5 million was held by the city). The mayor's plan to guarantee payment of the notes was rejected by the Cleveland Trust Bank, who regarded it as a stop-gap solution to the city's long-term financial problems, and Cleveland was forced into default. The situation remained unresolved until 27 Feb. 1979 when voters approved an increase in the city income tax from 1% to 1-1/2%. Geo. Voinovich replaced Kucinich as mayor in Nov. 1979, and the following year he put together an acceptable 3-year $36.2 million refinancing plan to pay off the $14 million in notes. Cleveland was the first major city since the Depression to default on its loan obligations.
Last Modified: 15 Jul 1997 02:13:49 PM
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