MUNICIPAL OWNERSHIP - The Encyclopedia of Cleveland History
MUNICIPAL OWNERSHIP. Since 1890, when populist Dr. LOUIS B. TUCKERMAN† first called for the city to build and operate an electric light plant, the question of municipally owned public utilities has provoked continuous, and often acrimonious, debate. Charges of bribery and political corruption, common before World War I, have not yet disappeared. Beginning with ROBERT MCKISSON†, mayors campaigned for municipal ownership. The platforms of TOM L. JOHNSON† and NEWTON D. BAKER† had strong support from progressive CLEVELAND CITY COUNCIL members such as FREDERIC C. HOWE†, as well as more traditional politicians such as John Sultzmann. Early calls for municipalization thrust Cleveland into the forefront of American political reform. While this reputation later faded, Mayor Kucinich's struggles in the 1970s to prevent the sale of the city's municipal light plant to its old enemy, the CLEVELAND ELECTRIC ILLUMINATING CO. (CEI), again focused national attention on Cleveland.
The drive to introduce public services arose out of the need for affordable essential services. Mayors Johnson and Baker introduced facilities such as municipal markets and BATH HOUSES. Under Johnson, the city took over garbage collection and disposal, as well as street cleaning. That administration also improved traditional municipal services marked by inefficiency and corruption as a result of political spoilsmanship: Johnson's chief of police FRED KOHLER† transformed the CLEVELAND POLICE DEPARTMENT and earned a national reputation for reform. Professor EDWARD W. BEMIS†, an expert on utility rates, was placed in charge of the waterworks; his tenure resulted in the reduction of water rates, an end to political patronage, and a dramatic improvement in public health. Cleveland's Water Department, a model for the nation, clearly demonstrated that a municipally owned service could be a success (see WATER SYSTEM).
In the 1899 mayoral election, McKisson, in the midst of a tough battle for political survival, called for public ownership of all utilities, contending that he was defending wage earners against the privileged classes. He earned the praise of the city's radicals but lost the election. Before Tom L. Johnson became mayor in 1901, he declared: "The public utility corporations are a bunch of thieves. I ought to know. I was one of them." As mayor he believed that privately owned utilities were bastions of privilege that would destroy democracy if not controlled. Johnson made his most quoted declaration at one of his famous tent meetings: "I believe in municipal ownership of waterworks, of parks, of schools. I believe in the municipal ownership of these monopolies because if you do not own them they in turn, will own you. They will rule your politics, corrupt your institutions and finally destroy your liberties."
Johnson's demand for municipal streetcars and power plants aroused the opposition of the utilities' owners and many other business leaders. The Chamber of Commerce and the Municipal Assn. dismissed the argument that public operation could provide electric power at a lower cost than private enterprise. A special committee of the Chamber of Commerce that studied Johnson's 1903 proposal to start a municipal electric light plant found that low-cost rates would be limited to the small proportion of citizens served by the plant, and concluded that "regulation not ownership is the safe policy for the city." The Municipal Assn. pointed out the danger of inefficient operation as a result of political appointments and warned against socialism. The city's growing SOCIALIST LABOR PARTY, on the other hand, decried so-called "gas and water socialism," in lieu of radical change in the economic system. The independent PLAIN DEALER and the more radical CLEVELAND PRESS generally supported Johnson's and Baker's programs while the Republican-oriented CLEVELAND LEADER and the CLEVELAND NEWS condemned them.
During Johnson's 4 mayoral terms, Cleveland witnessed the most intensive drive to achieve municipal ownership, but the reformer was not rigid on the question. When the Rockefeller-controlled EAST OHIO GAS CO. offered to supply the city with natural gas at a price considerably below that charged by the existing franchise, Johnson negotiated a 10-year franchise that permitted the city council to fix gas prices when the franchise came up for renewal. When the artificial-gas companies and coal merchants tried to block this proposal, Johnson claimed that they were bribing council members, and secured authorization for the franchise. In response to criticism about doing business with the "notorious" Standard Oil Trust, Johnson pointed out that as a practical matter, the company had a monopoly of the natural-gas field with which the city could not compete.
Johnson's major utility fight was with the privately owned streetcar corporations (see TRANSPORTATION, URBAN TRANSPORTATION). Although blocked by state law from establishing a municipal system, he organized a holding company to operate city streetcars. Johnson was convinced, on the basis of his own business experience, that a 3-cent fare could replace the current 5-cent charge. The 1903 merger of the streetcar company controlled by MARCUS HANNA† with the Andrews-Stanley interests intensified Johnson's determination; this struggle polarized the city for the next 7 years. During this long fight, Johnson made skillful use of Bemis's technical knowledge and the brilliant legal skills of his, law director, Baker; his political leadership led to a partial victory in 1908. That year the private streetcar company agreed to lease their properties to a municipal traction company, controlled by a 5-person Board of Directors appointed by the mayor. The municipal company was to charge a 3-cent fare, or cost-of-service fare, out of which was to be paid the operating costs plus a 6% profit to the holding company. All excess earnings were to go into the city's general funds. In celebration, Johnson designated 28 April 1908 "Streetcar Day," with free rides for all.
But the celebration was short-lived. The new company was plagued with a bitter labor dispute, sabotage, and decreased revenues. Disillusioned voters in a referendum election rejected an ordinance that would have placed the city's backing behind the bonds of the municipal traction company. Unable to raise capital funds, the holding company returned the streetcar properties to the former owners. In 1910 a new approach proved acceptable to all parties. An ordinance developed by Federal Judge ROBERT W. TAYLER†, in cooperation with Baker, provided for private ownership, with a municipally appointed traction commissioner as overseer, and guaranteed existing stockholders a 6% return on investments. The first commissioner appointed by mayor HERMAN BAEHR† was a failure, but in 1911 Mayor Baker selected PETER WITT† for the position. Witt, an excellent and creative administrator, implemented Johnson's dream of a 3-cent fare and improved service.
The question of municipalization of the CLEVELAND RAILWAY CO. (CRC) was raised periodically in the interwar years. During the 1920s, there was a general belief that the company offered ". . . the best and cheapest street railway service enjoyed in any large city in the country," in the words of City Manager WILLIAM R. HOPKINS†. But the economic conditions of the 1930s brought decreased ridership, inability to meet fixed charges such as the 6% return, and the failure to replace aging equipment. In the late 1930s, Mayor HAROLD H. BURTON† explored the idea of forming a competitive bus company with Public Works Administration funds. His successor, Mayor EDWARD BLYTHIN†, refused to accept a CRC proposal for an extension of its franchise, and countered with a call for municipal ownership. In 1941 the city council passed an ordinance, proposed by Blythin, which provided for the city to take over CRC property. The next mayor, Frank J. Lausche, consummated the $14 million purchase in early 1942. Another ordinance designated the mayor to appoint a 3-person board to operate the new Cleveland Transit System (CTS). CTS prospered during World War II and in the postwar period, constructing rapid-transit lines from the city's east- and west-side to downtown, and, by the mid-1960s, to the CLEVELAND-HOPKINS INTERNATIONAL AIRPORT. County engineer ALBERT S. PORTER†, a leading advocate of freeways, blocked another attempt to build a subway to serve downtown (the first attempt had been in 1912).
But the increased use of automobiles led to a decline in CTS revenues. Substituting buses for trolleycars and building rapid transit lines did not arrest the fall in ridership. City council members pressured for reduced fares for several categories of riders while insisting that the system operate out of the farebox. Management, with neither local nor federal subsidies, reduced service. Many suburban automobile owners deserted public transit while central city residents, most dependent on public transit, faced frequent breakdown of old equipment and other problems. CTS experienced a further decline in ridership.
By the late 1960s, the public transit system was in a state of crisis. When Mayor Carl B. Stokes and county commissioner Hugh Corrigan applied for federal funds, the federal Urban Mass Transit Administration insisted upon a regional approach. The resulting 5-county Mass Transit Study Committee recommended a regional system to include CTS and all other Cuyahoga County systems, but leaders of the emerging African American majority in Cleveland, as well as many white suburban politicians, feared that their own power would be diluted under regional organization. In 1974 the Ohio state legislature, pushed by the GREATER CLEVELAND GROWTH ASSN., passed a law to permit the creation of a GREATER CLEVELAND REGIONAL TRANSIT AUTHORITY (RTA) with power to levy taxes subject to voter approval. But the situation did not look promising in the closing months of the year (the legislation was due to expire in December). Cleveland voters had just rejected a 1.5% income tax increase (the .5% was to subsidize CTS), and the political squabbling continued.
Compromise was finally achieved out of the glaring need for federal assistance: it was feared that public transit would reduce to peak hour service or collapse entirely. Mayor Perk gave up his demand that the central city have a majority on the proposed 9-person board, while the county commissioners agreed that one of their 3 appointees would be a city resident. The Suburban Mayors & Managers Assn. won the right to appoint 3 board members, reflecting the shift in county population and power to the SUBURBS. Final legal agreements were signed in early 1975, but further delays occurred when Cleveland's planning director, Norman Krumholz, insisted on guaranteed low fares, free transfers for all riders, and better central city service. On 22 July 1975, after a major countywide publicity campaign, voters approved a 1% additional sales tax to finance RTA.
With massive federal aid and the local tax revenue available in the next decade, RTA rebuilt the decaying Shaker Hts. system, built repair yards and sheds, bought scores of new rapid-transit trains and buses, and, added new services, such as Community Responsive Transit for the elderly and the handicapped. For a few years the system thrived under the impact of heavily subsidized fares and the energy crisis, but by the mid-1980s mismanagement, frequent breakdowns, fare increases, and the widespread use of political patronage resulted in growing dissatisfaction and another decline of ridership.
The municipalization of electric power created the most sustained and divisive controversy over the years. Mayor Johnson's proposal to build a $2 million city-owned power plant, one of his major objectives, languished after his defeat in 1909. Campaigning for mayor 2 years later, Newton D. Baker, who believed that all natural monopolies should be owned by the city, ran on a Johnsonian platform. He carried his campaign to the Chamber of Commerce, where he debated Samuel Scovil, vice-president of CEI, asserting that public ownership of utilities was necessary for the "purification of city politics." As mayor, Baker cleared the legal obstacles; the largest municipal light plant in the nation began operation in 1914.
From the beginning, the effectiveness of the Municipal Electric Light Plant, called Muny Light, was a matter of dispute. Pointing out the dramatic increase in customers from 15,508 in 1915 to over 42,000 by 1927, Baker claimed that it had saved Clevelanders $14 million in its first 8 years of operation. However, its competitor, CEI, also expanded steadily and offered lower costs without Muny's service charge. During the 1920s, the Kohler and Hopkins administrations, not committed to the expansion of Muny, simply provided cost analysis rather than compete in areas already served by CEI.
In 1927 some council members, concerned about the future of Muny, asked city utility director Howell Wright to study the plant's ability to increase its share of the streetlight system, to lower its rates, and to evaluate its need for new capital. Wright reported favorably on the plant's financial condition and its future, but asserted inaccurately that the state's constitution prohibited the issuance of bonds to extend or improve municipal enterprises. To match CEI's lower rate, he proposed a new rate ordinance that reduced the city's profit by $30,000 a year. Three years later, Wright, ousted as director, asserted in an article (in a magazine underwritten by the private utility companies) that Muny was "an isolated and obsolete operation" and claimed that CEI, not Muny, had led the way in rate reductions. (Ten years later, as a board member of the CLEVELAND PUBLIC LIBRARY, Wright was convicted of bribery and sent to jail.)
The Depression focused the city's attention on survival. Not only did the profits from Muny go into the General Fund for relief programs, but the occupant of the mayor's office changed 6 times between 1930-36. Muny failed to expand and was the dumping ground for the political friends of various chief executives. Conscientious employees approached activist, Republican lawyer PAUL WALTER† and, in 1937, formed the Cleveland Municipal Light Plant Assn. to lower community light and power. Mayors Burton and Lausche, though essentially conservative on social issues, supported the association, recognizing the potential consequences of Muny's demise. The organization lobbied to prevent the plant's earnings from disappearing into the General Fund and to secure appropriations for new equipment and repairs. Walter, president of the association, recalled that CEI continuously lobbied the council against Muny, with "tremendous animosity." Walter claimed that when the federal government provided a grant of $3 million to aid in the reconstruction of Muny in 1938, CEI financed a referendum to block the improvement. Association members fought back in a door-to-door campaign, which carried the issue by a 94% majority.
In 1942 a coalition of reform-minded Republicans and Democrats failed to pass a proposal to place public utilities--waterworks, sewer system, Muny, and CTS--under an independent commission. Later that year, when the Securities & Exchange Commission ordered the North American Co. to sever its relationship with several power companies, including CEI, the coalition proposed legislation authorizing the city to purchase CEI. Financier CYRUS EATON† assured the council that he could secure the necessary financing and advised that municipal ownership would be profitable for Cleveland. Although the measure also aroused a furor within the conservative business community, supporters were completely surprised when the legislation was defeated, 19-13.
As Cleveland came out of the Depression the fortunes of Muny improved, but CEI blocked any expansion. After World War II, with tremendous increase in electrical usage, Muny served only about 20% of the electricity provided within the city boundaries. THOMAS BURKE†, mayor 1945-53, had little commitment to Muny, but his successor, Anthony Celebrezze, managed to put through a $12 million plant expansion. The next mayor, Ralph Locher, refused to talk to CEI when they proposed to purchase Muny. By the mid-1960s, despite the infusion of some new money during the previous decade, the municipal operation suffered from worn and unsuitable equipment, rigid union work rules, increasing costs of coal, and a fresh determination of CEI to put it out of business. Outages occurred frequently, and CEI, using what the Nuclear Regulatory Commission (NRC) later denounced as unfair competition, blocked Muny's efforts to secure interconnection with the private utility, even for emergencies.
In 1965 Carl B. Stokes advocated the sale of Muny in his campaign for mayor, but when elected the council refused to pass the necessary legislation. His commissioner of power secured a temporary interconnection with CEI, but when the utility refused a permanent link, the MAYORAL ADMINISTRATION OF CARL B. STOKES asked the NRC to, investigate it for possible antitrust violations. The city began to lose money on its power plant, which had to be subsidized out of the General Fund. Under increasing financial pressure, both Stokes and his successor, Ralph Perk, failed to pay for the power the city had secured from CEI. When Perk became mayor in 1971, he and council president George Forbes secured passage of a $13 million bond issue, but the securities could not be sold. Perk accused CEI of sabotaging the issue, and Forbes threatened to drive the company out of the city. In 1975 the administration filed a $330 million antitrust suit against CEI. By this time, Muny's ability to produce electricity was seriously impaired, and it was increasingly relying on the purchase of power. Between 1971-75 it lost 10% of its customers because of poor service, frequent outages, and aggressive marketing by CEI. With $16 million in unpaid CEI bills and a generating plant that had ceased to operate in 1975, Perk and Forbes decided to sell the municipal electric plant despite the opposition of citizens' groups, system customers, and council representatives. CEI agreed to a package deal that included a $150 million purchase price and forgiveness of most of the debt, in return for the city's dropping its antitrust suit (see MAYORAL ADMINISTRATION OF RALPH J. PERK).
In January 1977, however, the Atomic Safety & Licensing Board ruled that CEI had "deliberately rigged the interconnection policies to cause Muny Light's power failures" and ordered CEI to "wheel" cheaper power from the Power Authority of the State of New York (PASNY). When city council refused to approve the sale agreement, CEI turned to the courts to collect its debts. The city offered to repay the money over a 14-year period, but CEI president Karl H. Rudolph refused. In April 1977 Clevelanders overwhelmingly voted down a property tax increase proposed by the council to pay off the debt, and pressure mounted. The council voted to sell the plant, but Dennis J. Kucinich, clerk of courts, organized a Save Muny Light Committee, which secured sufficient signatures to put the question on the ballot. The election did not occur because of a dispute over the legality of the petitions, but Kucinich was elected mayor in November 1977.
With the sale of the Municipal Electric Light Plant blocked, Kucinich was determined to take advantage of the earlier NCR ruling. CEI was equally determined to collect the city's $18 million debt in federal court, which issued judgment liens against city property and ordered Cleveland to pay its bill by April 1978 or face a $5,000 daily fine. Efforts to pay the debt eventually resulted in financial chaos for the city (see MAYORAL ADMINISTRATION OF DENNIS J. KUCINICH).
The city council agreed to put an income tax issue on the ballot to pay off the debt, if the mayor would sell Muny. He refused but suggested a compromise, placing Muny under an independent board for an 18-month trial period to determine, if it could survive financially. If it failed, he would agree to sell. The council turned this offer down. On 15 Dec. 1978 Cleveland went into DEFAULT. The decision not to roll over the short-term city notes, while rooted in the city's financial crisis, also resulted from the business establishment's historical hostility to public power.
The council called for a special election to authorize the sale of Muny Light and a 50% increase in the city income tax. Kucinich organized a powerful door-to-door campaign that persuaded voters not to sell Muny but to raise their taxes. He saved the light plant but not his office (see MAYORAL ADMINISTRATION OF DENNIS J. KUCINICH). The new mayor, George Voinovich, made clear his intention to revitalize Muny, which he renamed Cleveland Public Power (CPP). He, too, soon faced opposition from CEI, and, like his predecessors, accused it of blocking legislation favorable to Muny. In a surprise move in 1983, however, Voinovich authorized his utility director to enter into secret negotiations with CEI to try "to settle . . . long standing differences." When this news leaked to the press, council members were shocked and angered. The proposed terms included CEI getting all of CPP's customers in return for $40 million and a promise that CEI headquarters with 1,000 employees would remain in Cleveland. Voinovich quickly repudiated the proposal (see MAYORAL ADMINISTRATION OF GEORGE V. VOINOVICH).
After the 1985 council election, CPP supporters, a major force in city council, pressed for a $50 million investment to make CPP more competitive and supported aggressive marketing to challenge CEI's hold on governmental and commercial accounts. A reluctant council president Forbes held council hearings on a $50 million improvement program, part of a $100 million System Improvement Plan. The issue at first bogged down in racial politics. Although Muny had serviced predominantly white ethnic neighborhoods, the 1979 referendum on the plant demonstrated support in both African American and white wards. Recent demographic changes brought an increasing number of blacks into CPP service areas.
In the fall of 1986 the council held extensive hearings on the latest expansion proposals. CEI threatened to pull its headquarters out of the city--with the implication of disastrous financial consequences. But Forbes finally realized that he faced defeat if he continued to oppose the measure. In Jan. 1987 the council voted 21-0 to expand CPP.
Cleveland voters have continued to reflect a suspicion of the public-service monopolies that Tom L. Johnson attacked 90 years ago. Even when the light plant was badly managed as a result of political spoilsmanship, citizens remained true to the Johnsonian dream of cheaper power. Mayor Kucinich effectively articulated both the hostile feelings and the dream, and rallied citizens in the decisive referendum of 1979. But the success of the dream depends not only on, the opportunity for expansion, but also on businesslike administration unburdened by political appointments and supported by both the mayor and the city council. On the other hand, CEI spokespeople and their supporters in the business community have viewed municipal power not only as a kind of socialistic intrusion on private enterprise, but also as an unfair competitor. They point out that the municipal utility has never paid taxes or promoted industry, whereas CEI has paid millions of dollars to Cleveland and its school system and has fought aggressively for expansion of area industry. Many business leaders have concluded that customers of public power who benefit from a 20% reduction in rates are being subsidized unfairly by other taxpayers. In 1984 Cleveland Public Power, one of 2,200 members of the American Public Power Assn., received the association's highest award for "outstanding improvements in service to customer/owners." In spite of strong opposition from a private competitor, Tom Johnson's dream of public power survives in Cleveland.
Last Modified: 21 Jul 1997 01:13:55 PM
This site maintained by Case Western Reserve University