Peacemaking with local businesses aids Cleveland's rise from default

Financially troubled Cleveland, Ohio's largest city, is at long last about to climb out of default. The new move to get the city back in the black is largely the result of an amnesty and increasing mutual confidence between City Hall and the business community, which were frequently at sword point under the volatile administration of former Mayor Dennis Kucinich.

City and business leaders have been negotiating since June to develop a specific rescue plan. Within the next few weeks a handful of local banks will convert the short-term debt of Cleveland, the first major city to formally default since the depression, into 12-year bonds. Not only will the $10.5 million default gap be covered by the refinancing arrangement, but the city will get more than twice that amount in additional credit to pay off debts to other city departments.

Mayor George Voinovich, a Republican in a solidly Democratic city, has spent much of the time since his election last fall reviewing Cleveland's financial records, tapping local business talent for management advice, and drafting a three-year financial recovery plan.

That plan may or may not work. It relies heavily on the layoff of several hundred city workers, a strict limit on wage increases over the next two years, and continued strong help from Washington in revenue sharing and community development funds. Local taxes are low. The mayor may make another effort to hike them, but Clevelanders have historically turned down all but the smallest increases.

"The really positive change that's happened is that there's no longer the tremendous adversity between the public sector and business that was tearing this place apart," says Dr. Richard Knight, professor of urban affairs at Cleveland State University.

Though Cleveland still is losing population and the recession has hit it harder than some other major cities, the number of jobs in the greater Cleveland area continues to grow and the per capita income level is high. Downtown a shift is under way from a heavy concentration on factories to more office-oriented service industries. Several redevelopment projects are in progress.