East Cleveland has officially become the first Ohio city to have its finances placed in the hands of an outside business expert under a new state law.
A judge on Wednesday named George Shoup III, a corporate restructuring consultant, as East Cleveland’s receiver. His charge is to help the suburb dig out of a financial hole decades in the making.
“We are hopeful that this is the beginning of something new for the city of East Cleveland,” Mayor Sandra Morgan told Signal Cleveland. “That we are finally going to get our house in order, get our books in order and be able to build a road map for our future.”
Read the East Cleveland receivership order here
The appointment opens a new chapter in East Cleveland’s yearslong story of financial distress. The city has spent the better part of four decades in fiscal emergency, the most serious level of financial peril determined by the Ohio Auditor.
East Cleveland will be a test case for a new state law allowing municipal receiverships. At the state auditor’s request last year, the state attorney general asked the Ohio Court of Claims Judge Lisa Sadler to place a receiver in charge of the city’s spending.
City officials met on Thursday with Shoup, one of his business partners and an accountant, Morgan said. The city is providing them with lists of contracts, invoices and pending lawsuits, she said.
Shoup, who is based in Columbus, may run into friction in a city wary of outsider meddling in local matters. One resident group, the Millionaire’s Row Neighborhood Association, sent an email this week urging recipients to call the judge and the area’s state senator. The message: “NO receivership for East Cleveland.”
A group of former city officials, including convicted former Mayor Brandon King, unsuccessfully attempted to intervene in the receivership case this year.
East Cleveland has spent two long stints in fiscal emergency over the last four decades. The first lasted from 1988 to 2006, and the second from 2012 to the present.
The powers of the East Cleveland receiver
A senior managing director for the consulting and turnaround firm Development Specialists Inc., Shoup has worked on bankruptcies and served as a receiver and restructuring officer for flagging companies.
In East Cleveland, Shoup’s job is to recommend cuts and revenue increases to city leaders — or, if necessary, to implement those changes himself.
The court has granted him broad powers. In consultation with the city, he can terminate non-union contracts, freeze hiring and audit financial records. The receiver will have access to any city document, including bank accounts, payroll records and contracts.
East Cleveland officials previously had pressed the court to limit the receiver’s powers. Negotiations between the city and state followed, resulting in the final court order laying out Shoup’s scope of work, Morgan said.
The mayor and City Council retain their powers to make laws and run the city, according to the order. If the receiver and city officials can’t agree on an issue, East Cleveland can ask the court to make a final decision.
Morgan said the final receivership order was one that “everyone can stand behind.”
“We still have the right to run the city as we see fit,” she said.
Former law director’s intervention blocked
Last month, former Law Director Willa Hemmons attempted to intervene in the receivership case on behalf of herself, King, former Assistant Law Director Heather McCullough and resident Darryl Moore.
Hemmons filed a motion with the court faulting conflicts with City Council for East Cleveland’s financial predicament. She recommended several tweaks to the receivership order, including curtailing the receiver’s ability to sell off city real estate.
“The outcome of East Cleveland’s fractious legislative dysfunction during 2023 and
2024 is that the taxpayers of Ohio, through the Office of Budget and Management, are being made subject to the indefinite and substantial costs of a receiver along with the support entourage of attorneys, accountants, and company, et al.,” she wrote.
Sadler blocked Hemmons and the others from intervening in the case.
King received a three-year probation sentence last year after a jury convicted him of improperly benefitting from city contracts. He is appealing his conviction and portions of the sentence.
This post has been updated to correct the year East Cleveland reentered fiscal emergency.