The Ohio auditor is pushing for a court-appointed receiver to take charge of East Cleveland’s finances, saying the suburb’s decades of money problems have gone on long enough.
Auditor Keith Faber said he was taking the step because the city has spent more than 30 years in fiscal emergency and faced at least $65 million in court judgments. He faulted city leaders for not producing an updated plan to get out of the financial morass.
State leaders also had put East Cleveland’s problems off for too long, until now, he said.
“The time is now to stop kicking the can down the road and head to solutions to benefit the citizens of East Cleveland,” Faber said at a news conference Monday in the Frank J. Lausche State Office Building in downtown Cleveland. “They are entitled to have a functioning fiscal house that makes sense.”
Faber is making the move at a time of political upheaval in East Cleveland. Mayor Brandon King lost his job after he was indicted, and later convicted, on corruption charges. Interim Mayor Sandra Morgan was then replaced by then-Council President Lateek Shabazz after a court battle.
In five weeks, on Nov. 4, East Cleveland voters will decide whether Morgan or Shabazz deserves a full four-year term leading the city. Morgan attended Faber’s news conference. Shabazz did not, but members of his staff did.
The auditor said that he was not trying to get ahead of the voters by asking for receivership. His office was neutral about the outcome of the race, he said. In an apparent reference to Shabazz and Morgan, Faber said that the current and former mayors had been responsive to his office.
“And God bless them, let’s get an election over with, and let’s organize and certainly work together to find a long-term solution,” Faber said.
The receiver would not replace the mayor, he said.
In addition to the legal judgments, East Cleveland began the year with more than $1 million in unpaid bills and deficits in multiple budgetary funds, according to the state.
A new approach to financially strapped cities
The state attorney general will ask the Ohio Court of Claims to appoint the receiver. If the move is approved, East Cleveland would become the first city placed into receivership under a new state law that takes effect this week.
East Cleveland’s mayor and City Council would retain their roles, but the receiver would take on new financial powers. The receiver could cut spending, raise new revenue and even reduce staff if necessary to move the city out of fiscal emergency.
Legal language allowing receivership for cities was included in the latest state operating budget. Faber, a Republican, said the receivership legislation was a bipartisan effort, He asked state Rep. Juanita Brent, a Democrat whose district includes East Cleveland, to join him at the lectern at Monday’s news conference.
Brent described the receivership move as an example of teamwork.
“We are here to work on behalf of the people of East Cleveland,” she said. “This step of receivership is making it a priority that we want to make sure that our city becomes fiscally solvent.”
A timeline of East Cleveland’s financial trouble
1988: Enters fiscal emergency
2006: Leaves fiscal emergency
2012: Returns to fiscal emergency
2025: Auditor moves for receivership
East Cleveland brought in $11 million in general fund revenue last year and spent $12 million, a state staffer said at the news conference. Meanwhile, the city owes at least $65 million, if not more, in legal judgments.
If receivership cannot solve the city’s problems, bankruptcy is another option, Faber said. Gov. Mike DeWine vetoed a portion of the receivership legislation that would have allowed the receiver to initiate a bankruptcy.
Despite that veto, East Cleveland could still make use of existing state and federal bankruptcy law, Faber said. City leaders would need permission from the state taxation department to file for bankruptcy. Faber compared that possibility to Detroit’s bankruptcy in 2013.
“It worked pretty well in Detroit,” he said.
The view from East Cleveland City Hall
Shabazz’s chief of staff, former East Cleveland Mayor Eric Brewer, pushed back on the state auditor but didn’t reject receivership outright. The mayor himself plans a news conference Tuesday, staff said.
“I don’t know that he’s going to be 100% in favor of it because he sees the state as being somewhat complicit in the dereliction that’s been involved with East Cleveland’s finances,” Brewer told reporters, describing Shabazz’s reaction to the receivership move.
The state declared East Cleveland to be in fiscal emergency in 1988. It was released from that status 17 years later, when Brewer was mayor, in 2006. In 2012, under then-Mayor Gary Norton, the city entered fiscal emergency again.
Brewer said the state panel that oversees East Cleveland’s spending, known as the Financial Planning and Supervision Commission, should have kept a closer eye on the city’s books. He shared copies of letters to Faber and the chair of the commission in which Shabazz alleged financial improprieties that predated his time as mayor.
The state should have taken action sooner in a city that has spent three decades in fiscal emergency, Brewer said.
“That makes no sense that this city should not have been led out of fiscal emergency by the so-called best and brightest minds on that financial planning and supervision commission a long time ago,” he said.
