East Cleveland May Be Facing Bankruptcy…Like Detroit

Compared to the recent Detroit bankruptcy, East Cleveland’s problems look like a tempest in a teacup.

East ClevelandHowever, that doesn’t mean that the possible bankruptcy filing on the horizon isn’t just as serious a matter for the poor suburban resident’s of East Cleveland.

East Cleveland will announce whether it will file for protection under Chapter 9 of the bankruptcy law after the first quarter of 2015, according to Reuters. City Finance Director Jack Johnson told the news source that there are several options currently under consideration. These statements marked a dramatic softening of rhetoric compared to statements made by Ohio’s state auditor Dave Yost last month, who said that the suburb was on the verge of collapse.

“During 2014, only sheer luck has kept it from that one unexpected expense that would jeopardize the payroll,” wrote Dave Yost in a letter dated Nov. 21, according to the news source. “That luck is unlikely to continue, given the growing number of problems and expenses that have been deferred for lack of money.”

In recent years, East Cleveland lost two of its largest employers, taking along the income taxes paid by those who worked there with them, according to The Washington Times. Cuts in state funding and a nationwide reduction in property taxes have further cut into the city’s already vulnerable bottom line. Recently, the city government’s cellphone provider cut off service for nonpayment, and while the city is getting two new salt trucks, its debts to Morton Salt Inc. will prevent it from filling them with salt.

Comparison to Detroit

It is tempting to compare small municipal bankruptcies such as this one to the highly publicized trip through bankruptcy courts taken by Detroit.

Sharon Hanrahan of the Ohio Office of Management and Budget told the news source that the city has a negative balance of $5 million and more than $2 million in delinquent bills. This is fairly small compared to the recent bankruptcy in Detroit, in which the larger city cut $7 billion of a total outstanding $18 billion, but Hanrahan is convinced that the two are not analogous. While Detroit’s story is ultimately one of success, she explained that East Cleveland has few resources, meaning that a bankruptcy might not fix underlying problems.

Hanrahan noted the example of Vallejo, California, which went through the process in 2011. To make ends meet, the city made deep cuts in services, and as a result, saw a rise in the crime rate and city streets fall into disrepair. It now looks like Vallejo may have to file again.

Time will tell how East Cleveland fares…

Joel Glucksman is an experienced civil and bankruptcy litigator specializing in the representation of secured lenders and other creditors in complex suits and bankruptcies. His court appearances take him throughout the State and Federal courts in the metropolitan area, focusing in particular on the Bankruptcy Courts for the District of New Jersey and the Southern and Eastern Districts of New York. For more information, please visit Joel Glucksman's full biography at Scarinci Hollenbeck

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