From Ohio History Central
In 1978, the Cleveland, Ohio, city government defaulted on 15.5 million dollars in short-term loans from local banks.
Cleveland became the first city since the Great Depression to default on its financial obligations. At that point in time, the city was more than thirty million dollars in debt. Cleveland remained in default until 1987.
There were numerous reasons why Cleveland defaulted on its debts. Chief among these reasons was a declining population and relocation of businesses outside of Cleveland during the 1960s and 1970s. As businesses and people relocated, property values declined, hindering the city's ability to collect ample property taxes to meet its needs. City residents or Cleveland city officials repeatedly rejected tax increases during this period, failing to replace the funds lost due to the dwindling tax base. Under Mayor Ralph J. Perk, who was Cleveland's mayor from 1971 until 1977, the city also increased expenditures by thirty percent, thrusting the city into further debt. Attempts to sell off various city services and landholdings failed to improve the city's finances. Mayor Dennis Kucinich (1977-1979) attempted to negotiate a settlement with the local banks, but his efforts failed, resulting in Cleveland's default on December 15, 1978.
In November 1979, George Voinovich became mayor. He partly won election due to voter frustration with the city's poor financial status. Voinovich succeeded in securing a refinancing of the city's debt from eight local banks on November 16, 1980. In theory, this new agreement should have made the city government financially stable within a three year period, but it actually took seven years before Cleveland officially emerged from default.