Friday, June 08, 2012

State Threatens to Strangle Detroit Over Lawsuit to Recover Hundreds of Millions in Owed Revenue

Michigan Treasury to Detroit: Drop challenge to consent agreement or risk $80M in state aid

Thursday, June 07, 2012, 2:36 PM
By Jonathan Oosting
joosting@mlive.com MLive.com

The Michigan Department of Treasury says a legal challenge filed last week by Detroit's top attorney could cost the city $80 million in expected state revenue sharing payments.

Corporation Counsel Krystal Crittendon on Friday filed a lawsuit in Ingham County Circuit Court challenging the legality of the recent consent agreement signed by local and state leaders in an attempt to resolve the city's financial crisis.

As part of that agreement, the state helped facilitate a $137 million bond transaction on behalf of the city, part of which was to be used to refund an earlier $80 million interim bond.

But the treasury says the legal challenge has led to questions over the ability of the state and city to complete the transaction. And so U.S. Bank, the trustee on the deal, will intercept $80 million in state revenue sharing until the city's debt is paid off in full.

Deputy Treasurer Thomas F. Saxton, in a letter sent today to Chief Financial Officer Jack Martin, urged city leaders to compel Crittendon to dismiss the lawsuit by next week to ensure repayment of the original $80 million bond by the end of the month.

"While we full expect the state to prevail in this litigation, there is inadequate time to resolve these questions through the courts before ramifications of the lawsuit will have a crippling effect of the city's finances," Saxton wrote.

"...The state is committed to the financial recovery of the City of Detroit, and this bond issue obviously is a critical component. However, the lawsuit clearly undermines agreements that secure that financing."

Crittendon claims the consent agreement is "void and unenforceable" because the state owes Detroit hundreds of millions in unpaid bills and revenue sharing tied to a decade-old deal that saw the city begin to roll back its income tax rate.

A new voter-approved charter forbids the city from entering into a contractor with any debtor and affords Crittendon the power to challenge the consent agreement without the blessing of Mayor Dave Bing, who has said he would prefer to avoid a legal battle.

Bing was not immediately available for comment.

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