City Officials: Detroit Will Go Broke in a Week If Consent Deal Lawsuit Isn’t Withdrawn

Suzette Hackney and Matt Helms, Detroit Free Press, June 8, 2012

Detroit will run out of cash a week from today if a lawsuit challenging the validity of the city’s consent agreement with the state is not withdrawn, city officials said this morning.

Jack Martin, the city’s new chief financial officer, said the city will be broke by June 15 but should be able to make payroll for its employees. He said the city will be operating in a deficit situation if the state withholds payments on a portion of the $80 million in bond money needed to help keep the city afloat.

The battle ultimately could lead to an emergency manager if state officials deem the city to be in violation of the consent agreement that gives the state significant control over Detroit’s finances.

Deputy Treasurer Thomas Saxton told the city Thursday that the lawsuit against the consent agreement could force the state to hold back $80 million in revenue sharing that was used, essentially, as collateral for interim refinancing of bonds issued in March so Detroit would not run out of cash.

Detroit has already used $35 million of the $80 million. {snip}

“If our city runs out of money, there is no bigger crisis that we would have in our city,” Detroit Mayor Dave Bing said this morning, adding that his frustration level is “off the charts.”

But Council President Charles Pugh said he and several other council members want the city’s top lawyer, Krystal Crittendon, to “stand her ground” on the lawsuit she filed last week challenging the consent agreement as a violation of the city charter.

{snip}

Crittendon filed a lawsuit last week saying that the consent agreement was “void and unenforceable” because Michigan owes the city $224 million in revenue sharing plus more than $1 million in unpaid water bills, parking tickets and other debts. Under the city charter, Detroit can’t enter into contracts with entities in default to the city, so Crittendon challenged the consent agreement under her authority to investigate violations of the charter.

{snip}

Bing said that under the charter, Crittendon has the autonomy to make such legal challenges, and as mayor he lacks any political power to curb her actions. He said the lawsuit has created an even worse financial situation than the city was already in. He said he has asked her to drop the suit but cannot force her to do so.

“It’s unfortunate that as an appointee of the mayor’s office she does not report directly to me with the change of the charter,” Bing said. “She really doesn’t report to anybody.”

Bing said he has met or spoken with Gov. Rick Snyder two to three times this week and “he’s supportive, but at the same token, we can’t put (the state) at a disadvantage. We’re going to them for certain things that would support us, and this doesn’t help the situation at all.”

{snip}

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