Detroit’s mayor warned Monday that the city could go broke if its top lawyer refuses to drop her lawsuit challenging a deal with Michigan officials that seeks to rescue the city from financial collapse.
The most recent clash between Mayor Dave Bing and the city’s Corporation Counsel Krystal Crittendon underscores how precarious Detroit’s situation remains, even after officials signed the deal in April letting the state take a more active role in city fiscal restructuring without the embarrassment of appointing an overseer to do the job.
Although Crittendon’s lawsuit targets that so-called consent agreement, Bing and state officials say it also could imperil a separate contract allowing the city to sell bonds in order to pay short-term bills and make payroll for its approximately 10,000 employees. Bing told the City Council that $80 million in precious revenue sharing for the city could be withheld.
The legal conflict could scare off potential buyers of those bonds, Bing and state officials warn. If $137 million worth of bonds are not sold by June 27, the bank could intercept the revenue sharing money that was used to secure the loan.
“Without that, we’re dead,” Bing said. “We get into this lawsuit, and we get into this litigation, nobody knows how this is going to play out or how long it’s going to take. In the meantime, we have no money to run the city.”
Crittendon claims the consent agreement approved in April between Bing and Gov. Rick Snyder is null and void because Detroit’s charter prohibits the city from entering into contracts where at least one side owes the other money. She and some on the council have said for months that the state owes Detroit $220 million in past revenue sharing.
Detroit’s new charter, approved last year by voters, gives the city’s corporation counsel the authority to investigate violations of the document – meaning Bing and the Council can’t force her to drop the suit. It takes six votes from the nine-member council to remove her.
If the lawsuit is not dropped by early this week, current revenue sharing could be withheld for payments on bonds, Deputy Treasurer Thomas Saxton wrote Thursday in a letter to Jack Martin, the city’s chief financial officer. Saxton said the lawsuit challenging the consent agreement could cause concern among third parties interested in purchasing the bonds.
Detroit is due $25.1 million this month, $25.1 million in August, $27.7 million in October and $4.6 million in December, Saxton said.
Not only is Detroit’s accumulated budget deficit more than $200 million, the city’s long-term structural debt tops $13 billion.
Without the revenue sharing, Detroit would have a negative cash flow starting Friday and there “would be chaos,” Council President Pro Tem Gary Brown told reporters on Monday. “After Friday, we won’t be able to make payroll in two weeks.”
Crittendon’s lawsuit goes before a judge Wednesday. The City Council could vote Tuesday on a resolution asking her to drop it.
Bing asked Crittendon Saturday to drop the lawsuit and she said “no,” Brown said.
“If I make the resolution tomorrow, I don’t think there’ll be the support for it,” Brown said. “Everybody is in a stare down. It’s like, who is going to blink?”
Companies that do business with the city were watching closely to make sure the city would be able to pay its bills.
Belinda Jefferson, spokeswoman for Detroit-based Hercules & Hercules, which provides sanitation and industrial products to the city, said workers have always been paid – although occasionally it has been late.
Besides the $25 million expected this month in revenue sharing, the city says it also will have an estimated $15 million in tax and other revenue available. But bills – including $16 million in payroll, a $34 million pension payment and other short-term obligations – would total about $68 million.
City Hall officials, preparing for the worst, scurried Monday to find money somewhere. Detroit workers never have missed a payday because of a lack of money, said John Riehl, president of American Federation of State, County and Municipal Employees Local 207.
“They’ve been crying wolf for years,” Riehl said. “Multiple funds are out there – water, sewerage, municipal parking. I think if they don’t get paid it’s because the mayor is intentionally not paying.”
Doug Bernstein, managing partner of the Banking, Bankruptcy and Creditors’ Rights Practice Group for Michigan-based Plunkett Cooney law firm, said if there are payless paydays in Detroit, Snyder may have no choice but to appoint an emergency manager.
“He’s in a no-win position,” Bernstein said of Snyder. “You don’t want to jump the gun. You want to give the city the opportunity to fix its problems. You can’t let it be business as usual because that’s how you got there in the first place. If the state backs down at this point, how is that going to change the behavior going forward?”