DALLAS -- A court ruling cleared the path for the Detroit Development Authority to authorize $34.5 million in borrowing to support the Detroit Pistons' move to downtown Detroit.

The council approved the measure in a 7-2 vote Tuesday with council president Brenda Jones and council member Raquel Castaneda-Lopez voting no.

Little Ceasars Arena in Detroit nears completion in 2017
Detroit's Little Caesars Arena is scheduled to open in September. Olympia Entertainment

The National Basketball Association’s Board of Governors will vote on the Pistons’ move at its next quarterly meeting July 11. The debt will finance facilities the team said it needs to play at the new Little Caesars Arena, which opens in September. It has played in suburban Detroit venues since 1978. The new arena was originally conceived as a home for the Detroit Red Wings hockey franchise.

The lawsuit filed by community activist Robert Davis and Detroit city clerk candidate D. Etta Wilcoxon argued that city officials must first obtain voter approval to divert property tax revenue collected from the Detroit Public Schools operating millage that the voters of the city of Detroit approved for the Detroit Public Schools for a different purpose.

U.S. District Judge Mark Goldsmith, who presides in U.S. District Court of Eastern Michigan wrote in his decision Monday that the plaintiffs had not demonstrated “that the right to vote guaranteed by the United States Constitution is somehow abridged by the violation of state laws regulating government financing that is subject to voter approval. This is especially true here, where the alleged misconduct only occurred after the votes had been, by all accounts, properly and fairly cast and counted.”

The city said that losing the Pistons deal could potentially cost Detroit millions of dollars in tax revenue and “would threaten the burgeoning growth of the city’s entertainment district.”

“We were very pleased that the Judge recognized the potential harm that could be inflicted on the city if the tax intercept to service the DDA bonds was interrupted," said John Naglick, city finance director and DDA treasurer. “Since the DDA is a component unit of the City, we believe that compliance with all of the terms of these bonds is very important to the credit worthiness of the city.”

Goldsmith cited concerns that stopping the tax-increment financing that will repay the $34.5 million in new bonds could cause the city to default on $250 million in DDA bonds previously issued for the arena project.

An adverse ruling could have prevented the city from capturing the school operating tax that is used to service the $250 million of bonds already outstanding in addition to the $34.5 million of additional bonds the city planned to issue for the Pistons relocation.

“It is the same tax capture, said Naglick. “We are just adding capture years on the back end for the new bonds. It is important to note that the new Detroit Public Schools Community District gets all of its funding from the state. The old school operating millage is primarily used to pay off the old DPS bonds and our capture was already factored in to that budget.”

The plan for funding the adaptation of the arena for the NBA team now includes issuing new bonds and eventually refinancing both the 2017 and 2014 bonds. The financing structure will call for the repayment of the 2017A Bonds to be subordinated to the Series 2014A Bonds, said Naglick.

Both the Series 2014 Bonds and the Series 2017 Bonds will be refinanced in 2018, when the venue is up and running, said Naglick, who declined to offer more details on the bond structure.

FirstSouthwest is financial advisor. Bank of America Merrill Lynch will underwrite the deal.

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