CHICAGO — Detroit Mayor Dave Bing warned Monday that the city will miss a $34.2 million bond payment due Friday unless Detroit’s top lawyer drops a lawsuit challenging the two-month-old consent agreement between the city and Michigan.
The city’s top officials said the government would run out of cash by June 15 and be operating at a $67 million deficit by next week if a standoff between the state and the city’s corporation counsel is not resolved. No one had budged in the impasse as of press time Monday.
The crisis comes as the city hopes to come to market with at least two borrowings over the next week. Michigan Treasury officials last week told Detroit that the state would not release roughly $35 million held in escrow from a recent privately placed bond sale unless the city’s corporation counsel, Krystal Crittendon, dropped the challenge to the consent decree.
The state also said it would not allow the city to complete a planned $137 million bond deal set for next week that would pay off the $80 million and raise badly needed new money for the cash-strapped city, and that Detroit would lose all its state revenue aid through December so that the state could pay off the privately placed debt.
Michigan officials argue that Crittendon’s lawsuit destabilizes all contracts between the city and the state, including bond financings. Bing wants the suit dropped, but he alone can’t force the dismissal under the city’s charter. The mayor said he spent the weekend negotiating with both state officials and Crittendon, but without resolution.
“We’re in a crisis, and if we don’t get the money from the state we run out of money and we put this city in a perilious position,” Bing said in an emergency session with the City Council Monday morning. “We want to push this forward as fast as we can so that we can get cash to run the city. Without that, we’re dead.”
The mayor asked the council to approve a resolution asking Crittendon to withdraw the suit, but most of the members appeared opposed to Bing’s request and they did not vote on the measure. The issue is expected to come up again Tuesday at the council’s regular meeting. Detroit owes a $34.2 million principal and interest payment on its outstanding pension certificates of participation on Friday.
New chief financial officer Jack Martin said unless Michigan releases $35 million from the escrow account — which it has said it will not do — then the city can’t make the payment.
“You can debate the litigation issue and the corporation counsel’s future, but my concern is if we don’t make that bond payment there will be all kinds of negative repercussions,” Martin said. “It’s a major, major issue, and we really need to try to get through it. I don’t think the state is making an idle threat.”
Treasury officials did not return requests for comment by press time.
Last week state officials told Martin that they believe the city charter allows Bing to order Crittendon to drop the suit, but city officials said that is no longer true under a recent expansion of the legal department’s powers aimed at giving city attorneys more independence from the executive and legislative branches.
Michael McGee, an attorney with Miller, Canfield, Paddock and Stone PLC, appeared with Bing at the Monday emergency council session. McGee, who is special counsel to the city, argued that Crittendon’s lawsuit challenged state law — not the city charter, as she contends — and that she does not have the authority to challenge state law without the mayor’s direct order. “This is a state law question and can only be brought by the corporation counsel at the direction of the mayor,” McGee said.
An Ingham County Circuit Court judge is set to consider Crittendon’s lawsuit Wednesday.
Meanwhile, the Detroit Department of Water and Sewer is still hoping to enter the market Thursday with $500 million of new-money sewer bonds, more than $300 million of which will be used to unwind 11 interest-rates swaps hedging $1.4 billion of sewer debt.