DALLAS-- The Detroit Pistons' move to downtown Detroit may be derailed if a lawsuit filed in late June is successful.

On Monday the National Basketball Association, Palace Sports & Entertainment and Olympia Entertainment were added to the federal lawsuit filed in late June by community activist Robert Davis and Detroit city clerk candidate D. Etta Wilcoxon against the Detroit Public Schools Community District.

Contractors work on the exterior of the Little Caesars Arena in Detroit on June 22, 2017.
Contractors work on the exterior of the Little Caesars Arena in Detroit on June 22, 2017. Bloomberg

The lawsuit seeks to force a vote on the $34.5 million public funding portion of the Pistons deal. The debt, issued by the city of Detroit’s Downtown Development Authority, will finance facilities the NBA 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 alleges that the Michigan's Revised School Code prohibits the use of money raised by tax for a different purpose “without the consent of a majority of the school electors of the district voting on the question at a regular or special school election.”

“The district is researching the facts regarding the matter and due to pending litigation will not be commenting on it,” said Chrystal Wilson, deputy executive director of communications.

The NBA board of governors was set to vote on the deal on Tuesday but the latest developments may delay that decision. DDA attorney David Fink said Friday that the vote on the Pistons move could be pushed back until July 25, when the NBA board meets again. Neither the NBA nor the Pistons could be reached for comment.

“We were not surprised by the judge’s decision,” according to a statement from Detroit Economic Growth Corp. Chief Financial Officer and interim President and CEO Glen Long Jr. “We still expect to prevail on the merits of the case — no matter in what case or court they are presented. We were also very pleased that the Downtown Development Authority’s request for sanctions will still be heard, and that the judge has set an aggressive schedule to consider it.”

Fink has previously said that the DDA and city are concerned "the whole deal can fall apart" because of the litigation.

The city plans to capture the school operating tax that is used to service $250 million of bonds DDA bonds previously issued for the arena project in addition to the $34.5 million of additional bonds the city planned to issue for the Pistons relocation. Derailing the tax-increment financing could cause the city to default on $250 million in outstanding bonds.

"It is the same tax capture," said John Naglick, city finance director and DDA treasurer. “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.

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

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