Detroit Runs Risk of Going Broke If Lawsuit Persists, Mayor Says

The Motor City, embroiled in a conflict between its mayor, city council and city attorney is experiencing the latest chapter in a seemingly unending fiscal drama

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Rebecca Cook / REUTERS

Detroit Mayor Dave Bing

UPDATE: A lawsuit filed by Detroit city attorney Krystal Crittendon was struck down by an Ingham County, Mich., judge Wednesday morning. The suit, which challenged the validity of a consent agreement between the city and state and charged that Detroit was owed $220 million in revenue sharing by Michigan, was dismissed by Judge William Collette. He said the suit would have to have been filed by Mayor Dave Bing or the city council. Bing has publically and vocally objected to the suit.

Detroit, continuing to slog its way through a seemingly endless fiscal minefield, is at risk of going broke by next week, the city’s mayor says, due to a lawsuit against the state of Michigan filed by its own city attorney.

The Detroit News reported Tuesday that Mayor Dave Bing ordered Corporation Counsel Krystal Crittendon to back down from a lawsuit in which she says the city is owed $220 million in revenue sharing with Michigan and asserts that a recent consent agreement with the state is null and void. “Once we run out of money, there’s no way we can run the city,” Mayor Bing told the City Council last week.  “That’s a risk we’re up against if we don’t get the state to come to the table.”  Bing says the lawsuit could result in a takeover by an emergency manager, which his office and the city council have battled to avoid for much of the past year.

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A court hearing on the lawsuit is scheduled for Wednesday morning.

The consent agreement was signed in April just before the city would have been assigned an emergency financial manager, essentially taking executive and legislative power away from the mayor and city council. Instead, an advisory board was assigned to oversee the city’s finances, and avoiding a bankruptcy at least for the time being.

However, Crittendon, whose position was given more power due to a change in the city charter, believes the consent agreement is illegal because the state owes the city money and state law prohibits agreements like this if one governmental party is indebted to another. Although Bing had earlier acknowledged that the city law department does have the right to make such a legal challenge, he says Crittendon must have mayoral approval to pursue legal action on the city’s behalf.

“By taking this action you have exceeded your authority under the Charter and have put the city’s financial stability at substantial risk of serious financial consequences,” Bing wrote in a letter to Crittendon, who has not commented publicly on the lawsuit.

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Bing says in his conversations with Michigan Gov. Rick Snyder and state officials, the state doesn’t seem to be backing down and last week he asked for the city council to vote to have her drop the suit.  The council refused, however, saying it had no power to stop her even if it wanted to. Crittendon has managed to convince at least some of the city council members that she was just doing her job under the law. “Nobody’s talking about the fact that the state owes us money,” said City Councilwoman Saunteel Jenkins told the News. “Even if a judge on Wednesday says this is invalid because … the state owes us money, so they are in default, so you cannot enter into a contract, that can be easily resolved in a state that has a super surplus by just giving us what really adds up to less than $8 million.”

The state wants the lawsuit dropped and is threatening to withhold as much as $80 million in revenue sharing, which the city desperately needs because of its $200 million budget deficit. Detroit’s bond rating was recently further downgraded by Moody’s. On Tuesday, Fitch downgraded several bond areas of the municipal government.

Snyder says that if the city does go broke, he will act to protect the citizens. “It’s an internal Detroit issue, largely, that they have real issues between the mayor, City Council and the corporate counsel and I hope they resolve those.”