State says city lawsuit threatens funding for Detroit

(WXYZ) - A letter from the Michigan Department of Treasury to Detroit's Chief Financial Officer says the city is threatening to "derail our collective efforts" to fix the city's finances.

According to the letter, at issue is a lawsuit filed by the city of Detroit's Corporation Counsel last week saying that the Financial Stability Agreement between the city and the state is "void and unenforceable because the State of Michigan is in default to the City of Detroit, and therefore the City cannot contract with the State."

The main point of contention between the city and the state is $220 million in revenue sharing that the city says they are owed from Michigan.

The letter, which was written by Deputy State Treasurer Thomas Saxton, makes it clear the state does not agree. It says the state's "position has been and remains that the City's claims have no merit and that the State of Michigan is not in default to the City of Detroit, at any level."

This could lead to big financial problems for the city because, according to the letter, the city is required to pay back an $80 million bond that was provided as interim financing back in March. The repayment is due on June 27, 2012.

According to the letter the paying back of the bond would trigger payment of revenue sharing monies to the city. 

However, the state says that because of the lawsuit any money would instead be paid to the bank that guaranteed the bond and no money would be transferred to the city until the $80 million is paid back.

According to the letter that would not happen until sometime in December.

Detroit Mayor Dave Bing has released a statement responding to the letter. It reads as follows:

My office has received the letter from the Michigan Department of Treasury, expressing serious concern about potential financial consequences to the City of Detroit instigated by the complaint for declaratory and injunctive relief filed by the City's Corporation Counsel. The complaint declares the City's Financial Stability Agreement with the State invalid.

Corporation Counsel believes she has the right to file the complaint, however, as I have said before, this action only impedes our progress and places the City's fiscal recovery in grave jeopardy.

My team is working closely with the State to mitigate any negative impacts on my administration's plan to financially stabilize the City. We want this matter resolved expeditiously for the sake of the citizens of Detroit.

The mayor has also called an emergency City Council meeting to discuss the letter.

Read the entire letter below

City of Detroit 6-7-12

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