Detroit to go broke by June 15 if lawsuit is not dropped

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DETROIT – What city leaders have feared for years could become reality a week from today. The city of Detroit will run out of money by June 15 if a lawsuit challenging the validity of the consent agreement the city signed with the state of Michigan in April is not withdrawn.

“If our city runs out of money there is no bigger crisis facing our city,” Detroit mayor Dave Bing said this morning to the Detroit News. “It is an emergency. It is a crisis and we’ve been in a crisis for a long time. This just ups the ante more than anything else.

“And I think, from a leadership standpoint, it’s incumbent upon us as leaders to deal with this expeditiously, which means ASAP.” Jack Martin, Detroit’s new chief financial officer, said the city will be broke by next Friday but should be able to make payroll for its employees.

City Attorney Krystal Crittendon filed the lawsuit last week saying that the consent agreement was “void and unenforceable.” She claims that because the state of Michigan owes the city $224 million in revenue sharing — plus more than $1 million in unpaid water bills and other debts — the city cannot enter into contracts with entities in default to the city, according to the newly revised city charter.

Michigan Deputy Treasurer Thomas Saxton said on Thursday that the lawsuit could force the state to hold back from the city $80 million in revenue sharing that was used for interim refinancing of bonds to keep the city from going broke back in March. As of today, Detroit has already used $35 million of it.

Martin said that the city would operate in a deficit if the state withholds the payments money needed to help keep the city afloat. Bing and the Detroit City Council were set to meet this morning to discuss the lawsuit, but the meeting was postponed until Monday due to state open meetings rules.

Bing told the Detroit News that he has urged Crittendon to drop the lawsuit for the good of the city, but he cannot force her to do so under the city charter. Bing noted that the charter allows Crittendon “the independent right to take whatever action she deems reasonable in her sole discretion, including judicial action, if she believes the Charter has been breached.”

“Over the past three weeks, I’ve had several discussions with (Crittendon) and the Detroit City Council, voicing my concerns about the ramifications of any legal challenge to the Financial Stability Agreement,” Bing said in a statement. “I have, in fact, urged (Crittendon) to withdraw the lawsuit and her prior opinion about the Financial Stability Agreement.”

Follow Jay Scott Smith on Twitter at @JayScottSmith