(Detroit) – According to recent comments made by Mayor Bing, the city of Detroit is broke and may not be able to make payroll by the end of next week. Not long after signing a consent agreement, Corporation Counsel Krystal Crittendon filed a lawsuit charging that a consent agreement is illegal because the state owes the city of Detroit $220 million.
The oft-repeated claim of the state owing Detroit money stems from a 1997 agreement between Governor Engler and Mayor Archer in which the state agreed to enter into a revenue sharing agreement with the city, provided they lower their city income tax rate from 3% down to 2% over 10 years.
For several years the city honored their gradual decrease of taxes and the state responded by sharing revenue as promised. However, Governor Granholm stopped the revenue sharing payments in 2005 due to budget issues and the city income tax rate in Detroit has remained at 2.5% – far short of the promised 2%.
Both sides are in breach of the deal, but Detroit doesn’t appear to be owed any additional money until they lower their tax rates. Furthermore, a current legislative body can not bind a future legislative body to an agreement, so Michigan’s legislature is not legally obligated to continue with the old arrangements even if Detroit did begin to lower their tax rates towards 2%. Therefore, either way you look at it, Detroit is not owed any money.
However, Krystal Crittendon has moved forward with the lawsuit and Mayor Bing has indicated that she is unwilling to drop it despite political pressure to do so. And according to the newly amended 2012 Detroit City Charter, she has the sole discretion to move forward in the manner she chooses.
The lawsuit threatens to sink Detroit financially. Deputy State Treasurer Thomas Saxton sent a letter informing the city that they are risking millions more in revenue sharing funds if the lawsuit isn’t dropped. The only reason the city isn’t bankrupt yet is because of a $80 million in financing set up by the state as a result of the consent agreement. The City of Detroit has already used $35 million of that to stay afloat, but the state can stop the city from accessing any more of the funds since the lawsuit violates the terms of the consent agreement.
All of this means Krystal Crittendon has put the City of Detroit in a really bad position. If she chooses to move forward with the lawsuit, not only will she eventually lose, but the City of Detroit will be forced into bankruptcy in short order. The long term effects of that bankruptcy have not been fully explored but it will not be pretty. If the people of Detroit don’t like the idea of the State having a little bit of control in the City, just wait until a federal bankruptcy judge has 100% control of the city.