Demonstrators outside Cadillac Plaza in the New Center Area of Detroit in the aftermath of the appeals court hearing on whether a referendum to repeal Public Act 4 should be on the ballot. Over 100 people showed up for the action. (Photo: Abayomi Azikiwe), a photo by Pan-African News Wire File Photos on Flickr.
City's consent letter reverses '06 stance on state default
May 19, 2012
By Matt Helms and Suzette Hackney
Detroit Free Press Staff Writers
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Detroit's top lawyer advised city officials that they could still hold the state in default for $224 million in disputed revenue sharing -- even though they had been told in 2006 by another city attorney that they had no legal claim to the money, according to secret documents released Friday.
The issue of the state being in default would be crucial to Detroit's case should the city try to stop the consent agreement with the state -- a possibility City Council President Charles Pugh would not discount.
Pugh was the council's lone vote Friday against releasing a privileged legal opinion from the city's Law Department chief challenging whether the April 4 consent agreement between the city and state is legally binding.
The document says Councilwoman JoAnn Watson requested the Law Department explore the validity of the agreement and whether it violated the city charter. Watson couldn't be reached for comment after the meeting.
Pugh said he voted to keep it secret only because Krystal Crittendon, the city's corporation counsel and the document's author, requested it remain confidential.
As the Free Press first reported Thursday, Crittendon sent Gov. Rick Snyder a letter informing the state that the consent deal is "void and unenforceable" based on her legal opinion that was kept secret until Friday.
"Politically, I think we should have released it first -- that we should have fired the first shot to explain" why city officials are concerned about whether the consent agreement violates state and city laws, Pugh said Friday.
But exactly what's so legally sensitive about Crittendon's analysis remained unclear. The city long has argued that the state owes it money. And city officials have expressed concerns publicly that the consent deal -- preventing, for now, the appointment of an emergency manager but giving the state broad oversight of the city's finances -- could violate the city charter and state law on how cities govern themselves.
Crittendon wrote that, in addition to the revenue-sharing funds, the state owes Detroit $4.75 million for a water bill from a broken main at the state-owned Michigan State Fairgrounds and $300,000 for 600,000 unclaimed property claims being held by the state.
But Crittendon also acknowledged at a meeting last week -- and attached as an exhibit -- a 2006 opinion by John Johnson Jr., the city's former law chief, that Detroit "does not have a legally enforceable claim against the state for the difference in amounts of revenue sharing actually received and the $333,900,000 initially provided in 1998 ... as there is no clear legal duty incumbent on the state to provide the $333,900,000."
Council members, Mayor Dave Bing and city attorneys met last week in the closed session to discuss Crittendon's findings. It was at the meeting where it was discussed and decided that Crittendon send a letter to Snyder informing him that the consent agreement is void based on the state owing the city money.
On Thursday, Bing said he did not authorize the sending of the letter. But some council members told the Free Press that the mayor made it clear he approved of sending the letter.
Earlier Friday, Bing seemed to retract assertions that he did not approve of sending the letter. Bing conceded at an event in Birmingham that he had supported it.
But "when we look into the legal ramifications, I don't think we have the capacity to get into a lawsuit and still concentrate on fixing the city," Bing said. "There's a signed consent agreement in place, and we're moving forward with that."
His statement came during the Pancakes and Politics forum that also featured and the county executives of Wayne, Oakland and Macomb counties: Robert Ficano, L. Brooks Patterson and Mark Hackel, respectively.
"I believe him when he says he wants to be supportive of Detroit," Bing said of Snyder.
"I don't think anyone is satisfied with the consent agreement or where we are now," Bing added. "With the agreement that's in place, we have to work as diligently as we can to do what we can to make improvements. We're not consumed or happy with the agreement, but we have to work with our partner in Lansing, and I intend to do that."
The $333.9 million was the total amount Detroit was to receive in state revenue-sharing over a decade for gradually rolling back the city income tax to 2% from 3% under a 1998 deal with then-Gov. John Engler.
The city never made it to the 2% mark, and the state stopped paying the agreed-to revenue sharing amid difficult budget times in Lansing and Detroit.
Gov. Jennifer Granholm granted the city a hardship waiver from having to continue cutting the income tax in 2004, according to city documents.
Bing and council members had argued for months that the state still owed Detroit at least $220 million in revenue sharing. But Snyder's office has made clear that whatever deal happened years ago will not result in the state paying the city.
In effect, Crittendon's analysis says nothing is stopping the city from holding the state in default for not keeping up the revenue-sharing payments, despite Johnson's opinion. What changed between 2006 and now?
Crittendon argues that a 2010 opinion by former Michigan Attorney General Mike Cox, who was asked by a state lawmaker to clarify state law concerning the rights of cities, makes it plain that city governments are prohibited from entering into contracts with people or entities considered in default.
And Detroit, she argues, should consider the state in default because on Jan. 3, state Treasurer Andy Dillon told Mildred Gaddis on her "Inside Detroit" radio show on WCHB-AM (1200) that the state didn't meet its share of the 1998 bargain.
"The state failed to live up to that 10-year deal, and if you add up the last revenue sharing, it totals up to $224 million. So we don't deny that the deal was not kept," Dillon told Gaddis, according to the documents.
Dillon did not say at the time that he believed the state should or would ever pay, and he and Snyder say Detroit will not get the money.
Pugh said he was not sure whether the city will take legal action to stop the consent deal.
"Whether the consent agreement is on hold or not, this does not stop us from our responsibility of sending a responsible budget and living within the consensus we've already agreed to," Pugh said. "As far as what is the next step, hell if I know. I'm not an attorney."
Contact Matt Helms: 313-222-1450 or mhelms@freepress.com. Contact Suzette Hackney: 313-222-6678 or shackney@freepress.com. Staff writer Kathleen Gray contributed to this report.
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