July 6 (Reuters) - Litigation continued to swirl around Detroit's fiscal pact with Michigan this week, potentially jeopardizing a key bond sale to raise money for the city's ailing budget.
State officials had planned on generating $137 million for Detroit by selling a bond issue ahead of a June 27 deadline, which was extended this week into August.
Detroit newspapers reported on Friday that the city's top lawyer sought to revive her challenge to the validity of the financial stability agreement by asking the judge who dismissed her complaint last month to reconsider his ruling.
Michigan Judge William Collette on June 13 found Detroit Corporation Counsel Krystal Crittendon lacked standing to bring the complaint over the April deal that gave Michigan oversight over Detroit's sinking finances. His court clerk said no motion for reconsideration had been received by Friday afternoon and Crittendon did not immediately respond to a request for comment.
But, with the clock ticking for the long-term bond sale to raise much-needed money for the city, Michigan wants the legal challenges to stop.
"Without assurance the city will not lodge future legal challenges to the financial stability agreement between the state and the city of Detroit, the Department of Treasury believes it will be difficult to complete a refinancing transaction," said state treasury spokesman Caleb Buhs on Friday.
Michigan officials announced earlier this week that they won a deadline extension to Aug. 15 for the transaction that will replace $80 million of interim debt sold in March for Detroit. The state had hoped to complete the second bond sale by the end of June, but those plans were derailed by Crittendon's lawsuit and the lack of her required statement that the bond sale can legally proceed.
The delay led to a standoff with the state last month that threatened to drain Detroit of cash and cause it to default on a pension bond payment. That in turn led to a round of credit rating downgrades of city debt.
If the long-term bonds are not sold, Detroit risks losing state revenue sharing money that will be intercepted by the bond trustee to pay off the $80 million of debt. And the city would not get the revenue boost from the long-term debt sale that will restructure some of its outstanding bonds and issue new ones.
Detroit Mayor Dave Bing, who has sought but not obtained Crittendon's dismissal, said on Friday her latest move puts the financing at risk, making it harder to stabilize the city.
"This lawsuit does not fix a street light, does not put buses in service, and does not put more police officers on the street," Bing said in a statement.
Meanwhile this week, a new lawsuit was filed in state court by Detroit residents that challenges the validity of the financial stability agreement on the same grounds as Crittendon's complaint - because of money the state allegedly owes the city.
Still another lawsuit that surfaced this week was filed in state court by a union activist against the Detroit financial oversight board created under the fiscal agreement, claiming it violated the Michigan Open Meetings Act by closing discussions on collective bargaining matters to the public.
A population plunge and sinking revenue have left Detroit with a $260 million cumulative budget deficit and a huge $7.9 billion long-term debt burden that includes city bonds, employee pensions and retiree healthcare.