07/05/2012 11:10 pm ET

Krystal Crittendon, Detroit Corporation Counsel, Files Last-Minute Request To Overturn Consent Agreement Decision

After an Ingham County Court Judge threw out her challenge to the consent agreement, Detroit Corporation Counsel Krystal Crittendon today asked the judge to reconsider his decision, according to documents obtained by the Detroit Free Press.

Crittendon made her request in the last moments of the final day of her deadline to file an appeal with Judge William Colette, who ruled on June 13 that the city's top attorney lacked the legal standing to bring a challenge to the consent agreement to court without the approval of Mayor Dave Bing and the City Council.

“Please be advised that I, as corporation counsel, stand by my decision to have the courts determine the validity of the (financial stability agreement) as a good faith performance of my obligation to my client, the city of Detroit,” Detroit corporation counsel Krystal Crittendon wrote in a letter obtained by the Detroit Free Press.

PDF documents from Crittendon's original opinion can be found at the Detroit Free Press

A Numbers Game

Crittendon filed a lawsuit in Lansing's Court of Claims that sought to invalidate the consent agreement between Detroit and the State of Michigan, claiming the state already owes Detroit $224 million in past revenue sharing. Michigan law prevents municipalities from entering into contracts if either party is in debt to the other.

Gov. Rick Snyder denies that the state owes the city the debt. It's reported that Bing originally supported the lawsuit, but later directed Crittendon to abandon the effort.

Mayor Bing is responding to threats from Gov. Snyder that the state could withhold future revenue sharing payments.

Those revenue sharing payments would be sent directly to borrowers if the consent agreement is found to be invalid. That's because, with the state's guarantee, the city borrowed $80 million in short-term funds this spring -- with the understanding that the city would sell long-term bonds worth $137 million in June to pay back the quick loan. Due to Detroit's untrustworthy credit ratings (which were downgraded even lower after Crittendon's challenge), the state was forced to guarantee Detroit's loans. If the consent agreement between the state and city is found to be invalid, so will contracts like these. Crain's Detroit Business reports that City of Detroit CFO Jack Martin and members of the State Treasury have pushed back the bond sale to Aug. 15.

The Story Of The Revenue Sharing

The City of Detroit and former Gov. John Engler agreed in 2005 to grant the City nearly $340 million in revenue sharing payments in exchange for the city gradually lowering its income tax from 3% to 2%. Detroit never hit the 2% mark, while the State, citing budget woes, quit sending the extra payments.

Crittendon says Detroit is owed $220 million in unpaid revenue sharing debt. But a legal opinion written by former Detroit Corporation Counsel John E. Johnson Jr. in 2006 argues that the revenue-sharing appropriations from the state weren't constitutionally-mandated (conversely, revenue-sharing payments from sales tax ARE mandated by the Constitution). That means they were subject to reassessment by the Michigan Legislature and the Governor (who submit and approve a budget) every year after they were enacted.

This argument is found in Section V of the Michigan Constitution, which states, "no appropriation shall be a mandate to spend. The governor, with the approval of the appropriating committees of the house and senate, shall reduce expenditures authorized by appropriations whenever it appears that actual revenues for a fiscal period will fall below the revenue estimates on which appropriations for that period were based."

The bills containing the decrease in income taxes by the city and the revenue sharing payments allotted by the state were "tie-barred," meaning that both would have to be enacted into law before they became valid. According to Johnson's opinion, that tie-bar only applies to the process of enacting the bills.

Wrote Johnson, "There was no language contained in either act that specifically linked the reduction in Detroit city income taxes to the amount of revenue sharing provided to the city from the state. There is also no requirement that both must be modified in the future."

Crittendon's Decision

Crittendon cites Johnson's opinion in her legal writing, but notes, "The fact that the City's loss is not recoverable, however, does not mean that the State is not in default to the City as that term is used in the Home Rule City Act." The brief also cites an interview State of Michigan Treasurer and Financial Review Team member Andy Dillon gave to radio station WCHB on Jan. 3, as recalled by WDIV.

Said Dillon, "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... "

What's not in Crittendon's brief are Dillon's next words -- "although Detroit, like all other cities across the state that received revenue sharing, that’s statutory revenue sharing, did receive deductions beginning in about 2004.”

Former Corporation Counsel John Johnson, Jr. has also said that Crittendon, under new provisions in the charter defining the role of the Corporation Counsel, is obligated to report violations of the City Charter and, if need be, challenge them in court.

“I can’t speak on the merits of her legal analysis, or whether or not these are legitimate debts,” Johnson told the Michigan Citizen. “The judge will look at the merits and make a decision.”

Crittendon authored a memorandum addressed to her staff that's dated June 10. She finishes the letter with these lines, "In closing, if the City does not prevail in the declaratory judgment, action, so be it. That would not in any way change the fact that it was the Law Department's responsibility to have filed it."

Watch her talk about the case in this June 14 video via WDIV.