DETROIT: City Bond Sale Deadline Extended To August 15th
The mission of the Finance Department is to sustain the City’s financial solvency, provide finance-based services to City Departments and facilitate growth in Detroit through the effective and efficient management of resources and processes that provide essential services, a safer environment and an improved business climate for a world-class city’s public and private sector customers.
The city of Detroit and the state Department of Treasury have obtained an extension to the deadline for a city bond transaction, but the state is warning that the transaction, necessary to keep the city solvent, could be complicated.
The state treasurer’s office said Tuesday that Aug. 15 is the new deadline to complete refinancing on a bond sale. June 27 was the original deadline.
Detroit, with the state’s permission, borrowed $80 million in short-term notes in April, after city officials signed a consent agreement with the state.
The consent agreement, largely viewed as the city’s best hope of avoiding an emergency manager, is a roadmap for fiscal stability in the city, and grants Detroit Mayor Dave Bing the ability to impose contracts on labor unions whose contracts have expired, in other circumstances, the provision of an emergency manager.
The city was supposed to sell $137 million in long-term bonds by the end of June to repay the $80 million short-term loan.
City bond sales are generally securitized by an agreement that the state will enable payment of Detroit’s debts out of its revenue sharing, before the city receives those funds, a maneuver necessary for the financially troubled city to attract investors.
This arrangement is a contract between the city and the state.
The city’s top lawyer, Law Department head Krystal Crittendon, has challenged the consent agreement, saying that the city can’t enter into any contract with the state, because, she says, the state owes the city money and the city’s charter bars it from entering into entities that are in default to it.
Crittendon challenged the consent agreement in court; a judge dismissed the case but Crittendon has declined, to date, to sign off on the bond sale. For the sale to take place, she has to sign, but to approve the sale would indicate approval of a contract between the city and the state, and weaken Crittendon’s position in further attempts to void the consent agreement.
The state Treasury said Tuesday that it and Detroit CFO Jack Martin had obtained an agreement with Bank of America Merrill Lynch to extend the deadline for the $137 million bond sale to Aug. 15.
The state had said that if Crittendon continued to attempt to void the consent agreement, it would be required to divert all of the state’s revenue sharing funds to the trustee handling the funds to repay the debt.
With the extension in place, the city will receive “most” of its June revenue sharing payment, according to Treasury, about $23.6 million of the total $28.5 million.
In the statement, the Treasury department said that without Crittendon’s approval of the sale, and with the threat of future legal challenges to the consent agreement looming, it will be “difficult” to complete the $137 million bond sale.
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