Officials from financially strapped Highland Park and a bank providing loans to the city could appear before a federal judge after the bank threatened to halt the funds to cover pension costs.
Fifth Third Bank informed Highland Park last month it would stop providing loans the city uses to help pay worker pensions. Highland Park filed suit in Wayne County Circuit Court, saying that without the money, retirees would lose earned benefits.
According to court documents, Fifth Third Bank wants to cut off the loans over concerns that the city will not be able to pay up.
In a Dec. 12 letter to Mayor DeAndre Windom, the bank outlines its reasons for suspending the loans “based on the city’s incurrence and continuance of debt relating, among other things, to the city’s failure to pay amounts owed to the city of Detroit and the Detroit Water and Sewerage Department …”
The city sought a temporary restraining order in Wayne County Circuit Court to block Fifth Third from halting the line of credit.
The bank responded by requesting the case be moved to federal court.
In the meantime, Highland Park City Attorney Todd Perkins said the bank disbursed $168,000 in funds for January on Wednesday. The bank is scheduled to provide $74,000 by the end of the month, said Perkins.
According to Perkins, the city has never missed a bond payment and the bank is trying to “manufacture a reason” to suspend payments.
“This is information they knew when they gave us the money,” said Perkins, referring to the city’s longstanding financial issues. “On top of all that, they reissued a letter of credit last summer.”
An attorney for Fifth Third could not be reached.
The dispute with the bank is the latest legal action involving the city and its finances.
Highland Park owes the city of Detroit’s Water and Sewerage Department more than $18.6 million in unpaid water bills, according to Bill Nowling, spokesman for Detroit Emergency Manager Kevyn Orr.
Detroit filed suit against Highland Park in U.S. District Court in November.
A state review last year of Highland Park’s finances found violations of the Uniform Budgeting and Accounting Act during fiscal year 2012. The general fund went over budget by $491,161, the review found.
Highland Park also breached obligations under an approved deficit elimination plan filed in 2009. Other issues cited by the state include a water and sewer fund that has operated at a loss since 2008.
Combined, the city’s financial state prompted the Local Emergency Financial Assistance Loan Board to rule in September 2013 that the city faces “probable financial stress.” That was the first step toward determining whether emergency management is necessary under Public Act 436.
According to state Treasury officials, the city has hit triggers under the law, including failing to make pension payments, breaching state-approved deficit elimination plans and violating the state budget law for municipalities.
Gov. Rick Snyder called for a review board to decide by next month whether bankruptcy will be declared or if the city will operate under a consent judgment. The city could also get an emergency manager to oversee the day-to-day finances rather than the community’s elected officials.