DDA: Suit to block funding could cause Pistons to 'reverse' arena plans

Kat Stafford | Detroit Free Press

Show Caption Hide Caption Cost for Little Caesars Arena increases to $862 million The cost to build the arena has risen.

A federal lawsuit seeking to block millions in public funding for the Little Caesars Arena and a new Detroit Pistons headquarters could lead the team to reverse its plan to move downtown and cause "massive harm" to the city if it moves forward, according to a motion filed Thursday to throw out the case.

Attorneys for the City of Detroit, Downtown Development Authority, City Council and other entities named in the lawsuit filed the motion in response to a June 1 lawsuit filed by government transparency advocate Robert Davis and City Clerk candidate D. Etta Wilcoxon, who are arguing the project should not be funded with public dollars without a vote of Detroit residents.

The attorneys are asking for the case to be dismissed ahead of a Monday hearing that's one day before the council is expected to vote on an additional $34.5 million in public funding tied to the arena project.

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"Plaintiffs’ delay threatens to cause massive harm to Defendants and to the city of Detroit," the attorneys wrote. "The loss of tax increment financing at this critical moment could upend the complex financial package supporting the Pistons’ move to Detroit, and the resulting changes could cause the Pistons to reverse their plans. The loss of the Pistons would cost Detroit millions of dollars in tax revenue and would threaten the burgeoning growth of the city's entertainment district. Unrelated to the 2016 amendments to the project, an adverse ruling could cause a default on $250 million in outstanding DDA bonds."

Photos: Go inside the arena

Platinum Equity partner Mark Barnhill declined to comment on the lawsuit Friday.

Lead negotiator and Palace Sports and Entertainment Vice Chairman Arn Tellem previously told the Free Press that the Pistons move was nearly a done deal and there was no chance of them returning to the Palace of Auburn Hills.

Tellem cited other examples of the Pistons’ progress toward downtown, including PS&E working with Olympia to submit dates to the NBA for next season’s schedule, which is released at some point in August.

When asked whether there was a chance an unforeseen snag could force a return to the Palace, Tellem said: “There’s no chance of that happening. Zero.”

The City Council voted last week to approve key agreements — including a nearly $20-million brownfield tax incentive — and exemptions tied to the Detroit Pistons' practice facility downtown.

The Detroit Downtown Development Authority, the public entity that owns the arena, has amended its district boundaries several times, most recently in 2013, to accommodate the catalyst development project and district, which covers a nearly 45-block area from Grand Circus Park to Charlotte between Woodward and Grand River.

The DDA is expected to collect $726 million in school property tax revenue through 2051.

The money will be used to pay off $363 million in public investments in the $862-million arena and the surrounding development district. The DDA and Brownfield Redevelopment Authority were named in the initial suit.

Davis and Wilcoxon claim state law prohibits spending school property tax revenue on the projects as planned because the schools millage voters approved in 2012 was to be used exclusively for Detroit Public Schools' operating expenses.

"It's very important because you (the DDA) are using the tax dollars of the residents of the city of Detroit and the county of Wayne to finance two billionaires' projects and you're taking money from institutions that are in dire need of these resources," Davis previously told the Free Press. "That simply does not make sense."

In a response filed Thursday, Davis and Wilcoxon's attorney Andrew Paterson argued that the Michigan Legislature supports their claim that Detroiters have the right to vote on the public funding.

Citing the Michigan Revised School Code, Paterson stated: "Money raised by tax shall not be used for a purpose other than that for which it was raised without the consent of a majority of the school electors of the district voting on the question at a regular or special school election."

"...As a registered elector of the City of Detroit, Plaintiff Wilcoxon has the statutory right ... to cast a ballot on the question of whether money raised by the levy of the 18-mills Detroit Public Schools’ Operating Millage can now be used for a different purpose," Paterson wrote. "Financing $34.5 million in additional Tax Increment Revenue Bonds to pay for the additional improvement costs associated with the relocation of the Detroit Pistons to the new Little Caesars Arena and financing costs associated with the construction of the Detroit Pistons’ Corporate Headquarters and Practice Facility, are obviously not 'school operating purposes.'"

But attorneys for the city and the other entities are questioning the timing of the lawsuit, which they argue comes at a delicate time as Detroit continues to emerge from bankruptcy.

"...The City of Detroit is writing a remarkable comeback story," they wrote, calling the lawsuit frivilous. "One of the most exciting chapters in the city's rebirth is the imminent completion of a new state of the art arena for the Red Wings, with accompanying retail, office and residential development and the anticipation of the Pistons returning to Detroit after a 40 year hiatus.

"This miracle has been made possible by hard work, determination and the use of every available development and financing tool. The DDA and the BRA have played a key role, by providing financing through bonds backed by tax increment financing. But, while this major development effort unfolded in public meetings, and the local press reported every detail, (the) plaintiffs sat back, waiting until the last possible moment to attack."

The attorneys go on to state that the loss in potential revenue and the Pistons' move downtown, would be "devastating" to the city.

"Post-bankruptcy, the city cannot expect lenders to extend unsecured credit at reasonable rates, so its debt has been limited to secured transactions, tied to specific revenue streams," the attorneys wrote. "The default on any of that debt would significantly affect the ability of the city to attract investors. The city is currently engaged in a bond offering to raise funds to rebuild neighborhoods. A default on DDA’s debt would certainly increase the costs and could possibly derail the plan completely."

Contact Katrease Stafford: kstafford@freepress.com or 313-223-4759.

Free Press staff writers Vince Ellis, Lori Higgins and Joe Guillen contributed to this report.