Public funds for Pistons move to Detroit are safe for now

Kat Stafford | Detroit Free Press

Show Caption Hide Caption Inside Little Caesars Arena as it nears completion Check out the Little Caesars Arena construction as of mid-June 2017 prior to its September opening.

A federal judge denied an emergency injunction late Monday night that sought to block millions in public funding for the Little Caesars Arena and the Pistons' move to downtown Detroit, saying it could have caused "catastrophic damage" to the city.

In his opinion, federal Judge Mark Goldsmith said the plaintiffs ultimately failed to establish why an emergency injunction was needed.

"The loss of anticipated commercial activity connected to the Detroit Piston’s downtown presence would be regrettable, but the loss of the city’s hard-won creditworthiness caused by defaulting on existing bond obligations would do catastrophic damage to the status quo," Goldsmith said.

The decision came hours after a city attorney argued the lawsuit would effectively "kill the project.

"In fact, ultimately, it can have an adverse economic impact across the state of Michigan," attorney David Fink said before federal Judge Mark Goldsmith. "This would be more than a bump in the road."

The lawsuit was filed in federal court June 1 by activist Robert Davis and City Clerk candidate D. Etta Wilcoxon, who have argued the project should not be funded with public money without Detroit residents voting on it first.

The estimated cost of the project has increased from $450 million to $862 million, and it is anticipated to be 62% privately funded and 38% publicly funded. Goldsmith's ruling came ahead of a Detroit City Council vote on Tuesday that could give approval to a new proposal that would issue an additional $34.5 million in bonds to support the Pistons' relocation.

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Davis filed an emergency injunction motion June 5 to block the funding and essentially enjoin the Downtown Development Authority, the public entity that owns the arena, from capturing the tax revenue.

He said Monday after the hearing that he believes the city's attorney was "overly dramatic" when he said the lawsuit would potentially kill the project.

"It's quite evident that they care about stealing the taxpayers' money over (Detroit residents') right to vote," Davis said. "This should send a very strong message to Detroiters: They don't care about you. More importantly, why are they scared to allow the citizens to vote?"

Goldsmith said in his decision that when deciding whether to issue a preliminary injunction, a district court considers the following four factors:

Whether there's a strong likelihood of success on the merits.

Whether the plaintiffs would otherwise suffer irreparable injury.

Whether issuance of a preliminary injunction would cause substantial harm to others.

Whether the public interest would be served by issuance of a preliminary injunction.

"Plaintiffs have not shown a strong likelihood of success on the merits," Goldsmith wrote in his ruling. "The sole basis for their motion for a TRO or preliminary injunction is that the perceived misuse of funds collected pursuant to the millages violates their 'fundamental right to vote.' But Plaintiffs have not demonstrated that the right to vote guaranteed by the United States Constitution is somehow abridged by the violation of state laws regulating government financing."

Goldsmith also said irreparable harm would not be done to the plaintiffs, but possibly to the defendants.

Goldsmith wrote that the defendants, the City of Detroit and other entities, ultimately showed that what Davis and Wilcoxon sought could cause great harm to the city.

"Defendants have submitted unrebutted evidence that, rather than serving the public interest, an injunction would cause them harm — and most if not all of the harms that would befall defendants and the City of Detroit are harms that eventually would be felt by the public at large," Goldsmith wrote.

Meanwhile Monday evening, LaMar Lemmons, a member of the board of education for the Detroit Public Schools Community District, said he believes the board should have a formal discussion about the lawsuit and possibly take action to support some aspects of the suit.

He said the board received no notice from the city about the fiscal impact of the tax captures on the district.

Board president Iris Taylor questioned what kind of action Lemmons envisioned the board taking. Lemmons said it could be in the form of an amicus brief to support “at least a portion of the lawsuit.”

The board didn’t take any action at Monday’s meeting, but instead agreed to take it up through its finance committee and to have its legal counsel provide information about the lawsuit to help the board understand the issues.

Friday, Palace Sports & Entertainment and Detroit Pistons CFO Greg Campbell said in a sworn affidavit that the NBA could deny the Pistons' move to Detroit if all legal and financing matters are not settled before its July board meeting.

When reached Monday, NBA executive vice president Mike Bass declined to comment on the ongoing litigation.

Campbell said the lawsuit might hamper the team's plans to play their first preseason game Oct. 4 in Detroit, nearly 40 years after former owner Bill Davidson took the team to Oakland County.

Receiving public dollars was a "condition" of the team's agreement with the Detroit Downtown Development Authority, Campbell said.

Citing the Michigan Revised School Code, Davis and Wilcoxon's attorney Andrew Paterson stated last week in a filing that money raised by taxes cannot be used for a purpose that is "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."

Paterson said Monday in court that Michigan law clearly gives Detroiters the right to vote on the matter.

"This is probably the most egregious denial of the right to vote," Paterson said. "They didn't announce until a public hearing on April 25 that they were going to capture school funds. ... The defendants in this case are coming with unclean hands."

But Fink argued the public had been made aware of the potential usage of public funding for the project several months ago in the memorandum of understanding between the Downtown Development Authority and the Olympia Entertainment Events Center.

Fink said the DDA has been capturing taxes since it was established in 1978. "This was no secret," he said. "This was incredibly public."

Goldsmith questioned if prior precedent had been set or if any other case of a similar nature had been heard. He also questioned whether the case should be heard in a state court instead of federal court.

"We don't have a case that says it's a violation of the federal constitutional right to allegedly misuse funds," Goldsmith said.

The source of the money

Attorneys for the City of Detroit, the Detroit City Council and other entities named in the lawsuit filed a motion Thursday to throw out the case. Campbell's affidavit was included in a separate motion filed late Friday in federal court by the attorneys to expedite the plea to dismiss the case. The attorneys called the lawsuit "frivolous."

"There is little time left to preserve the delicate balance of this complicated set of development agreements," the attorneys wrote Friday. "If this lawsuit remains pending and if the NBA or the Pistons find that the financing plan is at risk, the damage to the city of Detroit’s redevelopment plans would be incalculable."

The Downtown Development Authority has amended its district boundaries several times, most recently in 2013, to accommodate the new arena, which will also be home to the Red Wings, and surrounding development that 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 arena and the surrounding development district.

Detroit Public Schools Community District spokeswoman Chrystal Wilson previously told the Free Press that the new school district does not levy taxes and receives full funding from the state. The capture would impact the former DPS district, which is already millions of dollars in debt.

Fink said DPS has already budgeted for the expected impact. "There's no surprise to them," he said.

Still a done deal?

The City Council voted two weeks ago to approve key agreements — including a nearly $20-million brownfield tax incentive — and exemptions tied to the Pistons' practice facility downtown. The DDA and the Brownfield Redevelopment Authority were named in the initial lawsuit.

The city and DDA attorneys said in the Thursday filing that the loss of tax-increment financing at this "critical moment could upend" the Pistons' move.

"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," they wrote. "Unrelated to the 2016 amendments to the project, an adverse ruling could cause a default on $250 million in outstanding DDA bonds."

But 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 a "zero" chance of them returning to the Palace of Auburn Hills.

Davis said regardless of the outcome of the emergency motion, he plans to continue fighting the public funding. According to a filing late Monday, Davis is planning to file a separate state-court action under Michigan's Open Meetings Act to invalidate any actions the city council makes at its Tuesday meeting.

"This thing is far from over," Davis said.

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