Detroit avoids cash crunch as judge halts lawsuit DETROIT (Reuters) - Detroit averted a financial meltdown after a Michigan judge on Wednesday dismissed a lawsuit that had threatened to cut off the city from state funds and which would have left the city without money to make a key debt payment in two days. Mayor Dave Bing called the episode, which led to a cut in the city's credit ratings, an "unfortunate distraction," saying that Motown will be able to make a $34.2 million payment on its pension debt on Friday. "Now it's time for the city to move forward," the mayor told reporters. He added that talks were held on Wednesday with Michigan officials about proceeding with a new bond issue that will provide money for the city's sagging budget and that had been put on hold because of the lawsuit over the financial stability deal. Detroit had faced the state funding cut-off after its top lawyer, Krystal Crittendon, earlier this month filed a lawsuit claiming that the financial stability deal with the state was invalid because Michigan owes more than $230 million to Detroit and was in default to the city. The financial stability deal gave Michigan greater control over Detroit's troubled finances and was meant to avert a potential takeover by the state. Detroit has been hard hit by a steep drop in population, years of severe budget deficits and escalating employee costs. Ingham County Court Judge William Collette ruled that Crittendon could not bring the lawsuit because only Detroit's mayor and the city council have the authority to do so. This is such an obvious issue. I saw it from the moment it was filed," the judge said at a morning hearing in Mason, Michigan. Crittendon, whose complaint was supported by some members of the Detroit City Council and was not initially contested by Bing, could not immediately be reached for comment on whether she would appeal the ruling. Kirsten Ussery, spokeswoman for City Council President Charles Pugh, said an appeal may not be possible. "From what we understand, the corporation counsel could not legally appeal the decision without the mayor's approval, so the council is just moving forward," she said. Michigan Treasurer Andy Dillon said the ruling will allow the state and city to move ahead with the financial stability agreement. "We continue to be focused on working with the mayor and CFO Jack Martin to help stabilize the city's finances and ensure citizens are receiving the services they deserve and expect," Dillon said in a statement. Continued delays in moving this process forward only promise to make eventual solutions more difficult. Michigan's deputy treasurer warned Detroit last week that the ongoing lawsuit threatened the plan to raise cash through a new bond sale. Without that longer-term bond sale, Michigan was poised to divert $82.5 million in state revenue-sharing Detroit was to receive between this month and December in order to pay off an $80 million temporary debt issue for the city that was privately placed in March. As a result, the Bing administration had raised the possibility the city could run out of cash by Friday and miss its pension bond payment. Uncertainty over the payment led Fitch Ratings on Tuesday to cut Detroit's credit ratings into the C category, signifying a greater chance of default. No rating actions were announced by Moody's Investors Service or Standard and Poor's Ratings Services. Bing said a financial advisory board created as part of the agreement with the state will meet on Friday even though the city council has not yet acted on its two appointments to the nine-member board because of the lawsuit. Ussery said the council plans to meet on Thursday to make the appointments. Meanwhile, the mayor on Wednesday named business executive William "Kriss" Andrews as Detroit's program management director. Under the financial stability agreement, the director is responsible for implementing government reforms aimed at improving the city's finances. Reporting by Karen Pierog, additional reporting by Aileen Wingblad in Mason, Michigan; Editing by Leslie Adler, Tiziana Barghini and James Dalgleish