Michigan court to weigh legality of Detroit pact Mon Jun 4, 2012 4:02pm EDT (Reuters) - Michigan's Court of Claims is being asked to void an agreement reached in April that gave the state oversight over Detroit's finances, opening a new front in an ongoing battle over the state's controversial emergency manager law. Detroit Corporation Counsel Krystal Crittendon confirmed on Monday she had filed a complaint against the state and its Treasurer Andy Dillon on Friday. The complaint contends the financial stability agreement the city council approved on April 4 was not valid under Michigan law and the city's charter because the state was in default to the city. The lawsuit lists more than $230 million purportedly owed Detroit by Michigan, including $224 million in revenue sharing, $4.7 million in unpaid water and sewer services at the Michigan Fairgrounds and $1,225 in parking tickets on state vehicles. "The Law Department has exercised its right to challenge the consent agreement," said Detroit Mayor Dave Bing in a statement. Whatever the legal outcome, we will abide by it. But I'm not interested in getting into any legal battle that will distract us from executing my fiscal stability plan. The legal cloud has stalled some actions by the Detroit City Council regarding the pact. A spokesman for Dillon said the state has not officially received the complaint. "We continue to be focused on implementing components of the FSA, which was agreed to and voluntarily signed by all parties involved," said spokesman Terry Stanton. Additional delays in implementing the FSA only make the eventual recovery more difficult. The agreement gave the state more control over Detroit's sagging finances, stopping short of having an emergency manager appointed by the governor to run the city, which has an accumulated deficit of about $265 million. Public Act 4, a 2011 law which boosted the ability of the state to intervene in financially troubled local governments, was used by state officials to launch a review of the city and enter into the consent agreement. A battle over that controversial law is being waged in various Michigan courts as opponents seek to void it on constitutional grounds or place a measure on the November 6 ballot asking voters to repeal it. Amid the swirling legal uncertainty, Detroit next week plans to sell $575 million of sewage disposal system new and refunding senior lien bonds through Goldman, Sachs & Co. Proceeds from the issue will fund capital improvements, refund some outstanding debt and cover termination costs of interest rate swap agreements attached to certain outstanding sewer bonds. The preliminary official statement for the deal said that, while swap counterparties have not exercised their right to terminate the swaps due to the consent agreement, the city plans to use the upcoming deal to do so. The POS also lays out various scenarios of what could happen to Public Act 4 and to the city should it breach the financial stability agreement, noting the state treasurer would then have the power to place Detroit in receivership. As for Crittendon's complaint, the POS states it was not clear when the matter would be resolved and what the impact would be on the agreement. Fitch Ratings last month cut its rating on about $1.4 billion of senior lien sewer bonds to A-minus from A, citing rising debt levels. Moody's Investors Service, which dropped its rating to Baa1 from A2 in April, continues to keep it on review for another potential downgrade. The review's focus includes "the continued uncertainty of how the sewage system would be treated in the event of a (Detroit) bankruptcy filing," Moody's said last week. Reporting by Karen Pierog; Additional reporting by Caryn Trokie; Editing by James Dalgleish