(Reuters) – Detroit is poised to default on about $641 million of its general obligation bonds on Tuesday, an event that is likely to spur a legal challenge over Detroit's decision to take tax money earmarked for bond payments and apply it instead to city needs.
About $411 million of the bonds targeted for default were subject to voter approval and raise money through property taxes, called millages.
A default on bonds that had been considered secured obligations could give rise to a claim that it is a violation of Michigan's constitution, which prohibits diverting revenue from tax millages to alternative purposes.
If the city does default, bondholders can still expect to receive payments, but the funds will come from bond insurance policies purchased by Detroit as its financial picture weakened in recent years.
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