Detroit’s False Choice: Foundational Bailout Could Save Both Art and Pensions

Will the city, state, pensioners and creditors agree to transfer control of the Detroit Institute of Arts to an independent non-profit?

The Detroit Institute of Arts thinks very hard about a bargain to save its collection. Credit: Flickr user Quick fix

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It has become commonplace for cities in crisis to see philanthropists, non-profits and other private organizations filling the void, performing the vital tasks that City Hall can no longer do itself. An especially powerful example was revealed this week in Detroit, which is currently negotiating the terms of the largest municipal bankruptcy in history.

In an unprecedented “grand bargain,” nine local and national foundations committed $330 million in a deal to save the Detroit Institute of Arts from being mined to satisfy creditors of the city, which is about $18.5 billion in debt. The money will also ease the expected pension cuts facing Detroit’s retirees. (The pension funds are underfunded by about $3.5 billion.)

This is not just an outpouring of money. The deal is a breakthrough, crafted quietly through mediation in the last two months. As part of the terms, it will shift the museum from city ownership to the control of an independent non-profit, a move intended to protect the institution from future municipal money woes.

This is radical stuff. As the New York Times points out, the plan is “a first both in the foundation world, which has not been a source of money to shore up public-sector pensions in the past, and in municipal bankruptcy cases, experts said.” It also proves the lie that Detroit’s fiscal woes meant that the city had to choose between its art or its workers. That’s a painful and false binary that obscured the rest of the city’s 100,000-plus creditors. (From the point of view of Wall Street, this facelessness was useful.)

What to make of it all?

In a July 2012 Forefront story, I noted that it’s downright awe-inspiring to see what can be accomplished when engaged citizens take action to help cities thrive. Private groups are especially agile — a real advantage in bringing Detroit’s art/pension deal together — and there is no doubt that without them, the city would be a worse place to live and work. And it is moving to see a city’s art and people become a priority. The Ford Foundation pledged $125 million to the deal. The Kresge Foundation will give $100 million in a multi-year commitment. The Knight Foundation committed $30 million, the largest single gift it has ever pledged. Even private citizens are contributing their own money.

But when shifting public functions into private hands, it’s important to recognize that the usual methods of community accountability are lost — unless they are intentionally integrated into the process. In terms of the bargain in Detroit, what kind of transparency and communication is essential so that the museum, pensioners, philanthropists and citizens can maintain healthful relationships with one another? It’s also crucial to make sure that the follow-through of this deal doesn’t unnecessarily trample the terms of the 10-year millage that Wayne, Macomb and Oakland counties passed last year in support of the DIA.

The museum has, of course, been supportive of this deal that will protect its art from sale, but it is very firm that the final terms must not undercut its financial stability. That includes the approximately $23 million per year it gets through a slight property tax, thanks to the millage. The massive effort to support the millage, incidentally, hinged on an “art is for everyone” campaign, and led to free admission for all residents of the tri-county area.

Finally, it should be emphasized that the “grand bargain” is not final or certain. First of all, more donations are being sought to fully support the DIA and city workers. (The coalition aims to raise at least $500 million.) Many of the current commitments will be paid over multiple years. Gerald E. Rosen, a federal judge mediating the bankruptcy case and facilitator of the bargain, prefers as many financial gifts as possible to be upfront.

The deal’s success also depends on a number of diverse parties signing on, including pension representatives. The museum has not yet worked out the amount of its own anticipated financial contribution. The deal would likely be included in the “plan of adjustment” that Emergency Manager Kevyn Orr will soon submit to the bankruptcy court, where much is yet to be negotiated. In the end, the money will only be given if all parties agree to a final settlement. What’s more, bankruptcy requires creditors in the same class to be treated equally. It’s not clear how the court will look on city pensioners benefitting from the grand bargain, which does not include other creditors.

According to the Detroit Free Press, Mariam Noland, president of the Community Foundation for Southeastern Michigan, one of the participating foundations, said “that money was conditioned on a mediated settlement to other conflicts in the bankruptcy. ‘It is one piece of a very complex transaction,’ she said.”

It’s not yet certain how the state will respond, either. An anonymous foundation executive told the Detroit News that the grand bargain is “the linchpin to settle the entire bankruptcy. $500 million is a floor, actually. The most difficult piece is probably at the state level.” The state could be tremendously influential by contributing to the pot and sweetening the deal. The DIA has suggested that in turn, it would expand its statewide exhibitions in programming.

So far, though, policymakers have remained noncommittal. Sara Wurfel, a spokesperson for Gov. Rick Snyder, said the governor “is heartened to hear about this mediation process making progress,” according to the Detroit Free Press. She added that “any significant aid from the state ‘would be in partnership with the Legislature.’” Lansing legislators have said there is no mood in the state capital for anything with the whiff of a “bailout.”

The undone story here also comes down to the many other urgent decisions and compromises yet to be hammered out in Detroit’s bankruptcy court. The false binary of choosing between art and pensioners galvanized people like nothing else, but it partly emerged because it’s difficult to understand all the creditors. There are no easily illustrative anecdotes to pull from the snarl of municipal bonds and Wall Street financing. Those debts are less tangible, and so easier for citizens, organizers and journalists to ignore.

But these creditors are, of course, a huge pressure point. They want as much money out of Detroit as they can get in these negotiations. Next week, a group of creditors will go to court to challenge the appraisal of part of the city’s art collection, done by Christie’s at Orr’s behest. It concluded that the portion it appraised could be sold for between $454 million and $867 million. Creditors suspect this is a lowball number meant to support the case for shifting the DIA to the control of an independent non-profit. While the New York Times noted that some creditors welcomed news of the bargain, as it may hasten the conclusion of the bankruptcy negotiations, others reportedly objected, “saying that the deal appeared to give pensioners priority over some other creditors and that the city might get more for the art by selling it.”

Yet all things considered, Detroit, city workers and art lovers everywhere are in a more promising position now than they were a couple of months ago.

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Anna Clark is a journalist in Detroit. Her writing has appeared in Elle Magazine, the New York Times, Politico, the Columbia Journalism Review, Next City and other publications. Anna edited A Detroit Anthology, a Michigan Notable Book. She has been a Fulbright fellow in Nairobi, Kenya and a Knight-Wallace journalism fellow at the University of Michigan. She is also the author of THE POISONED CITY: Flint’s Water and the American Urban Tragedy, published by Metropolitan Books in 2018.

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Tags: detroitpensionsbankruptcy

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