Detroit Won't Have to Sell Its Art

Foundations have pledged $330 million to save the Detroit Institute of Arts' collection from being sold due to the city's bankruptcy.
by Daniel Luzer | January 14, 2014 AT 2:20 PM

By John Gallagher and Mark Stryker


With the future of Detroit at stake, leaders of national and local foundations gathered on a chilly afternoon in early November in the downtown chambers of U.S. Chief District Judge Gerald Rosen.

Rosen, the federal mediator in the Detroit bankruptcy, led a wide-ranging 3 1/2 -hour dicussion, during which he floated a novel idea for a grand bargain: Could the foundations pony up hundreds of millions to bolster at-risk city pensions and prevent the Detroit Institute of Arts from having to sell its treasures?

It was a long shot at best. But on Monday it may have paid off big time.

Rosen announced nine foundations pledged $330 million that would be used to shore up pension funds so the art would not have to be sold, a crucial step toward solving the contentious issues surrounding pensions and paintings. The money represents an unprecedented coalition of foundation support for a troubled American city and a bold stroke of out-of-the-box creativity. It is a potential game changer in Detroit's struggle to restructure $18 million in municipal debt in bankruptcy court.

The foundations include some of the country's largest and most influential such as the New York-based Ford Foundation and the Kresge Foundation of Troy, as well as smaller locally based foundations like the McGregor Fund of Detroit.

It remains unclear whether the state would add money to the pot to shield the art, shore up city pensions and help achieve an overall settlement with creditors. DIA officials have proposed expanding statewide exhibitions and educational programs in exchange for state dollars that would help protect the art.

Sara Wurfel, a spokeswoman for Gov. Rick Snyder, said: "Gov. Snyder is heartened to hear about this mediation process making progress," adding that any significant aid from the state "would be in partnership with the Legislature."

Senate Majority Leader Randy Richardville, R-Monroe, who last summer introduced a bill to protect DIA art from sale to satisfy city debt, said the mood in the legislature is not for a "bailout."

"I will certainly listen to what the request is. But if it's some sort of corporate-like bailout, I'm not excited about that," he said. "Maybe something more unique and creative that will show some benefits to the entire state. ... I would cheer that kind of effort."

Despite the immediate acclaim that greeted the foundations' pledge Monday, a myriad of challenges remain that could scuttle a deal. Leaders of the pension funds representing city workers and police and fire personnel would have to accept the terms. The $330 million still remains shy of Rosen's original goal of $500 million and is unlikely to satisfy unions trying to protect pensioner nest eggs. Other creditors are likely to scratch and claw for more money from the city, hoping paintings and other assets can be liquidated.

"There are many things that could still go wrong," said Alberto Ibargüen, president of the Miami-based John S. and James L. Knight Foundation. "The devil is always in the details in these things."

Still, bankruptcy experts said that if multiple parties, including pension representatives, sign on to the plan, it might create breathing room and momentum needed for Rosen and Detroit emergency manager Kevyn Orr to reach a global settlement. "It takes pressure off the city in its need to raise funds and address creditors' claims," said Craig Barbarosh, a bankruptcy attorney in Costa Mesa, Calif., who has followed the Detroit case.

"It gives the city additional flexibility through the liquidity of $330 million."

Orr has estimated that Detroit's two municipal pension funds may be underfunded by as much as $3.5 billion, and Orr and his team have talked for months about finding a way for the DIA's collection to be "monetized" in some way to help the city resolve its fiscal troubles. But if those two issues can be amicably resolved using foundation money, that could ease the way toward a settlement of the broader bankruptcy case.

Orr could enshrine the Rosen deal into his Plan of Adjustment, which is his recovery plan for the city that he is expected to file with the bankruptcy court within the next few weeks. That might also give Rosen's grand bargain more credibility in the eyes of the court. Rosen made clear Monday that the money would only be given if a final settlement is reached with all parties.

Value of art

Some creditors believe city-owned DIA artwork is worth "billions of dollars" and that a recent appraisal from Christie's auction house that was commissioned by the city vastly undervalued the city-owned collection.

Creditors have accused Christie's of offering a lowball figure less than $900 million to give political cover for mediator Rosen to propose transferring the DIA to an independent nonprofit organization.

A financial adviser to Financial Guaranty Insurance, which is an insurer of some of the city's major bondholders, told the Free Press on Monday that it still plans to ask U.S. Bankruptcy Judge Steven Rhodes to approve its previous motion to establish an independent art committee to conduct an independent evaluation. The adviser said it's "not inconceivable" that a sale of DIA assets could leave Detroit completely debt free.

Christie's only evaluated the roughly 2,800 works of art at the DIA bought with city funds, most in the 1920s, assigning them a fair-market value between $454 million and $867 million. However, the DIA's entire collection numbers 66,000 works and is likely worth at least several billion dollars, perhaps more. While all the art at the DIA is city owned, Orr asked Christie's to evaluate only the 5% of the collection bought directly by the city because the rest may be encumbered with donor or other restrictions forbidding a sale or making an effort a legal nightmare.

Rhodes plans to conduct a hearing Jan. 22 to consider the motion, which was supported by bond insurer Syncora, city union AFSCME Council 25 and several European banks.

Meanwhile, DIA leaders have been adamant that any mediated solution has to not only protect its art but also leave the museum financially stable. That includes leaving a tri-county tax millage intact that funnels some $23 million a year to the museum.

Under the arrangement being discussed, the museum's artwork would be protected by spinning off the DIA into a private nonprofit, divorced from city ownership, never again facing the possibility of sale to satisfy municipal debt. "As positive and optimistic as we are right now, there is still a great deal left to be negotiated," said Annmarie Erickson, chief operating officer of the DIA.

Fresh ideas

The Knight Foundation's Ibargüen, who attended the November briefing, said the suggestion that foundations contribute was a novel idea that gradually took hold. "You're looking for fresh money, and you're looking for unconventional ideas, and this was one of the ideas that was floated as a possibility," he said.

Foundations typically don't bail out municipal pension funds or endangered art museums. But in this case they quickly coalesced around the same notion -- a special fund to bail out city pensions and save the DIA artwork was justified as part of the foundations' overall commitment to helping Detroit.

"The more we thought about it, the more we talked about it, the more it made sense that if this is something that is going to help Detroit get out of bankruptcy faster, then it was something for the general good of the city," Ibargüen said.

More support?

Rosen, in his written statement Monday, called the foundations' commitment "an extraordinary and unprecedented effort." He said more foundation support was expected to be announced in the future.

A foundation leadership committee has been established to handle the details. The group includes heads of the Community Foundation for Southeast Michigan, the Kresge Foundation, the Ford Foundation, and the Knight Foundation. The five others making pledges are the William Davidson Foundation, Fred A. and Barbara M. Erb Family Foundation, Hudson-Webber Foundation, McGregor Fund and Charles Stewart Mott Foundation.

Mariam Noland, president of the Community Foundation for Southeastern Michigan, 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.

Tina Bassett, a spokeswoman for the city's General Retirement System that represents non-uniformed city retirees, sounded an optimistic note. She said in a statement that the fund leaders "appreciate and support all efforts to protect the pensions for the people who have dedicated their lives working for the City of Detroit. We are grateful for the commitment and care demonstrated by so many, working so diligently to find solutions to this challenging situation."

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