Detroit— An unprecedented pledge of $330 million in private funds to preserve Detroit’s storied art collection and boost its ailing pension funds could be the first step toward quickly resolving the city’s historic bankruptcy, legal experts said Monday.
Michigan and national foundations said Monday they would contribute the money over several years to aid Detroit’s underfunded pension funds and keep city-owned art at the Detroit Institute of Arts offthe auction block.
Chief U.S. District Court Judge Gerald Rosen, the lead mediator in Detroit’s bankruptcy, has been lining up private foundation commitments since November as negotiations over the city’s debt-cutting plan of adjustment have intensified in recent weeks. The total commitments are expected to top $350 million and could approach $400 million.
“We are not announcing a done deal; the $330 million is a good-faith start,” said Alberto Ibarguen, president and CEO of the Miami-based John S. and James L. Knight Foundation. “For foundations to agree on something in one-and-a-half months, that’s rare. We are all very independent. I don’t believe Knight has ever stepped into a municipal event of this nature.”
Even though the proposed DIA rescue package pales in comparison to the estimated $3.5 billion owed to pensioners, it offers clues that creditors and community stakeholders are “making deals” to speed Detroit’s exit from Chapter 9, said John Pottow, a bankruptcy law professor at the University of Michigan.
“It’s only a drop in the bucket, but it’s a pretty dry bucket in Detroit,” Pottow said.
Labor unions, the city’s pension funds and retiree groups may begin to feel pressure from Emergency Manager Kevyn Orr to accept the foundations’ aid instead of pushing for a contentious art sale to the highest bidder, said Michael Sweet, a San Francisco bankruptcy attorney who is following Detroit’s case.
“I think they’re saying there’s real money on the table here, everyone ought to step up,” Sweet said. “It’s going to fall to the pensions to see whether they will fall in line or want to fight.”
Orr was optimistic the foundation support could help the city settle its debts faster. “This is a very important step, but there is still much work to do,” he said in a statement Monday.
The announcement appeared to put more political pressure on Gov. Rick Snyder and the Republican-controlled Legislature to commit state tax dollars toward the fund — at a time when the state is flush with a three-year $971 million surplus.
“Now that the foundations and private individuals have taken the lead, I hope the governor and state Legislature will do their part,” said Paul Schaap, a Grosse Pointe Park philanthropist who has pledged $5 million. “This is too important for them not to be involved.”
Oakland County Executive L. Brooks Patterson, who has threatened to pull his county’s property tax support of the DIA if art is sold, welcomed news of the $330 million in private pledges.
“It’s time for the state to step up and protect this regional asset, which is beneficial to Michigan,” Patterson said.
But lawmakers are focused on spending the surplus on tax cuts, road improvements, plugging holes in the state budget and replenishing the state’s savings account, said Senate Appropriations Committee Chairman Roger Kahn, R-Saginaw.
“In the war of priorities, this one hasn’t made it on the table yet, at least with anyone I’m talking to,” Kahn said of state support of the DIA.
Snyder spokeswoman Sara Wurfel said the Republican governor is “heartened to hear about this mediation process making progress.”
Wurfel declined to comment on whether state assistance would be forthcoming, noting the Legislature controls the purse strings in Lansing.
“It would be inappropriate and premature to comment beyond that due to the confidentiality order of the mediation process,” Wurfel said. “We must and will honor that.”
The head of one of the private foundations said the philanthropic groups have no illusion the multimillion-dollar commitment is a panacea in the bankruptcy case.
“I don’t think anyone believes $300 million will satisfy the needs of legitimate competing interests,” said Rip Rapson, president and CEO of the Kresge Foundation, a $3 billion private foundation based in Troy and founded by retailer S.S. Kresge in 1924.
Conditions for the fund are that the city must transfer ownership of the art to a new entity, Rapson said, and that the 0.2-mill property tax dedicated to the DIA from Wayne, Macomb and Oakland counties must remain intact.
“All sorts of really gnarly, complex issues need to be mediated,” Rapson said, including identifying more sources of funding for pensions. Until that happens, talk of auctioning the art will not stop, he said.
Christie’s Appraisals,hired by the city, has valued 1,741 pieces of city-purchased art at $454 million to $867 million. A group of creditors has pushed for a separate appraisal, arguing the Christie’s estimate is too conservative.
The foundations hope the money will give Rosen and his mediation team “a strong enough vehicle to help them resolve the bankruptcy with finality,” Rapson said.
“From our view, having the bankruptcy resolved in a reasonable and quick manner is important for Detroit and the region,” said Mariam Noland, president of the Community Foundation for Southeast Michigan. “Let’s get this done with and move forward.”