Pressure has built on Detroit Institute of Art leaders to be part of their own bankruptcy rescue plan. (Daniel Mears / The Detroit News)
Gov. Rick Snyder’s pledge of $350 million to bolster Detroit pensions and rescue the Detroit Institute of Arts from creditors ups the pressure on the museum — and others — to deliver.
The DIA’s leaders, executing to perfection the slow walk manufactured around here for way too long, will be expected to raise up to $100 million to buy the DIA’s freedom and the reset its future, notwithstanding its stated commitment Wednesday to embrace the status quo by “continuing conversations” to “determine how we can be as productive and supportive as possible.”
Detroit’s unions and pension funds will be urged to accept the proffered deal to ease the blow to be landed by the largest municipal bankruptcy in American history, or risk a less favorable outcome. And however the governor spins the state’s proposed contribution, Snyder’s widely expected bid for re-election will be dogged by charges he engineered a bailout of Detroit that he long insisted would never happen.
But it is happening, whatever politicians call it. Judging by his actions, the governor is embracing the argument that Detroit cannot avoid protracted litigation and emerge from Chapter 9 bankruptcy without a state contribution designed to close a deal to save the DIA and supplement underfunded city pensions.
“A bailout is just contributing dollars and paying debt without getting anything in return,” the governor said in Lansing. “This is to help people in our state. There will be cuts, but how do you minimize those.”
The state’s proposed offer, still subject to legislative action, puts Snyder and the Legislature’s Republican leadership in the tricky position of election-year stumping for a cash infusion into a Detroit bankruptcy settlement. Their argument: agreeing to pay now, if over the next 20 years, is likely to be considerably cheaper for Michigan taxpayers than larger payments later in a protracted bankruptcy.
They have a good point. The implication that Snyder’s call on a DIA-pension settlement offer represents a binary choice of right and wrong, bailout or no, rewarding bad behavior or not, ignores the more complex political realities facing Snyder and the two U.S. presidents who weighed similar conundrums in the collapse of the Detroit’s auto industry.
Enormous costs are associated with either path. One commits public cash to a settlement or turnaround accompanied by conditions likely to prove uncomfortable for the recipient. The other risks social dislocation, political consequence and economic repercussion that can be neither easily predicted nor quantified.
For the DIA, Snyder’s widely telegraphed move is another step toward a reset that could secure its future. But it requires substantial, still-unsolicited contributions from its individual and corporate donors to augment $330 million in commitments from regional and national foundations, including New York-based Ford and Troy-based Kresge foundations.
The funds for a prospective settlement do not come without strings. In his remarks, Snyder said conditions for a state infusion to support Detroit pensions include appointment of independent financial managers to manage assets of the city’s two pension funds.
The foundations — essentially lead donors to a campaign envisioned by Chief U.S. District Judge Gerald Rosen, the top federal mediator — have additional conditions. They include ensuring the tri-county millage funding the DIA is preserved; creation of a mechanism to receive the funds, followed by robust oversight; and significant contributions by the state and the DIA.
Also under consideration, according to a individual familiar with the process, is a new governance structure for the DIA. That could include board seats for representatives of chief donors to the fund — namely, the Ford and Kresge foundations, the state of Michigan — a common progression in corporate rescues engineered with outside money.
“The governance, whether it’s the structure or the people, simply isn’t possible to make these kinds of moves,” the individual said. Meaning the DIA’s path to financial independence, powered by the tri-county millage, likely is headed for a detour or two depending on its next steps.
With the state’s confirmed involvement, pending legislative action, the campaign is poised to move into a new phase requiring the DIA’s management and board to perform. Museum officials and federal mediators have agreed to take the lead in soliciting donations from individual and corporate donors, specifically the hometown automakers.
That’ll help, considering the cash piles of Ford Motor Co. and General Motors Co. in particular. But it’s not likely to be sufficient, and it’ll need to happen fast.
Daniel Howes’ column runs Tuesdays, Thursdays and Friday.