A public-private plan to pump nearly $700 million into a fund to supplement underfunded city pensions and protect the Detroit Institute of Arts’ collection from creditors may represent “real money,” but it solves nothing — yet.
What it does is begin new rounds of fear, loathing, what-ifs and why-nots that will dog Gov. Rick Snyder’s effort to get the state’s proposed $350 million contribution through the Legislature. It also tests public assurances by nine foundations that their commitment of $330 million to the effort won’t undercut philanthropic support for cultural and nonprofit groups across southeast Michigan in coming years.
The historic bankruptcy of Detroit, the largest of its kind in American history, is shaking assumptions far beyond City Hall, its unions, retirees and the municipal finance markets. How and what form its settlement could take are jolting a cultural and nonprofit community only just recovering from the twin whammies of the recession and automotive implosion.
Will the price of the DIA’s freedom come at the expense of its peers, many of which are emerging from their own existential crises? Will the fundraising stress regional philanthropy beyond its capacity to give, however historic the challenge posed by the city’s bankruptcy to the museum and its would-be rescuers?
“To the extent somebody is making a commitment elsewhere, I can’t say how it will affect me,” Anne Parsons, president of the Detroit Symphony Orchestra, said in an interview Thursday. “We are not wavering in pursuit of our plan” to raise roughly $250 million in annual fund and endowment over the next decade. “Things come at you and you have to adjust to survive. That’s a fundamental mantra for all of us.”
It should be, anyway, even if the destination remains unclear. The financing needed to push Detroit through bankruptcy is coming neither from the banks nor the private equity lenders who would typically provide the “debtor-in-possession” cash hoard for a corporate bankruptcy, only to emerge with a material stake in the new entity.
Instead, it’s coming from individual donors, private foundations and the likely corporate donors the nonprofit community relies on to fund annual operations and bolster endowments. Add a 20-year cut of state tobacco money, and it’s not a stretch to say that the new cash to finance Detroit’s turnaround is coming mostly from its backyard.
That raises all sorts of questions, coupled with the (generally mistaken) impression that the DIA-pension rescue plan floated by Snyder, the foundations and Chief U.S. District Judge Gerald Rosen would ensure union pensioners pay no price in bankruptcy. They still would, as Snyder, Emergency Manager Kevyn Orr and even U.S. Bankruptcy Judge Steven Rhodes have suggested.
Does creation of the fund effectively gut any effort to reform city pensions in Chapter 9 bankruptcy, as the Wall Street Journal editorial page fretted Thursday? Does Gov. Rick Snyder’s $350 million offer obliterate any semblance of moral hazard, paving the way for distressed municipalities and school districts to seek extraordinary taxpayer help to fix their bad decisions?
Fair questions all, unless you’ve been listening to Rhodes and noted his unambiguous signals that maintaining Detroit’s status quo on pensions, health care, union contracts is not likely to survive unscathed by this brutal (and swift) process. Or watched him twice reject an interest-rate swaps settlement with two banks because the deal was too costly to the city.
In court this week Rhodes said Detroit’s Plan of Adjustment, the template for a proposed settlement, “may well require a fundamental and profound change” in the city’s pension plans, health care benefits and union contracts. Translation: if they don’t, he won’t approve it.
We’re not there yet, but the judge is signaling dwindling patience with histrionic posturing from the unions and pension funds, and foot-dragging from the city and its lawyers. With an eye on his March 1 deadline for a plan to be filed, the next month or so are for serious deal-making and fundraising.
There’s more to do. The next phase in any effort to grow the public-private fund likely will target the charitable foundations of the Detroit automakers and other major Detroit employers — DTE Energy Co. and Quicken Loans Inc. come to mind — with sizable downtown workforces and a demonstrated commitment to the city’s revival.
“We have not been contacted about this,” said Jim Vella, chairman of Ford Motor Co.’s Ford Fund, with total assets north of $70 million and plans to disburse $37 million this year around the world. “We obviously have been a long-term supporter of the DIA and have funded them for many, many years. We have a lot of interests to balance.”
They’re not the only ones.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.