March 25, 2014 at 1:00 am

Daniel Howes

Pressure's on Orr to close DIA fund deal

When Chief U.S. District Judge Gerald Rosen pitched his plan to rescue the Detroit Institute of Arts’ collection by bolstering city pensions in the city’s bankruptcy, foundation leaders initially thought he was nuts.

Maybe they were right. Their proffered $365 million — as well as $350 million in proposed state aid and $100 million from DIA benefactors — isn’t yet closing a deal that is critical to determining whether Detroit will emerge successfully from its Chapter 9 bankruptcy.

That’s why Emergency Manager Kevyn Orr is publicly pitching the plan so hard, too. Give him the chance nowadays, and the Washington bankruptcy lawyer touts the $815 million fund. It’s unprecedented, he says, rightly. It’s a dealmaker. It would cushion a harsh blow to city pensioners even as it would protect the DIA’s envied collection from the predations of creditors.

“We’re getting to the stage where Kevyn comes in,” Orr’s chief spokesman, Bill Nowling, said in an interview Monday. “He’s the closer. You’re going to see him take a higher profile now. At some point, the C-suite steps down and says, ‘OK, boys, where are we gonna’ go now?’ That’s where we are.”

But no one’s buying yet, a bigger problem for Orr and his team than it is for the foundations. Their boards have approved the outlays to the DIA fund, and their executives are heeding Rosen’s counsel to be patient and let the bankruptcy process unfold under the gavel of U.S. Bankruptcy Judge Steven Rhodes.

“It’s very clear some foundations are a little nervous that these folks are not jumping at the deal,” said a source close to the process. “There’s more than enough patience that no one is going to bolt. The foundations don’t want to be in the position of threatening pensioners.”

No, that’s the job of Orr and even Rhodes. The emergency manager is facing a September deadline when two-thirds of the City Council can vote to remove him; the judge’s aggressive management of his court calendar recognizes that political reality, putting the court on a collision course with unions and pension funds waiting for Orr to improve an offer they expect to get better with time.

It won’t. Orr is more likely to dust off his game of hardball, a stock tactic in corporate Chapter 11 bankruptcies: reduce proposed settlements by a quarter point each day they are ignored and redistribute the savings to others within similar classes. And Rhodes, who clearly commands his courtroom, could force the issue, too, with a judicial power only he holds.

The good news for unions and pension funds is that the coalition of national and regional foundations is showing no signs of fraying, according to individuals close to the process. As recently as Monday, the foundations privately reaffirmed their support for Rosen’s three-part bargain.

“I don’t see any crack in the edifice from the foundation perspective — none,” said Rip Rapson, president of the Troy-based Kresge Foundation, a partner with the Ford Foundation and others in the DIA fund.

Added another person deeply involved in the process: “They’re committed. These are people who are major-league ballplayers. Every piece of the trajectory is toward putting this together.”

Not that anything is guaranteed. The DIA fund and its meaningful contribution to pension checks hinge on particularly tricky politics in Lansing: rank-and-file Republicans are less enthusiastic than their leaders about footing the bill for what looks like a Detroit pension bailout. Their support won’t come free.

And Democrats are susceptible to union pressure, however misdirected it may be. Democratic support for a DIA fund backed by Gov. Rick Snyder and GOP leadership in both the state House and Senate would help, not hurt, thousands of retirees who stand to lose more of their pension checks if delay and partisan wrangling scuttle the fund before it launches.

Put another way: any meaningful threat to the DIA fund and whether it can be used to bolster city pensions emanates from the state capitol, not bookish foundation heads or timorous board members unnerved by unhappy financial heavyweights in New York or the confrontation of a bankruptcy process unspooling with predictable rancor and litigation.

Judge Rosen’s audacious gambit to tie a DIA rescue to a public-private plan to bolster city pensions is still very much alive. But it won’t last in perpetuity because it can’t — a fact the city’s unions, pension funds and retirees ignore at their peril.
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Daniel Howes’ column runs Tuesdays, Thursdays and Fridays.

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