Orr: Sale of DIA art would cause 'maelstrom'
Detroit — The city's bankruptcy judge Friday pressed Emergency Manager Kevyn Orr about why he didn't sell city artwork to settle debts — a key argument made by banks and bond insurers who are trying to block Detroit's debt-cutting plan.
The questioning came after the city's last major holdout creditor, bond insurer Financial Guaranty Insurance Co., decided to stop cross-examining Orr. The unexpected decision raised speculation about a pending deal between FGIC and Detroit, which are privately negotiating a settlement involving real estate and cash.
Orr said selling artwork is a short-term fix, would jeopardize Detroit's revitalization and trigger lawsuits from the Detroit Institute of Arts and wealthy patrons.
"A one-time sale is detrimental to the long-term benefit of the city," Orr told U.S. Bankruptcy Judge Steven Rhodes. "Selling any art would cause a maelstrom."
Also Friday, billionaire auto baron Roger Penske testified about the city's failure to provide adequate services and the benefits of Detroit's plan to exit bankruptcy. The plan would shed $7 billion in debt and reinvest $1.7 billion in public safety and other services.
Calling the biggest municipal bankruptcy filing in U.S. history "the right thing to do," Penske spent about an hour testifying about why he decided to contribute $10 million to the so-called "grand bargain." The grand bargain is a pillar of Detroit's debt-cutting plan, would shield art from creditors and soften pension cuts.
"It's a great opportunity," Penske testified. "It's part of a plan that helps us exit bankruptcy."
The city's debt-cutting plan would spend $430 million on public safety, including new police cruisers, fire trucks and ambulances.
"We need to be safe and secure," Penske said. "We can't have people moving in and buying homes and buildings without being safe and secure."
Earlier, Orr detailed the dire consequences attached to a one-time sale of city assets —particularly the Detroit Institute of Arts collection — in response to direct questioning on the witness stand from Rhodes.
Rhodes, who is presiding over the trial, will ultimately decide if the plan Orr engineered to shed $7 billion in debt is fair and feasible.
"Why not monetize the art," Rhodes asked Orr.
Orr responded, as he did in prior testimony, that he was under no obligation to take that action, and if he chose to do so it would only further harm the ailing city.
"It would be very problematic," Orr said, noting that a tri-county millage to fund the museum would disappear, as would donor and business support. "I believe sincerely it would harm (the city) irreparably."
The question was among a handful posed by Rhodes on Friday. The judge also pressed Orr about his confidence in the oversight called for in the city's plan and commitment from Detroit's elected leaders.
"They are already not only committed, but are pursuing the path down that road," Orr said of the commitment from city officials to carry out reinvestment efforts outlined in the plan.
Orr also said he doesn't foresee issues with the mayor and council president having representation on a nine-member Financial Review Commission that will oversee city financial decisions and budgeting.
"I have seen no indication that either the mayor, the council or the CFO has any interest in not providing the commission with accurate information," Orr told Rhodes.
"You are not as concerned about the independence of the commission if the mayor himself is on it or the City Council president herself is on it?" Rhodes asked.
"I am not, your honor," Orr said, adding there's an understanding that the commission should be "robust and have representatives who understand city government from inside out."
Later Friday, Miller Buckfire investment banker James Doak testified about his role in compiling a list of city assets that could be offered up to satisfy creditors.
The restructuring finance expert said the process, which began in early 2013, resulted in a preliminary list that featured the Coleman A. Young Municipal Airport, Detroit-Windsor Tunnel, city-owned land, Joe Louis Arena and parking assets.
Several of the assets — parking, the tunnel and land — are components of the city's recent settlement with Syncora Guarantee Inc.
Doak noted that the tunnel was a "very unusual and irregular asset" and believed that executing a lease deal would be "extremely difficult."
When cross examined by FGIC attorney Ed McCarthy, Doak acknowledged that the city had not approached other entities or put out any formal requests for proposals in regard to the identified assets.