Private foundations could provide half a billion dollars to protect Detroit’s art collection from the auction block, and in the process help partially shield Detroit retirees from the financial fallout of the city’s bankruptcy filing, under a plan floated last week. The proposal from Chief U.S. District Judge Gerald Rosen, the official mediator between the various parties in the city’s financial dispute, would help grease the skids for Detroit’s bankruptcy to proceed.
The plan was proposed last Tuesday and first reported Thursday by the Detroit News, but many details remain unclear. At a November 5 meeting, Rosen reportedly suggested raising “anywhere from $300 million to $500 million or more” in private funds from nine major philanthropic foundations, including the Ford Foundation, the Knight Foundation, and the Kresge Foundation. That money would be used to create a nonprofit charitable trust that would buy the Detroit Institute of Art’s collection from the city, taking the art off the bankruptcy table and injecting hundreds of millions into the city’s pensions.
Details of the legal mechanism that would ensure the money made it to retirees rather than being diverted to other purposes — either services for the impoverished city or repayment of investors and other creditors who are competing with pensioners — were not clear from the Detroit News report. But Rosen framed the idea as an answer to concerns about “two looming obstacles” that “could bog down the bankruptcy with years of contentious litigation,” namely the future of the city’s beloved and publicly-owned art collection and the future of its retirees.
Tens of thousands of retired Detroit city workers have already been told they are losing their health care this winter, which leaves some retirees to choose between pills and food. Emergency manager Kevyn Orr has pledged to cut pensions even for current retirees if the bankruptcy proceeds, which Judge Steven Rhodes will decide soon. That decision hinges on whether or not Orr and his team made a good-faith effort to negotiate a non-bankruptcy solution with retirees, which does not appear to be the case based on multiple emails and testimony from state officials.
Regardless of the details or the ultimate outcome of Judge Rosen’s private funding proposal, there is still the question of why Orr used “preliminary guesstimates” that claimed pensions faced five times as large a funding gap as official audits found. The city had previously believed it was about $650 million shy of fully funding its pensions — meaning they were funded at roughly the national average level — but Orr’s contractors reported a funding gap of $3.5 billion. That number is the basis for Orr’s proposals for dealing with retirees in bankruptcy, and any plan that feeds private money for retirees into the bankruptcy resolution process would need to grapple with the “pension voodoo” and fuzzy math the city manager is using in order to establish just how much money it will take to honor commitments to retirees.