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Why The New Plan To Save Detroit’s Art Collection Could Help Turn The City Around

By Alan Pyke

"Why The New Plan To Save Detroit’s Art Collection Could Help Turn The City Around"

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Credit: ArtFCity

Credit: ArtFCity

Months of confidential negotiations with reluctant philanthropists have produced a $330 million fund that could be used to keep the Detroit Institute of Arts’ (DIA) world-renowned collection intact and accessible to the public, mediators announced on Monday.

When the proposal was first reported two months ago, sources told the Detroit News that they hoped to raise $500 million or more from groups like the Ford Foundation. The sum announced Monday is at the low end of what Judge Gerald Rosen, the lead mediator for negotiations between the bankrupt city and its creditors, had hoped to raise. The money will be used to purchase the DIA’s artwork, which is city property and therefore vulnerable to being sold at auction to raise cash to close Detroit’s multi-billion-dollar financing gap.

Keeping the city’s art collection whole and in Detroit could be a small but important piece of turning the city around. Urban policy experts told ThinkProgress that the city’s central problem will be consolidating its existing population and establishing the kinds of economic and cultural magnets that will help the city reverse its longstanding population decline. Art alone can’t do that, but it can certainly help, and selling off the city’s cultural heritage just to scrape together a one-time pool of money to pay creditors would make the city’s task even harder. Supporters of the deal have also argued that it would specifically protect the city’s roughly 24,000 retired workers from pension cuts.

There is still a long way to go before the DIA collection is safe from the auction block, however. One contributor to the art fund acknowledged the shortfall between Monday’s announcement and the city’s expectations. Negotiators still need to tackle “all sorts of really gnarly, complex issues,” according to Kresge Foundation head Rip Rapson, who added, “I don’t think anyone believes $300 million will satisfy the needs of legitimate competing interests.” Those competing interests include the hedge funds and banks that hold several billion dollars in Detroit debt, and 30,000 current and former Detroit public servants whose health care benefits are set to disappear come March as part of emergency manager Kevyn Orr’s proposal for moving Detroit out of bankruptcy.

The basic reality of Detroit’s bankruptcy is that the city’s creditors are battling to determine who will get paid and who won’t. Every dollar that gets sent to workers is a dollar that won’t be available to pay bondholders, and vice versa. By buying the DIA collection from the city and holding it in a trust that would continue to operate the museum for the public in the Detroit area, Monday’s deal would help the city in two ways. First, it keeps Detroit’s cultural future bright by taking away the city’s ability to sell the DIA collection into private hands. Second, it provides a chunk of money to help resolve some of the bankruptcy issues.

The official announcement of a dollar figure doesn’t answer the larger questions about how any final agreement would ensure that the money went to pensioners rather than Wall Street investors, however.

The retired workers are being asked to accept a more than 80 percent cut to the pensions and other benefits they were promised for their years of service, even though Detroit worker pensions are modest compared to other similar cities. Municipal finance experts believe Orr is exaggerating the scope of the pension funds’ problems. Orr used “very rough preliminary guesstimates” as the basis for his claim that the funds are $3.5 billion short, and official audits from late 2012 put the funding gap at less than $700 million. Still, the art museum fund announced Monday would be less than half of the conservative estimate of what the pension funds are owed by the city.

Without clear rules binding the DIA revenue to the pensioners, it seems likely that the money would end up going to investors rather than working Detroit residents. Orr’s team has sought to cut far more generous deals with banks than with retirees throughout the bankruptcy process, offering to pay two big banks between 75 and 82 cents on the dollar for one large chunk of debt even while trying to give retirees between 16 and 18 cents on the dollar.

Still, pension fund spokesman Bruce Babiarz struck an optimistic note following Monday’s news. “Any way the process can raise funds to meet its pension obligations, we’re in support of this,” Babiarz told the New York Times.

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