Feb. 21--The fate of the Detroit Institute of Arts remains in limbo in the wake of today's release of Kevyn Orr's restructuring plan for Detroit's finances.
While Orr's plan incorporates the fundamentals of a much-talked-about deal to prevent the forced sale of any masterpieces and spin off the city-owned museum into an independent nonprofit, several critical steps remain before a final settlement would guarantee the museum safe harbor in Detroit's historic bankruptcy.
Most critically, city pensioners still have to sign off on the details of the so-called grand bargain that promises them a rescue fund of some $815 million and the state legislature has to approve up to $350 million that would be included in the fund. With each component of the grand bargain contingent on the other, the DIA still remains something of a pawn in a massive chess board laid out in Orr's plans to reshape Detroit's finances and services to residents.
In other words, as that noted bankruptcy expert Yogi Berra once said, "It ain't over 'til it's over."
"There will be negotiations continuing for weeks," said Laura Beth Bartell, a bankruptcy law professor at Wayne State University. "This is not the final plan of adjustment. They were will changes to the figures, changes to lots of things, there could be completed litigation that resolves open issues. All of this is flux."
A federally mediated grand bargain has been in the works since November that would funnel the $815 million into shoring up at-risk city pensions over the next 20 years, including $365 million from national and local charitable foundations, $100 million raised by the DIA and a proposed $350 million from the state of Michigan. But as Orr's restructuring plan makes clear, the deals remains conditional on city pension representatives accepting the financial details of what Orr calls the DIA Settlement, including "appropriate governance and financial oversight mechanisms for the retirement systems."
Groups representing pensioners and retirees remain in negotiations with U.S. District Judge Gerald Rosen, the federal mediator in the bankruptcy. At the same time, legislative approval for state dollars, which experts say is by no means a done deal, likely remains weeks or months away -- if it's going to happen.
DIA leaders are hopeful that the the pensioners and the state pieces of the puzzle will fall into place and issued a statement that praised Orr's plan as a "win-win-win" that would help ensure the city's quick exit from bankruptcy, benefit pensioners and safeguard the museum and its collection. But should the deal fall apart and the DIA finds itself directly threatened by Orr or creditors anxious to liquidate its assets, the museum won't hesitate to take legal action.
"We feel like it's great deal for pensioners, the DIA and the city," DIA chief operating officer Annmarie Erickson told the Free Press last week. "If this is litigated it could drag out for years. We are ready to do that if we have to in order to protect the collection, but it's our hope that it will not occur."
The plight of the DIA has been a central narrative of Detroit's bankruptcy. Because the city has few assets it can leverage to raise cash and the museum's multibillion dollar collection is owned by the city, creditors have been eying the art for months. Orr maintained he could not take the art completely off the table and still submit a restructuring plan that U.S. Bankruptcy Judge Steven Rhodes would approve as fair. Rhodes must weigh whether a plan is feasible, equitable and ensures that the city has a viable future, which could include leaving cultural assets like the DIA off limits as critical to the city's identity.
DIA leaders and supporters argue that the forced sale of any of the museum's irreplaceable treasures would permanently cripple the institution, causing donors to flee and and pushing political leaders in Oakland, Wayne and Macomb to rescind the voter approved property tax millage that provides some $22 million in annual funding, about 70% of its budget.
Orr's DIA Settlement includes the condition that the counties continue to collect the millage for the DIA. It also conditions the settlement on the the existence of governance and oversight structures at DIA including representation of the city, funding partners and other stakeholders. In practice that could mean the museum might add new members to its board of directors, create an advisory board or other arrangements. Details are currently being hammered out in negotiations among lawyers representing the city, DIA and foundations.
Spearheaded by Rosen, the federal mediator in the bankruptcy, the so-called grand bargain has come came together as a way of raising hundreds of millions to reduce pension cuts for Detroit retirees on behalf of the DIA. The deal was designed to solve two of the thorniest problems in the bankruptcy: pensions and paintings. In exchange, no art would be sold and the museum would sever its ownership ties with the city, ensuring that its collection would never again be put at risk by the city's troubled finances.
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Rosen's mediated rescue fund has been widely seen as clearing a path for faster and less contentious resolution to the bankruptcy, but substantial hurdles remain. At the top of the list is the willingness of pension representatives, who remain in mediation talks with Rosen, to join the bargain. The essential question facing them: Do they want to take the $815 million being offered to help plug their unfunded liability (estimated by Orr to be roughly $3.5 billion) or try for a better deal in court, which as Bartell noted, would have to involve the liquidation of the DIA.
"That's the only better deal there is," she said. "There are no other assets. Would Judge Rhodes force the liquidation of the DIA? It's my assessment that he's not going to force Kevyn Orr to liquidate the DIA if the pensioners say no to the grand bargain. I think what they're probably doing is trying figure out how to divvy up the money that's in the grand bargain and whether to fight about the control of the pension board, and whether they're willing to concede they've overestimated the returns."
Gov. Snyder has made clear that the state's willingness to contribute to the rescue fund would be conditioned on greater oversight of the pension boards covering retired police and firefighters and other city employees, though Snyder has indicated he is not advocating for a state takeover.
Last month DIA leaders agreed to raise $100 million over 20 years for the rescue fund. The pledge -- which promises to be a significant challenge for an organization already committed to raising hundreds of millions of dollars for operations and endowment -- came after months of intense pressure from Orr to contribute $500 million or more to city coffers. As part of the deal, the DIA would be contractually forbidden from ever moving its building or collection from Detroit, and it would continue to be bound by museum world ethical standards that prevent the sale of art to raise funds for any reason other than enhancing the collection.
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The DIA has long argued that its collection can't legally be sold. It says even though its building and art are technically owned by the city, they are held in the public trust -- a reading of the law endorsed in a formal opinion by Michigan's Attorney General. Still, bankruptcy and art law experts have said the opinion might not hold up in court.
Other creditors, including bond insurers and banks, have argued that shielding the DIA's art is unfair given the magnitude of the city's $18 billion in debt. They further contend that Orr has drastically undervalued the collection. Orr hired the New York-based auction house Christie's to estimate the fair-market value of about 2,800 city-purchased works. That report estimated the value of the art at $454 million to $867 million.
But those works represented only 5% of the DIA's collection -- works the city bought directly, mostly during the 1920s and early '30s, and would presumably be easier to sell because they are not shielded by donor restrictions or other legal complications prohibiting sale. Creditors have pointed out in court that all 66,000 works at the DIA are owned by the city no matter how they entered the collection. Some experts have said that entire collection is worth billions.
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