Art sale could benefit retirees
Next month, Detroit emergency manager Kevyn Orr will release the latest iteration of a plan to restructure the city’s finances and begin the long slog out of the largest municipal bankruptcy in American history.
It will be an exercise in carefully distributing the pain associated with decades of population decline, economic stagnation, poisonous racism, regional isolation, mismanagement in all corners and outright corruption.
Among the city’s most famous assets is a world-class art collection held in the publicly-funded Detroit Institute of Arts.
Some boosters have suggested the art should be kept in Detroit and the DIA spun off as an independent entity, with proceeds used solely to bail out pensions.
But such a move would be misguided legally and could hamper the city’s economic reboot.
Detroit is unique among major cities in having funded directly huge portions of its signature art museum’s existence, including its building, operations and many of its works.
The precise value of the collection isn’t known, but the auction house Christie’s appraised 2,800 city-purchased pieces – just five percent of the collection – at more than $800 million.
In other words, contained within the walls of 5200 Woodward Ave. are billions of dollars in assets that can be used to repay the city’s debts, both to pensioners and to bondholders, many of whom are retirees themselves.
Officials from the city, state, DIA and private foundations instead have offered a plan that would spin off the institute into an independent non-profit trust, in exchange for some $815 million in funding from state taxpayers and private interests.
Those proceeds would be earmarked solely for the General Retirement System and Police and Fire Retirement System pension plans.
This would turn bankruptcy law on its head, using an asset sale to pay off only one class of unsecured debt.
It is understandable why the emergency manager might seek to jump pensioners ahead in line.
After all, most pension recipients are honest, hard-working individuals who did their level best while union leaders and city officials broke their trust and mismanaged the funds’ assets.
But pensioners are not the only sympathetic figures in Detroit’s bankruptcy – and they are just one class who, under law, deserve to have their rights addressed.
The city’s pension debt is actually dwarfed by its unfunded retiree health care liabilities.
There are also thousands of vendors, from local markets to carpet cleaning operations, who are owed money.
And while no one has much sympathy for Wall Street giants who gambled on Detroit’s debt and lost, the sad reality is that jumping pensioners ahead of them in the payout line will likely carry serious negative consequences for the city, scaring off investors and raising the cost of borrowing the capital needed to rebuild.
Officials should instead embark on an honest legal assessment of which pieces can be sold or leased and then work with community figures and creditors of all types to arrange a deal to monetize as much of the art as is practical.
This likely would not involve emptying the building from stem to stern, nor should it.
Every untapped dollar that remains at the DIA represents a dollar that must come out of future pension checks of Detroit employees or a dollar in interest costs that taxpayers will need to pay investors to set aside their fears about loaning money to a struggling city.