Judge Approves Historic Detroit Bankruptcy Plan, Protecting Its Museum

The Detroit Institute of Arts (photo by Michael Barera, via Wikipedia)

Judge Steven Rhodes approved Detroit’s bankruptcy plan today, allowing the city to move out of insolvency in the coming weeks and slowly towards financial independence. Rhodes called the plan “fair and feasible,” the Detroit Free Press reports, “providing the legal authority for the city to slash more than $7 billion in unsecured liabilities and reinvest $1.4 billion over 10 years in public services and blight removal.”

The fate of the Detroit Institute of Arts (DIA) has been bound up with the bankruptcy from the beginning; fears were first raised in May 2013 over the possibility that the city would try to force the sale of artworks from the museum’s collection in order to raise cash. In response, US Chief District Judge Gerald Rosen brokered a deal dubbed the “grand bargain,” which Rhodes approved today; it involves a number of nonprofit foundations, the state of Michigan, and the DIA itself committing a combined $816 over the next 20 years to a fund that will be used to pay off some of Detroit’s underfunded pensions. In exchange, the museum will be spun off from the city into an independent institution (to protect it should situations like the current one arise again).

Pensioners and creditors were initially resistant to the grand bargain, arguing that an appraisal conducted by Christie’s on behalf of the city did not reflect the true value of the museum’s collection, but the pensioners voted in July to accept the plan. Regarding the financial creditors, among them bond insurers Syncora and Financial Guaranty Insurance Co., the Free Press explains:

But they dropped their objections after reaching settlements in the middle of a 24-day trial featuring 41 witnesses and 2,327 exhibits on the viability of the city’s plan of adjustment. Both wound up with cash and city-owned property as part of their settlements.

“On the one hand, the received wisdom has been that the judge was going to rule in favor of the plan, and so we are thrilled and delighted that that particular projection turned out to be true,” DIA director Graham Beal told Hyperallergic in a brief conversation about the ruling. “We took pleasure and pride that the DIA presented a very strong case, because this has been consuming us for well over 18 months now, and in the end you learn nothing is certain. Here we were in a situation where there was simply no precedent anywhere. [And] because the collection belonged to the city, we, the private organization that runs the museum, were not central to the legal proceedings. This was the city that was in court, not the DIA.”

Beal explained that all the details are in order to enact the grand bargain — including the museum’s independence from the city — and “at the first moment” after a potential legal stay, “we will file the papers, our contributions to the grand bargain will be put into place, and the deal will be done. In a matter of moments.”

“Now, when people give money or art to the museum, they know it’s going to the museum and there’s no chance of it getting tangled up in city business,” he added. But Beal also pointed out that, although the bankruptcy battle is won, the museum still faces a long road to financial health. “We had a tax passed in 2012 so that we wouldn’t need to rely on [those donations] anymore, and this whole thing has taken two years out of a 10-year campaign. We’re going against the clock right now — we just lost two years in which we were hoping to have raised a target of $200 million. It’s back on that treadmill.”

Hopefully Rhodes’s ruling will help bolster the DIA in those efforts. A reporter for the Free Press, Nathan Bomey, has been tweeting some of the judge’s comments on the grand bargain and the importance of the museum to its ailing home city:

Judge Rhodes on the grand bargain: “It is a vast understatement to say that the pension settlement is reasonable. It borders on miraculous.”
— Nathan Bomey (@NathanBomey) November 7, 2014

“This settlement resolves all of the disputes” regarding legal rights to Detroit Institute of Arts property, Judge Rhodes says.
— Nathan Bomey (@NathanBomey) November 7, 2014

ALERT: Judge Rhodes concludes that the DIA and the attorney general “almost certainly would prevail” in a fight to prevent the sale of art.
— Nathan Bomey (@NathanBomey) November 7, 2014

Judge Rhodes: “To sell the DIA art would be to forfeit Detroit’s future. The city made the right decision.”
— Nathan Bomey (@NathanBomey) November 7, 2014