Groups Pledge $330 Million to Save Detroit’s Art Collection

By Matthew Dolan for the Wall Street Journal

Update to an article I posted in December…

philanthropy, DetroitDETROIT—A judge has found a way for Detroit to sell masterworks by van Gogh, Bruegel and Michelangelo without letting them out of sight.

The proposal by the judge, who is mediating Detroit’s bankruptcy case, got a $330 million boost Monday after some of the nation’s leading foundations publicly pledged to try to prevent a fire sale of city-owned art.

The so-called grand bargain has attracted nine foundations that have promised to help pay the city and place the holdings of the Detroit Institute of Arts into the hands of a new nonprofit public trust. In turn, the city could use the proceeds to help make up the shortfall in its municipal pension system, estimated by Detroit’s emergency manager at $3.5 billion.

The concept was hatched by Chief U.S. District Judge Gerald Rosen for the Eastern District of Michigan. He was appointed mediator by U.S. Bankruptcy Judge Steven Rhodes in the city’s Chapter 9 case filed in July, with an estimated $18 billion in long-term obligations. A recent valuation of the city-purchased portion of the DIA collection estimated it was worth as much as $866 million.

In many ways, the philanthropic rescue mission tapped into the connection between the Motor City and some of the nation’s largest foundations, including the Ford Foundation, started by the family behind the auto maker.

“It’s extraordinary. Honestly, the magnitude is the kind of response that you only see in the wake of disasters,” said Larry McGill, vice president for research at the Foundation Center, a nonprofit that tracks patterns of foundation giving.

Judge Rosen has had separate talks with Michigan Gov. Rick Snyder, Detroit Emergency Manager Kevyn Orr and foundation presidents, people familiar with the matter said. The judge briefed foundation leaders in a conference call Saturday before releasing his first public statement on the fundraising Monday.

“We kind of feel the weight of history because it’s the biggest case of its kind and we feel the need to get it right,” said a person involved in the talks.

So far, the state hasn’t committed any funds for the plan, though Mr. Snyder, a Republican, expressed some support for the idea.

Mr. Orr said in a statement Monday, “This is a very important step, but there is still much work to do.”

Without a bailout, there is growing fear that potential lawsuits over a possible sale of the art and a dispute over cuts to pension payments would help tie up the Detroit bankruptcy case for months, if not years, people familiar with the matter said.

Originally, Judge Rosen estimated that the art deal required $500 million in outside support. But since meetings began in November, the judge has indicated that the number is expected to grow, according to two people familiar with the matter.

Leading the pack among philanthropic groups is Ford, expected to commit $125 million to save the art, according to two people familiar with the matter. Other pledges include $100 million from the Kresge Foundation of Troy, Mich., a group that developed an urban renewal master plan for Detroit last year, according to a person familiar with the matter. The Miami-based John S. and James L. Knight Foundation has promised $30 million, the largest gift in the group’s history, while the Michigan-based William Davidson Foundation has pledged $25 million.

But hurdles remain as the parties involved race to finish talks before the city completes a plan, expected as early as next week, to cut debt, pay off creditors and reinvest in crime- and blight-reduction efforts. In the past, Mr. Orr has said that all of the city’s assets, including its art collection, could be sold to pay creditors. Among philanthropic leaders’ outstanding concerns is a desire to protect a new regional tax that provides operating funds for the museum.

For the deal to work, unions and pension funds would likely need to agree on the shortfall in future pension payments and stop their legal challenges over whether the city is allowed to cut pension payments at all under the state Constitution. It is also possible that other creditors may balk at the deal, questioning why the city’s pension funds should be paid back while there is no deal to repay unsecured bondholders.

 

Source:  Wall Street Journal wsj.com

 

Patricia Annino is a sought after speaker and nationally recognized authority on women and estate planning.  She educates and empowers women to value themselves and their contributions in order to ACCOMPLISH GREAT THINGS in the world – and in so doing PROTECT THEMSELVES, those they love, and the organizations they care about.  Annino recently released an updated version of her successful book, Women and Money: A Practical Guide to Estate Planning to include recent changes in the laws that govern how we protect our assets during and beyond our lifetime.  To download Annino’s FREE eBook, Estate Planning 101 visit, http://www.patriciaannino.com.

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