The Detroit Institute of Arts and city workers unite against creditors
A landmark agreement regarding pension cuts could help resolve Detroit’s historic bankruptcy and safeguard its art collection.
Diego Rivera’s Detroit Industry murals, a series of frescoes depicting the automobile industry and workers from Ford Motor Company’s River Rouge Plant, shows the productive, hard-working American spirit during the Depression era. Located in the Detroit Institute of Arts’ (DIA) main hall since 1933, the artwork caused controversy when the artist’s Marxist leanings were brought to light.
Detroit leaders, including the commissioning Edsel Ford, stood behind the work even during the McCarthy era of the 1950s: “Rivera saw and painted the significance of Detroit as a world city. If we are proud of this city’s achievements, we should be proud of these paintings,” read a sign above the entrance to the museum’s Riviera Court.
These same murals, which were just awarded the status of a National Historic Landmark, and other city-owned works of art in the DIA’s permanent collection once again need protection. Detroit’s “creditor vultures” are pitting residents against each other in order to stave off any losses in the city’s municipal Chapter 9 bankruptcy case. The financial crisis has been inaccurately boiled down to an oversimplified black-and-white narrative of pensioners versus art.
The ongoing dispute is between Detroit’s retirees, firemen and policemen, who are not eligible for social security and understandably not willing to take cuts from their already small pensions—averaging less than $20,000. On the other side are museum supporters who want to avoid a fire sale of city-owned artwork. Detroit has few viable options to acquire the cash needed to pay off its approximate federal debt of $18 billion and the DIA’s first-class art collection is an asset worth between $421.5 million to $805 million, according to a Christie’s auction house appraisal.
Christos Michalakis, a union employee at UFCW Local 876 and President Emeritus of the Metro Detroit AFL-CIO, explained the contentious situation: “The city’s unions understand that cuts need to be made, but I cannot fault pensioners who worked their whole lives to earn modest pensions for wanting to sell off Detroit’s assets in order to make ends meet.”
After ten months of exhausting negotiations over pension cuts and Detroit’s eligibility for bankruptcy, pension board members and the city agreed in late April on a 4.5 percent cut to monthly checks—a number much lower than initially proposed—the elimination of cost-of-living adjustment increases, and no cuts to police and fire retirees. This new accord might allow Detroit’s financial restructuring to finally begin without selling off the DIA’s Van Gogh, Degas, Chagall, Monet, Kokoshka—to name a few—sculptures and paintings.
The Detroit Free Press’ Editorial Page Editor Stephen Henderson, who won the newspaper a Pulitzer Prize for his commentary on Detroit’s financial crisis, criticized creditors in setting up a zero sum game “by which the city shouldn’t be able to manage both interests.” He explained that the very efforts in protecting the art collection were also trying to come up with the best case scenario for the pensioners.
The plan of adjustment currently being negotiated is emergency manager Kevyn Orr’s so-called “grand bargain” initiative which would provide $816 million to Detroit and transfer ownership of the DIA from the city to a nonprofit organization; the money from the sale would be used to reduce pension obligations and other municipal debts. National and local philanthropic groups, including The Ford, Kresge and Knight Foundations, have pledged over $330 million and the DIA itself raised $100 million for the cause. Individual benefactors of the museum and the state of Michigan are also contributing.
Bondholders, however, continue to use the pensioners’ vulnerable position to their advantage and recently renewed efforts to find lucrative outside bids for the artwork. Led by Financial Guaranty Insurance Company, the bond insurers filed a motion with Detroit’s bankruptcy judge, Steven Rhodes, and presented four offers for a sale, each amounting to $1-2 billion which covers a lot more ground that the Christies appraisal value and the foundational plan currently being negotiated.
It’s a question of credibility and whether these offers are legitimate, explained Ken Gross, a bankruptcy attorney and radio host of metro-Detroit’s local “Financial Crisis Talk Center.” “It would be difficult for Judge Rhodes to turn away a true $2 billion dollar offer, but bondholders want money for themselves and we have to be skeptical of this kind of posturing,” he said.
There are a lot of strings attached to each of the four proposals and a sale could require months of litigation—not a desirable move for Judge Rhodes’ ambitious September deadline for completing the bankruptcy case. One option was a $2 billion loan from Art Capital Group with the DIA collection used as collateral. Aren't loans what sunk Detroit into this deep financial mess in the first place?
Two other $1 billion offers by Yuan Capital and Poly International are only concerned with vague portions of the museum’s collection. The fourth offer from Catalyst Acquisitions and Bell Capital Partners proposes $1.75 billion for “all assets held at the DIA,” a mouth-watering number for another ambiguous amount of art. Much of the city-owned collection was purchased with benefactors’ money and stipulations prohibiting a sale exist on many pieces.
Is it even legal to sell a city-owned art collection to pay off Detroit’s debts? In a nutshell, yes. But the legal precedence for a municipal bankruptcy case of this size is minimal. Chapter 9 cases differ from corporate Chapter 7 bankruptcy in that the court does not have the power to force a sale of assets. However, the court can dismiss plans deemed unfair if other options that could improve city services are on the table. Michigan voters would be another obstacle in a sale of the collection since their tax money helps keep the DIA up-and-running. In 2012 metro Detroit residents overwhelmingly voted in favor of a millage funding the museum.
Selling off a cultural landmark could have disastrous consequences on Detroit’s already bruised ego and the pensioner versus art rhetoric ignores the ultimate goal of filing for bankruptcy in the first place—to provide a future for an American city hit hard by the nation’s recession and decades of locally corrupt politics.
“Bankruptcy Judge Rhodes is focusing on long term solutions. A one-time cash infusion from the sale of the artwork is a short term fix and will not solve the issue of getting more revenues coming into the city than going out. ” Gross said.
Although plenty of hurdles remain, it looks like retirees and the museum are getting closer to finding common ground. After last week’s settlement agreement, Kevyn Orr’s plan was formally endorsed by pension officials representing general city retirees and police and fire personnel.
“The DIA is priceless,” Michalakis said. “For Detroiters, it’s where we have our first exposure to art. For those of us in the labor movement, Rivera’s Detroit Industry murals are iconic and prints can be found in pretty much every union office in town.”
The plan of adjustment must be approved by Judge Rhodes, and in May the city will mail voting packets to creditors who will cast ballots determining the outcome of a hearing scheduled for June on whether the plan of adjustment should be approved.
Following that, Detroiters can finally begin the real work in rebuilding their city.
