Displaying items by tag: pensions

Less than two weeks after a federal judge approved Detroit’s historic bankruptcy plan, the Detroit Institute of Arts (DIA) has raised nearly 90% of its $100m goal to support the city’s regeneration. The museum has secured $87m in pledges toward the so-called Grand Bargain, an $816m scheme to support Detroit’s pensions and permanently transfer ownership of the DIA’s city-owned art to the museum.

The day before the judge’s verdict on 7 November, the DIA announced that 21 Japanese businesses with branches in Detroit, including Mitsubishi and Panasonic, had pledged $2.2m. Three-quarters of the money will go toward DIA’s commitment to the Grand Bargain, while the remaining 25% will help fund a long-planned but previously stalled reinstallation of the museum’s Japanese collection in a new gallery.

A federal judge approved Detroit's bankruptcy plan today, allowing the city government to hit the reset button after its years of financial mismanagement. As part of the deal, which took a relatively speedy 16 months to complete, the city is eliminating $7 billion worth of debt—some creditors will be paid just 14 cents on the dollar—while slicing pension payments to its retired workforce by 4.5 percent (and ending their cost of living increases, and upping their health plan costs, and ... you get the idea, it's unpleasant). Meanwhile, the blueprint sets aside $1.7 billion over the next decade to cover critical needs, like demolishing abandoned homes and buying new fire trucks and ambulances.

As many outlets are noting, the bankruptcy could have been far lengthier, and even more painful for retirees, had it not been for an unusual deal designed to save the Detroit Institute of Arts while minimizing cuts to pensions.

The $816 million art-for-pensions deal that is designed to preserve the Detroit Institute of Arts collection is fascinating, imaginative and clever. But it’s almost certainly illegal. And I’ll show you why.

Were it legal, the deal would help solve two very big problems. The first is Detroit’s radically underfunded pensions, which are at least $3.5 billion in the hole, by the reckoning of Detroit Emergency Manager Kevyn Orr. Simple economics says that Detroit needs to slash these obligations. But the pensions are not lavish, and thousands of retired Detroiters depend on the pensions for their daily bread.

Supporters of the Detroit Institute of Arts have offered to donate $330 million to help pay a portion of the city’s bankruptcy debt and save the museum’s finest works from being sold at auction. The donors would like the funds to go to retirees, whose pensions may be cut by as much as $3.5 billion. In exchange, the Detroit Institute’s collection would be protected in any bankruptcy settlement. A statement e-mailed to the U.S. District Court in Detroit said, “All recognize that if these two goals can be accomplished, a third absolutely critical goal of facilitating the revitalization of the city in the aftermath of the bankruptcy will be greatly advanced.”

Detroit filed for bankruptcy in July 2013 and the city is currently over $18 billion in debt. Following the filing, Kevyn Orr, Detroit’s emergency manager, asked Christie’s to appraise the 2,781 city-owned works housed in the Detroit Institute of Arts. The auction house estimated the works to be worth anywhere from $452 million to $886 million.

The Institute has opposed any sale, stating that its art is held in a charitable trust and cannot be part of any auction to help pay Detroit’s substantial debts.