It’s an ambitious and unprecedented plan: $365 million from private foundations, $100 million raised from the Detroit Institute of Arts, $350 million from the state of Michigan, paid over two decades in $17.5 million annual appropriations. The funding is included in Detroit Emergency Manager Kevyn Orr’s proposed Plan of Adjustment, filed with the bankruptcy court last month, and seeks to ensure some funding for pensions so that the museum’s collection isn’t sold to pay retirees.
The $815 million deal is called “the grand bargain” and, as The Detroit News columnist Daniel Howes writes today,
It would cushion a harsh blow to city pensioners even as it would protect the DIA’s envied collection from the predations of creditors.
One of the deal’s architects is Chief U.S. District Judge Gerald Rosen who is acting as mediator in the bankruptcy case.
But it’s far from a done deal, and as the city’s bankruptcy case progresses, Orr is needing to secure terms of the deal, Howes writes. So is Gov. Snyder, who first proposed the state contribution in his budget presentation to the legislature’s Joint Appropriations Committee in February but has largely gone silent, at least publicly, on the plan.
Howes says the deal needs to be getting done in Lansing before bankruptcy proceedings get much further:
Put another way: any meaningful threat to the DIA fund and whether it can be used to bolster city pensions emanates from the state capitol, not bookish foundation heads or timorous board members unnerved by unhappy financial heavyweights in New York or the confrontation of a bankruptcy process unspooling with predictable rancor and litigation.
Judge Rosen’s audacious gambit to tie a DIA rescue to a public-private plan to bolster city pensions is still very much alive. But it won’t last in perpetuity because it can’t — a fact the city’s unions, pension funds and retirees ignore at their peril.
Pledged as part of the “grand bargain” that would allow the city to retain the Detroit Institute of Arts collection and better fund pension liabilities, the $350 million from the state has gone largely undiscussed since Gov. Rick Snyder included it in his 2014-2015 budget proposal in February.
The funds would be paid in $17.5 million installments over 20 years, the governor proposed, and would need legislative approval as part of a budget. And now, Snyder tells the Detroit Free Press, if that doesn’t come by May, it could not come at all.
…if the Legislature breaks for the summer without acting on the funding question, “that would make it extremely difficult, period,” Snyder told the Free Press.
Technically, the legislature could do a “Detroit deal” as a standalone bill, but usually that is much more difficult to get through. With legislators largely from out-state, widespread support for the deal seem unlikely at best. In addition, legislators might be waiting to see what concessions, if any, pensioners agree too.
“I’m really looking to them to take the point on this in terms of saying, can they come to some agreement?” Snyder said. “If there’s an agreement, then it would be a much better process to get through the legislative process.”
Clearly, the bankruptcy has lot of moving parts.
Revenue-sharing arguments heat up
A $6.2 billion “fiscal crisis”. That’s what a group of mayors and the Michigan Municipal League say the state created for local governments by reducing revenue sharing during the last several years, as reported by The Detroit News.
The Michigan Municipal League’s new estimates of lost sales tax revenue from 2003-13 included $732 million for bankrupt Detroit, $46 million for Warren and nearly $21 million for Troy. Officials also argued that, even allowing for years of fiscal shenanigans, Detroit might have avoided bankruptcy.
As Gov. Rick Snyder’s proposed budget includes provisions for contingent increases to some municipalities, the News piece presents what could play out this year — and how some municipal leaders view the options.
Readers of the Wall Street Journal gained some insight about Detroit’s bus situation. In a piece that highlighted the low rate of car ownership, the financial constraints related to the city’s bankruptcy and Mayor Mike Duggan’s early efforts to improve the system, the WSJ found:
…the burden falls to the city’s Transportation Department and its fleet of 460 buses. The aging behemoths ply 36 routes daily, with about 6,000 stops, and a workforce of nearly 1,200. During the past four years, the city has hired two private management firms to try to turn around its operations. But poor use of federal grants, below-average bus fares and high absenteeism among drivers has led to lower revenue, subpar service and higher costs, according to the city’s disclosure statement filed last month in bankruptcy court.
Will Emergency Manager Kevyn Orr manage to increase fares and obtain more federal funds to hire mechanics and drivers?
A recent poll suggests a majority of Michigan voters favor the proposal to provide $350 million in state funds over 20 years as part of Detroit’s post-bankruptcy finance plan. As reported by MLive.com, the poll was conducted in early March by a Grand Rapids-based public relations firm that has done pro bono work for the city’s emergency manager.
The poll, commissioned by public relations firm Lambert, Edwards & Associates and conducted by Denno Research, surveyed 600 likely voters around the state on March 8 and March 9 with a 4-percent margin of error. When asked if they would support the state aid proposal for the purpose of keeping pensions from taking more than a 34-percent cut, 61 percent of respondents said yes, 25 percent said no and 14 were undecided, according to results released Friday. When asked if they’d support spending the money for the purpose of protecting the Detroit Institute of Arts collection, 53 percent said yes, 30 percent opposed the idea and 17 percent were undecided.
The $350 million is part of the “grand bargain,” a deal to ensure DIA artwork is not sold and pensions are funded. Other components of the plan include $100 million from the museum and $365 million from foundations.
The Detroit Institute of Arts redesigned the space at Kresge Court to make it more of a tranquil, arty oasis and installed iPads for public use. The museum has a new concierge to help visitors navigate the museum and the city. A special exhibition called “Samurai: Beyond the Sword” opened earlier this month.
Are these events driving attendance at the downtown museum to record levels, or is it something else?
The free attendance for Macomb, Oakland and Wayne County residents after the successful 2012 millage is certainly helping, says Ann Marie Erickson, the DIA’s executive vice president who spoke with WDET’s Martina Guzman. Here’s the audio of their conversation.
The record attendance last year – 619,000 – is probably also a result of the publicity generated by the looming threat of selling artwork to finance the city’s debts in bankruptcy, Erickson admits.
“I think that increased it,” she says. “Being on the front page of the newspaper every day, being on all the radio and television stations, increases people’s awareness of the Detroit Institute of Arts and of our incredible collection, and many, many people have come in to see it.”
When was the last time you went?
What’s the status of the grand bargain to provide $865 million from the Detroit Institute of Arts, foundations and the legislature to maintain the museum’s collection? And what are the implications of the terms of the arrangement? The Detroit Free Press’s Mark Stryker explores those questions and more in this piece.
Speaking of the DIA, the city reached a deal last week to borrow $120 million from Barclays to use for services and restructuring efforts. The new loan agreement has the city pledging income tax revenue and “the proceeds of future asset sales, except for Detroit Institute of Arts property,” the Detroit Free Press reports.
State law requires that Detroit pays accident victims, and spokesman Bill Nowling says the city is complying. “Over the last year, the bankrupt-city has paid $7 million in claims to cover, in part, medical bills and lost wages for plaintiffs injured in accidents involving city vehicles,” the Battle Creek Enquirer reports. Where is the money coming from and what would the consequences be for not paying? Read the article here.in DIA
“Keeping your audience abreast of a complex financial deal is hard work,” The Detroit News writes today, continuing,
Detroit Institute of Arts director Graham Beal puts his shoulder to this in his latest letter in the museum’s online newsletter. It meticulously reviews the terms of the proposed “grand bargain” in Detroit’s bankruptcy, and then rebuts some critics even as it airs some of the museum’s own complaints about its predicament.
The city’s Plan of Adjustment assumes not only that the DIA will raise and contribute $100 million toward Detroit’s pension funds but that the state will chip in $350 million over 20 years to go along with a $365 million commitment from a group of foundations.
See what DIA Director Graham Beal is telling members…and the world about the deal.
The last day of February was the deadline for creditors to object to the ambitious schedule set by Bankruptcy Judge Steven Rhodes for Detroit’s case. And object they did.
Reuters reports that one creditor, Syncora Guarantee Inc. “warned that lawsuits will be filed over the Detroit Institute of Arts’ collection, which the city is not selling at this point to help pay its $18 billion in debt.” In its filing, Syncora also threatened a long legal battle over the Detroit Institute of Arts collection, according to The Detroit News.
While all that was going on in federal court, the city was mailing ballots to 170,000 creditors, the Detroit Free Press reports, seeking their approval on the Plan of Adjustment filed Feb. 21 and how it would restructure the city’s debt.
Also Friday, citing the millions of dollars it would cost the city, Judge Rhodes granted the city’s request to disband a creditors committee, set up by the U.S. Trustee in December. The panel included bond insurer Financial Guaranty Insurance Co and the city’s two pension systems.
Earlier this week, our Detroit Journalism Cooperative partner through New Michigan Media, The Michigan Citizen, analyzed the Plan of Adjustment finding:
Activists say what is most significant in Orr’s plan is the transfer of assets, which includes Belle Isle, the Detroit Institute of Arts and Detroit’s Water and Sewerage department. The plan protects the banks, but does little to adequately improve city services or improve quality of life for Detroit residents.
On the National Public Radio program “Tell Me More,” Host Michel Martin spoke with Detroit Free Press columnist Rochelle Riley about the city’s bankruptcy. They tackled the Plan of Adjustment, the Disclosure Statement and what everything means for residents, pensioners and the city in general. “The biggest highlight of course, is there’s going to be a horrible pension cut…. This is something people are very, very upset about,” Riley said.
During the conversation, Riley said no one appears to be very happy with the plan, and it’s becoming a matter of choosing sides. “The art lovers are outraged that there’s still a possibility that the DIA is not safe because this deal is not a done deal yet,” she says. “Folks are still trying to figure out which side of things they’re on, art versus pensions. Doing this bankruptcy at all versus not doing it. There are still legal challenges to the bankruptcy itself and whether Detroit had to do this.”