Detroit’s chapter 9 bankruptcy is the largest municipal bankruptcy case in history. Many unique issues surround the case, but perhaps the most intriguing is the fate of the formidable collection of master artworks owned by the city and held in the collection of the city’s museum, the Detroit Institute of Arts, locally known as the DIA.
The case pits two competing public policy concerns: the legal requirements of the Congressionally-mandated bankruptcy scheme versus the cultural, social and historical value to Detroit and its people of an important collection of artwork. What’s more important: the pension funds contracted-for and earned by Detroit workers, or the trove of art that provides value to a community beyond mere temporal needs? The bankruptcy court is a court of equity and the judge will no doubt seek to balance these competing interests to arrive at a fair solution. However, as in most business matters, money talks.
Significant works by Rembrandt, Bruegel the Elder, Rivera, van Gogh, Matisse, Monet, Degas and others reside in the DIA. In advance of the bankruptcy filing, Detroit’s emergency manager hired Christie’s to appraise the city’s paintings, sculptures, silver, furniture and drawings. Christie’s valuation came in between $464 million and $867 million, a huge swing between the two amounts. Chapter 9 bankruptcy requires the city to put together a plan to pay its creditors at least the value of those assets, and the creditors, who assert total debt approaching $18 billion and which include bond insurers, European banks, Detroit’s retirees and labor unions, get to vote whether to accept or reject the city’s reorganization proposal.
While chapter 9 bankruptcy does not permit a judge to order the city to liquidate its assets to raise money for its creditors, the judge can refuse to confirm Detroit’s reorganization plan if the creditors do not approve it, which will result in a dismissal of the case, with the city’s intractable financial problems unresolved. In the event, Detroit may have little choice but to sell its artworks to raise capital unless another funding source arrives. For a city that cannot even afford to keep its street lights on, there is little hope for an internal cash infusion to save the art.
Earlier this week, a white knight appeared to ride in to Motown, as a group of local and national philanthropists announced they had obtained commitments of $331 million to save the city’s art and art museum. However, this sum falls well short of Christie’s appraised value, and the creditors are challenging what they consider to be Christie’s low-ball valuation. The creditors believe the appraisal failed to include all city-owned artwork, and based on other independent appraisals, they assert the collection’s value approaches $2 billion. While officials close to the case have indicated that as much as $500 million may be required in order to save the collection, if the creditors are successful and the court determines the collection is worth substantially more than the Christie’s estimate, $500 million will be inadequate to resolve the issue.
Still, the efforts of this philanthropic coalition are unprecedented and indications are that additional commitments will be forthcoming. In addition to philanthropic assistance, there are calls for the State of Michigan to pony up significant resources, as the art collection also has significant importance to the State.
Many cities have come to regret the short-sighted destruction of their cultural treasures, but try telling this to a pensioner trying to survive on Social Security alone. Here’s hoping that Detroit, like New York City (Grand Central Station) and Atlanta (the Fox Theatre) before it, can marshal the public will to save the DIA and its collection of master works. In the meantime, we await the court’s ruling on the creditors’ claims that the artwork has significantly greater value than Christie’s has opined.