Detroit's Art Is Spared as It Exits Bankruptcy

Detroit took a big step in rebuilding today, as a judge approved the city's plan to exit bankruptcy. The move ends the largest public filing in the nation's history. "The court confirms the plan," Judge Steven Rhodes said just moments after he entered the courtroom. The bankruptcy suit stretched on for about 16 months and Rhodes was left to either fully reject or approve the plan. "This city is insolvent and desperately needs to fix its future," Rhodes told reporters.

The Associated Press reports the success of the case "was largely due to a series of deals between Detroit and major creditors, especially retirees who agreed to accept smaller pension checks after the judge said they had no protection under the Michigan constitution." Pensions will be cut 4.5 percent, $7 billion of debt will be erased and $1.7 billion will be spent to rejuvenate the city, including removing decrepit buildings and improve public services.

The Detroit Institute of Arts (DIA) will be kept intact in accordance to the plan, after discussions arose to auction off the numerous valuable works in the museum, which Christie's valued at $867 million. When these discussions began, the museum made it clear it would fight in court to protect its art from auction. Rhodes felt the museum's argument "almost certainly would prevail" if the dispute went to court, luckily, a legal battle will now be avoided. Under the approved plan, the museum will be given "new, bankruptcy-proof ownership." Those affiliated with the museum are thrilled, an employee who didn't want to be named told Newsweek that a celebration was not set yet but that she was extremely happy with the results.

Graham W.J. Beal, the director of the DIA, told Newsweek, "For a while there, it look as if the museum could be in the position of having to fight. The museum is run by a private charity on behalf of the city, and the city owned the art, but it would have to cancel the contract with the private organization. It was one unpleasant scenario. In a weird way, because of the quirks of history, the DIA's collection had become vulnerable because it belonged to the city. In 1919, it was bound to the city to secure the art, so it was clear the idea was it would make the museum completely safe: It was part of the city, and the city was doing well. But it didn't stay that way." The museum began discussions with Rhodes and his associate a year ago. "We were suddenly all on the same side," Beal said, explaining how productive the meetings were. "We have all been working very hard to get grand bargain implemented and approved. This, for me, is just remarkable and fantastic."

While the museum is thrilled it has a future in Detroit, it now has a great deal of work, particularly fund-raising, to do. "We are unbelievably happy, pleased, thrilled, revealed, but we have lost two years of what was a 10-year plan in which we planned to build an endowment to make us financially independent. Not only have we lost those two years, as part of the grand bargain, we have to raise $100 million, which we have almost completed," explained Beal. "We are trying to get our endowment to over $400 million, it is currently over $100 million. We now have our work cut out to make sure the museum's current financial stability becomes a long-term financial stability."

Arthur O'Reilly, lead litigator for the DIA, explained the significance of the decision by Rhodes to save the museum to Newsweek, "The court's decision is a watershed moment in the history of American charitable trust jurisprudence. This bankruptcy case involved one of the largest and most significant trust disputes, pitting the interests of municipal creditors against the interests of past and present beneficiaries of the DIA and its art collection. By confirming the plan and the grand bargain, the court validated the position of the DIA Corp. that charitable donations must be respected and affirmed the requirement under charitable trust law that donor intent and the rights of the charitable beneficiaries be considered." The museum's general counsel, Alan S. Schwartz, echoed O'Reilly, calling the decision a "historic event."

The deal "will allow the city to accept $816 million over 20 years from nonprofit foundations, the state of Michigan and DIA donors to reduce pension cuts and save the museum as an independent institution," reports the Detroit Free Press. The nonprofit foundations issued a statement after the ruling, "It would not have been possible without the leadership and sacrifice shown by Detroit's hardworking retirees and public sector unions, whose continued commitment to a better Detroit should be honored and acknowledged today. Today is a day of determination for Detroit. With Rhodes's confirmation, the city and its residents can focus on the important tasks of rebuilding institutions, repairing communities, reinvigorating the economy and restoring the trust of its citizens."

General Motors, a staple business in Michigan's economy, told reporters, "Judge Rhodes's decision is historic and a validation for everyone who has been committed to Detroit. Working together, we can transform the city and you can see clear progress in the restoration of downtown, the entrepreneurs who are flocking here, the massive building projects getting underway and the work being done to improve education, neighborhoods and city services."