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The Detroit Institute of Arts appears to have dodged the first bullet in the showdown between City of Detroit’s emergency financial manager, Kevyn Orr, and the city’s creditors. In a meeting with bondholders, city union representatives and other stakeholders on 14 June, Orr did not include objects from the DIA’s stellar collection of some 50,000 works in his plan for reducing Detroit’s approximately $20 billion in debt and other liabilities.
But, although Orr made no mention of monetizing the DIA’s holdings, the Detroit Free Press reported that his long-term plan does not preclude a possibility of the museum’s being asked to ‘contribute revenue as part of the restructuring plan as it evolves’.
In May, the US museum community and supporters of Michigan’s cultural institutions expressed outrage when Orr told DIA officials that he needed a complete collection inventory as part of his preparations to negotiate with the city’s numerous creditors. Unlike most American museum collections, the objects held by the DIA are owned mostly by the city. Hence, they are considered an asset and would be threatened with sale, should Detroit enter into what is know as Chapter 9 Bankruptcy.
Federally administered, Chapter 9 Bankruptcy does not provide for liquidation of a municipality’s assets in order to pay off creditors. This is because the Tenth Amendment to the US Constitution limits federal interference with the sovereignty of individual states and their municipalities. That said, a bankruptcy judge can recognize creditors’ refusal to accept other means of repayment, thus effectively compelling eventual sale of assets, including city-owned artworks.
Orr said he does not want to bring Detroit into bankruptcy but would prefer to settle its debts in direct negotiations with banks, city unions and others. He offered lenders and bondholders – among them J.P. Morgan Chase & Co., the Royal Bank of Canada, Bank of America and several hedge funds – about 10 cents on the dollar in compensation. Orr also told union representatives that employee pensions and health care will be cut, as part of restructuring Detroit’s finances and services.
A Washington DC attorney specializing in bankruptcy, Orr was appointed in early 2013 by Michigan Governor Rick Snyder to address Detroit’s finances, when municipal government proved incapable of doing so. Both Orr and Snyder have said they do not want to see the collections sold.
In a formal statement, DIA executive vice president Annmarie Erickson recognized that Orr and Snyder are doing ‘everything in their power’ to ensure Detroit’s long-term vitality. ‘We are confident that they understand that maintaining the DIA and its world class collection are essential to that vision for Detroit’, Erickson said.
In related news, the Michigan State Senate passed a bill to protect the museum’s holdings from sale in the event of bankruptcy: this codifies American Alliance of Museums guidelines, which state that objects cannot be sold for purposes other than to strengthen a museum’s collection. On another front, the state legislature also passed bills prohibiting communities from diverting millage tax monies (i.e. local taxes raised for a particular purpose), intended for the DIA, to other local projects; Governor Snyder is expected to sign those bills into law.