The Detroit Institute of Arts in Detroit, The Thinker, a sculpture by Auguste Rodin is seen outside the art museum.
ASSOCIATED PRESS Enlarge
DETROIT — National and local philanthropic foundations have committed $330 million toward a deal that would help preserve the Detroit Institute of Arts’ renowned collection by bolstering the city’s employee pension funds, federal mediators involved in the city’s bankruptcy proceedings announced Monday.
A group including the Ford Foundation, the Kresge Foundation, and the John S. and James L. Knight Foundation have pledged to pool the money, which could essentially relieve the city-owned museum of its responsibility — estimated at millions of dollars — to help Detroit pay its debts in its federal bankruptcy case.
As part of the plan, which negotiators have been working on for months, the museum might be removed from city ownership and put under the state’s control.
But mediators stopped short of saying that an agreement had been reached with state officials or with the office of Kevyn Orr, Detroit’s emergency manager, who had said the museum must pay its share to help ease the city’s debt.
Mediators called the foundations’ agreement “an extraordinary and unprecedented effort to help resolve two very challenging sets of issues — the underfunding of Detroit’s two pension systems and the preservation” of the Detroit Institute “and its iconic art collection.”
Sara Wurfel, a spokesman for Michigan Gov. Rick Snyder, said the governor considered the announcement “positive news.”
But she was noncommittal on whether Michigan would contribute money, saying that “would be in partnership with the legislature” and require negotiations.
In December, Christie’s auction house, hired by Mr. Orr’s office to appraise part of the collection, put price tags on many of the institute’s masterpieces.
The auction house said that selling a group of some of the museum’s most valuable works would generate between $454 million and $867 million.
Mr. Orr has told the museum’s officials publicly that they must “save themselves” by finding a way to contribute money, possibly as much as $500 million, toward the city’s debt relief.
Some of Detroit’s largest creditors have contended in court that the museum, wholly owned by the city, is not an essential municipal asset and that valuable works of art should be sold to help pay those who are owed.
But the possibility of selling part of the city’s cultural heritage has enraged many, who say it would be a betrayal and would hurt Detroit’s long-term chances for economic revival.
Negotiations with the foundations were started in November by Judge Gerald E. Rosen, who is running mediation talks between the city and its creditors.
According to a source with knowledge of the talks, who requested anonymity, the announcement followed “marathon negotiations last week,” when city, pension, retiree, and foundation representatives met at a law office in New York City for five days. Mr. Orr attended the closed meetings at least one day, the source said.
“They really were intense,” he said of the discussions.
“I don’t think anything is settled yet,” the source said. “This is a conceptual deal. Until the deal is closed and until money is transacted, there’s no deal yet.”
The announcement indicated that the foundation money may cushion pension cuts the city is planning as it looks to address an estimated $3.5 billion pension shortfall.
Mr. Orr has called for “significant cuts” for city retirees, but unions have fought back fiercely, arguing that Michigan’s Constitution states that such pension promises “shall not be diminished or impaired.”
But last month, a federal judge dealt a major blow to the notion that public pensions can be protected in municipal bankruptcies, a ruling that is likely to resonate in cities with mounting debt.
The ruling by Steven W. Rhodes of the U.S. Bankruptcy Court made it clear that federal bankruptcy law trumps state law when it comes to preserving public employee benefits.
Unions and Detroit’s pension funds, which represent 23,000 retirees, quickly filed appeals. Bruce Babiarz, a spokesman for Detroit’s pension system, said he was optimistic about news of the foundation talks.
“We are pleased that the negotiations are proceeding,” Mr. Babiarz said. “We applaud Judge Rosen and the mediators for looking at creative ways to shore up the underfunded status of the pension funds.”