The state of Michigan made Detroit’s problems much worse by slashing revenue sharing. Wall Street sold risky financial instruments to the city, and those jeopardize resolution of this financial crisis. And frankly, the city government’s incompetence and mismanagement dating back decades has contributed to its woes. To return Detroit to long-term fiscal health, the city must find ways to increase revenue and get out of the financial quagmire that threatens to drain its budget even further.
In March, Michigan governor Rick Snyder appointed Kevyn Orr, a corporate bankruptcy lawyer, to be the city’s emergency manager, and Detroit filed for bankruptcy protection a little more than three months into his tenure. Michigan’s voters repealed the emergency manager law last year, but another law went into effect in late March that gave an appointed emergency manager the power to dismiss elected officials, sell off public assets, abrogate labor contracts, and impose new taxes on residents.
I lived in the Detroit area from 1965 until 1974, and again between 1986 and 2000. Although I never lived in the city, I worked at Wayne State University, a few blocks from the G.M. headquarters and adjacent to the infamous Cass Corridor, during those last 14 years. For about the last five of those 14 years, my office was diagonally across Woodward Ave. from the Detroit Institute of Arts (DIA). I used to go there nearly weekly to eat lunch in its lovely glass-roofed courtyard and see the art. Now it appears that there’s a concerted effort to loot this fine art museum to pay the city’s creditors. The rationale is that the city of Detroit owns the DIA, Detroit therefore owns a collection of expensive art, Detroit owes money, so Detroit should sell its art to pay its debts.
The Detroit Institute of Arts is one of the country’s oldest and best museums, and has been under threat since Kevyn Orr insisted that everything in Detroit is “on the table” to address the financial crisis. In the intervening months, salivating creditors have circled the museum while the institution has tried to keep them at bay. Some of Detroit’s largest creditors have contended in court that the museum’s collection is not an “essential city asset” and should be sold to help pay those who are owed money. Now, for better or worse, there’s a price tag on the collection. The same day the bankruptcy decision was issued, the auction house Christie’s released its appraisal of the worth of the DIA’s art collection at between $452 million and $886 million, although a few masterpieces displayed to the public, such as Pieter Bruegel the Elder’s Wedding Dance and Matisse’s The Window, account for as much as 75% of that estimate. This is a significantly lower amount than the $2 billion that was estimated informally last summer.
Selling even a small number of major art works in a “fire sale” scenario would create a depressed market for them. And even a small sale could lead to a mass departure of philanthropic donors who would be (justifiably) unwilling to give money to an institution that can’t guarantee the preservation of its art collection. More significantly from a fiscal perspective, it would wipe out around $22 million in tax revenue the DIA has received since three counties voted to support the museum with a tax millage in exchange for free admission.
There also are regulations governing American museums that expressly forbid the sale of artworks for any reason other than to acquire other artworks. Michigan’s attorney general issued an opinion in the summer that states specifically that such a sale would violate the law. This is not even to mention the insanity of treating artworks in the public trust as mere “property” to be sold off to pay bills.
A report by Demos, published in November, lays out some of the actual reasons for the city’s problems.
Detroit’s bankruptcy is, at its core, a cash flow problem caused by its inability to bring in enough revenue to pay its bills. While emergency manager Kevyn Orr has focused on cutting retiree benefits and reducing the city’s long-term liabilities to address the crisis, an analysis of the city’s finances reveals that his efforts are inappropriate and, in important ways, not rooted in fact. Detroit’s bankruptcy was primarily caused by a severe decline in revenue and exacerbated by complicated Wall Street deals that put its ability to pay its expenses at greater risk. To address the city’s cash flow shortfall and get it out of bankruptcy, the emergency manager should focus on increasing revenue and extricating the city from these toxic financial deals.
Selling the city’s art won’t accomplish any of that. I hope that effort is stopped, and the priceless art works in the DIA’s collection are preserved for future generations.