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Detroit Bankruptcy and the Detroit Institute of Arts

posted by Linda Downs — Oct 29, 2013

The panel discussion on the sale of the collections of the Detroit Institute of Arts (DIA) presented on October 24th in New York City and organized by the International Foundation for Art Research (IFAR) raised many of the issues that characteristically surround a major art museum situated and owned by an economically ailing major city: economic necessity and the economic divide; the professional responsibilities of the state, the city, and the museum staff and board; the test of the concept of works of art held in the public trust; the politics of a Republican governor and a liberal African American city; moral responsibilities of museums and their communities; the nature of the intent of art donors and the future of gifts to museums; and the expectation that major donors and foundations should solve the city’s bankrupt state.  The speakers were Graham Beal, Director of the Detroit Institute of Arts; Sam Sachs, former director of the Detroit Institute of Arts and President of the Pollock-Krasner Foundation; Frank Robinson, retired Director, Herbert F. Johnson Museum of Art, Cornell University; and Richard Levin, Partner & Head of Restructuring Practice, Cravath, Swaine & Moore LLP.

The DIA has become the central issue in the media of the City of Detroit’s bankruptcy. The museum’s rocky economic history with the city and the state was presented by past director Sam Sachs. The museum was founded in 1885 by a group of private citizens called the Founders Society. As early as 1919 the Founders merged with the City by ceding the collections in return for city-supported maintenance. Over the years the city support decreased and the Founders sought assistance from the state. That support reached a high point of $17 million in 1985. By 1991 the state support was cut in half. In 1997 the museum was reprivatized so that the city retained the collections that were supported through city funds but most other support was provided by the Founders Society.

The irony of this present controversy is that the DIA has never been in better fiscal shape nor has its audience, thanks to new educational initiatives, been so diverse. The DIA raised $360 million in the past few years and in 2012 three suburban counties adjacent to Detroit approved a tax to support the operating costs of the museum for the next 10 years. However, the counties have already publicly stated that they would withdraw this support if the DIA’s collection is sold. According to Beal, this would essentially cause the closure of the museum.

The museum director, board members, administrative staff and lawyer have been prevented from meeting with the governor, the emergency manager or the attorney general of Michigan, who has already issued the decision that the DIA is a public trust and cannot be sold. A proposal to shift the ownership of the DIA from the city to the state has been blocked by the state legislature. Thus, the DIA leaders have been, as Beal said, “treated with disdain” by those in political power and have had to rely on the media and hearsay for information. The only contact they have had with the emergency manager’s office was his request for an inventory of the collections. When the DIA complied with a 1,640-page list of objects in the collection (using 10-point type and single-spaced formatting) the emergency manager’s office realized the complexity of the issue.

The DIA legal counsel, Richard Levin, made it clear that, according to municipal bankruptcy law, the state, not the federal government, has authority. In this case, the governor of Michigan appointed an emergency manager, Kevyn Orr, to oversee the city’s finances; he is the sole decision-maker on the preparation of a plan to sell assets, pay creditors and bring the city back to solvency. The current court case in the Eastern District Court of Michigan that was brought by the unions and pension fund managers questions the validity of declaring bankruptcy in the first place. The governor, attorney general and emergency manager will be called to testify. Levin emphasized that municipal bankruptcy proceedings usually go into settlements and that the settlements take so long that, “the patient usually dies on the operating table,” and as Beal stated, “a dead DIA is exactly the opposite of putting the city back on a good course.” The Oakland County manager, Brooks Patterson, told Beal that in order to attract corporations and investors to their county in competition with other major cities like Boston and Chicago, he talks about the one asset that downtown has, which is the DIA.

In the meantime, Christie’s appraisers continue to assign dollar values to works of art at the DIA. Their work will be completed soon. The accuracy of their valuation was questioned by an audience member, given the fact that many of the masterworks have not changed hands in many generations and there are no comparable figures to rely on. And the concept of a swift auction of hundreds, if not thousands, of works of art is unrealistic. Ultimately, the proceeds from such a sale would satisfy only a small percentage of the city’s debt.

Audience members asked what they could do to assist the situation. The petition that originated with Jeffrey Hamburger at Harvard University still is being circulated and IFAR asked that people sign it. CAA has circulated this electronic petition to members and it remains on the CAA website for those interested in signing it. Beal would prefer to absent the DIA from the center of this controversy since there are several other possibilities of relieving the city’s debt. The last rumor that Beal heard was that the emergency manager has taken the collections off the bankruptcy table.  Meanwhile the work of a great museum continues.

Correction

Graham W. J. Beal, director of the Detroit Institute of Arts, wrote that Gene Gargaro, the DIA’s chair of the board, has had three meetings with the emergency manager’s lawyer and the restructuring specialist. The first meeting was with Gargaro alone, the second with Beal and the museum’s top attorney, and the third with the DIA’s chief operating officer, top lawyer, and bankruptcy adviser (panelist Rich Levin). The tenor of the meetings was driven by the emergency manager’s people’s persistent demand that DIA come up with about $500 million.