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Judge signals museum is crucial for Detroit's viability

September 18, 2014 | In the Press

From USA Today (http://www.usatoday.com/story/news/nation/2014/09/18/detroit-bankruptcy-trial-institute-of-arts/15816123/)

U.S. Bankruptcy Judge Steven Rhodes on Thursday signaled that he is viewing the value of the Detroit Institute of the Arts through the lens of the Detroit's future as the city works to emerge from Chapter 9 bankruptcy.

Rhodes asked Annmarie Erickson, executive vice president of the museum, how valuable the museum is to the education of children, to the social enjoyment of families who visit the museum, and for southeast Michigan as a whole.

"I think the museum is a very comfortable place, and I think it promotes conversations," said Erickson. "It helps people find connections with art, it helps people find personal meaning with art."

The question of whether the city of Detroit owns the museum and whether the city should sell some or all of the museum's most valuable works to pay off creditors, has been among the central and most controversial questions of the city's bankruptcy.

Ed McCarthy, who represents bond insurer Financial Guaranty Insurance Co. (FGIC), presented a number of documents during a bankruptcy hearing Thursday to show that the city owns the museum.

Though the DIA began as an independent non-profit in 1885, it quickly turned to Detroit for financial help and, in 1919, it became a city department. In 1998, the DIA regained full control of its operations and is charged with running the museum in accordance with industry standards. But the operating agreement, which runs through 2018, makes no specific provisions for a municipal bankruptcy.

"Has the DIA looked at the potential impact on the museum of renting or leasing its collection?" McCarthy asked.

"No," Erickson said. "We have not looked into that."

However, Erickson testified that if creditors force the city to sell the DIA's art, the bankruptcy case could get bogged down in additional lawsuits.

"We would be in litigation to protect the collection," Erickson said. "It is an obligation that we cannot shirk."

She also said that the museum and its art collection are inseparable.

"You cannot untangle the museum and the collection. They are one and the same," she said. "We are the collection. ... Safeguarding that collection ... is the foundation of what we do. We cannot unwind the two."

From the start of the bankruptcy case, Rhodes has made it clear that the city must prove that its bankruptcy plan will enable the city to be "viable," after it emerges from bankruptcy.

Experts argue that a "viable" city is not just a city that can deliver fire and police protection. "Viable" cities also must offer other services such as parks and recreation and cultural attractions if they are going to retain residents and attract businesses.

Michael Plummer, co-founder of Artvest Partners, painted a dire picture of the consequences if the museum would sell its most valuable or best-known works of art.

Artvest's report to the city, submitted in July, said that if the DIA's collection was liquidated to raise cash in Detroit's historic bankruptcy, it would probably bring in between $1.1 billion and $1.8 billion.

But if the museum is forced to sell its works of art, its reputation as one of the nation's top museums would evaporate.

"The items that are the most treasured in the museum are the ones that have the most commercial value," said Plummer. "So if you were to denude it of those most commercial items, you would diminish its reputation as an international institution with standing."

The DIA's "attendance would drop significantly. It would more or less fall off the map in terms of international individuals who would come to visit. It would most likely lose its donor base," Plummer said.

Donors would stop giving, Plummer said, because "they would feel their gifts are not being protected."

Plummer is testifying on behalf of the city, which has decided it does not want to liquidate the museum's art collection to raise funds for its bankruptcy. Instead, the city wants to spin off the DIA into an independent non-profit. In return, the DIA is raising $100 million to contribute to the city's restructuring plan as part of a rescue plan for the city that is often called the "grand bargain."

The grand bargain would allow Detroit to accept the equivalent of $816 million over 20 years from non-profit foundations, the state of Michigan and DIA donors — including the Detroit Three automakers — to help reduce pension cuts and transfer the DIA to a charitable trust. The deal includes $366 million in pledges from non-profits such as the Kresge Foundation and the Ford Foundation.

The city plans to argue that preserving the DIA through the grand bargain provides a way to pay a portion of its debts to creditors and allows the city the ability to improve its services after it exits bankruptcy.

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