Detroit now has a great opportunity to make bold decisions to transform the way city government does business, change its spending habits, improve its revenue prospects and better serve us citizens. Bankruptcy is the only way to fundamentally change the way Detroit does business. Without it, Detroiters and Detroit’s creditors will continue to languish and the future will remain uncertain for decades to come. We might as well limp along from one EM to another losing ground in the fight to have a functional government.
With this great opportunity we have a lot to be hopeful for. However, the DIA’s collection and other assets that contribute to the city’s quality of life should be off the table and as far as I can tell, Kevyn Orr and Governor Rick Snyder agree. But whoever it was that suggested selling the DIA’s collection to "save" the city or its creditors should not have said it. The collection should not go up for sale. It does not have to go up for sale. To sell a collection held in public trust certainly would set a poor precedent in preservation of cultural art and artifacts. In addition there is very little legal support or business sense in seeking a sale of the art.
The legal case is this: the Bankruptcy Code contains a statute that governs the sale of assets in a bankruptcy estate. One of the first provisions of Chapter 9 which governs Detroit’s bankruptcy lists the other bankruptcy statutes that apply in a municipal bankruptcy. The asset sale statute is omitted from the list of statutes that apply to Detroit. It is fair to infer from this that there is no requirement for Detroit to sell assets. Even, if asset sales could be allowed the only party who could formally request authority to sell assets is Kevyn Orr. So worries of a bankruptcy judge or third party coming in and "forcing" a sale of the art is a false fear that can be put to bed. We hope Kevyn Orr and Governor Snyder remain true to their word that no sale will take place.
For those who argue that the art should be sold to raise dollars to save city services or buoy the pension funds, there remains a costly legal road block for doing just that. Much of the DIA’s collection cannot even go to sale due to restrictive covenants placed on pieces bequeathed to the museum that prevent the transfer out of the public’s trust and away from the DIA. So before we can prop up the city on the back of the DIA, a costly legal battle with possibly hundreds of different bequest contracts would ensue and drag out the City's reorganization process indefinitely.
I know the fear of a sale feels very tangible since Kevyn Orr hired a major clearing house for art and artifacts that is now riffling through the DIA’s collection to ascertain its value. However for those concerned, it is important to know that asset valuation is a critical aspect of formulating a plan of reorganization and often has little to do with the prospect of a sale of assets. Instead, the asset valuation is used to determine how much cash Detroit must propose to pay to creditors over a period of time. The idea is that creditors should receive payments over time that will minimally equal or exceed the amount they would receive if all of Detroit’s transferrable assets were liquidated.
Delivering strong city services and maintaining the DIA collection are not mutually exclusive options. Detroit still has enough cash flow to pay creditors and do business for residents and visitors, more so we have a structural financial problem that needs to be fixed. Detroit’s financial structure will not get fixed by selling the DIA’s collection. This is the type of short-sighted thinking that has led to Detroit’s financial collapse and we have an opportunity to stop that and instead plan for our future. If it were even possible that there were enough saleable cultural assets to raise dollars that would pay down Detroit’s debt substantially, Detroit’s stability and vitality would be short-lived.
If we lose our cultural assets, we lose Detroit and the scar will not only be borne on Detroit but its creditors as well – many of whom lent money to the city knowing it could not possibly keep its promise to repay. Can we end this dialogue about selling the DIA collection now?
Kimberly Ross Clayson is an attorney with over six years experience practicing bankruptcy law with Schneider Miller, P.C. She is co-treasurer of the Detroit Waldorf Board of Trustees, a Declare Detroit Drafter and former president of the Villages CDC. She lives in Indian Village with her husband and daughter.