Judge explores private funding to protect DIA, - TopicsExpress

Judge explores private funding to protect DIA, pensions: Mediator floats having foundations step up so Chap. 9 stays on course Detroit — The federal judge mediating Detroit’s bankruptcy is exploring whether regional and national foundations could create a fund that would protect the Detroit Institute of Arts’ city-owned collection by helping to support retiree pensions, multiple sources told The Detroit News. Near the end of a Nov. 5 meeting lasting more than three hours, Chief U.S. District Judge Gerald Rosen offered what one participant called a “very carefully worded” concept that fell short of asking the nine foundations — including Kresge, Hudson-Webber, Mott, Knight and the Ford Foundation of New York — for commitments to support a plan. Rosen did not cite a specific amount, but participants said it could approach $500 million. “The number is what’s in question,” said a participant, who asked not to be identified because the talks are confidential. “What does it take to pull this off, to satisfy everybody around the table? And what’s the time frame – 20 years, 25 years? It’s a creative solution to this thing.” The concept could remove two looming obstacles to Detroit’s successful emergence from Chapter 9 — the fate of the DIA’s city-owned collection, some of which could be sold to satisfy creditors, and vested public pensions ostensibly protected by the state constitution. Three sources said Rosen expressed concern in the meeting that either issue could bog down the bankruptcy with years of contentious litigation, slowing approval of the city’s “Plan of Adjustment” and stalling foundation and private-sector reinvestment in Detroit. The plan likely would be unprecedented, if the foundations — facilitated by the mediators appointed by Rosen — combine to create a private fund designed to do two things: help the city honor pension commitments to its public-sector retirees; and protect the DIA and its valuable pieces from liquidation. The collection is conservatively estimated to be worth at least several billion dollars. The News talked with five sources with detailed knowledge of the meeting, including two who were in the room and later expressed openness to exploring further the judge’s concept. Rosen was joined by Eugene Driker, a well-respected, 50-year veteran of the Michigan bar, a participant said. Multiple sources interviewed by The News said the situation is fluid. In exchange for a creating a fund that could be anywhere from $300 million to $500 million or more, the DIA and its assets likely would be conveyed to a nonprofit charitable trust to ensure they never are imperiled again. The potential proposal echoes Rosen’s charge to dozens of creditors who gathered in his courtroom on the first day of mediation: “This is about the future of the city and this region,” he said Sept. 17. “Open your minds to areas where we can reach agreements.” And in a separate discussion with Kenneth Whipple, a former Ford Motor Co. executive who is vice-chairman of the city’s Financial Advisory Board, Rosen was “very motivated to get the DIA to come up with alternative solutions” to its predicament, Whipple said in an interview. Details of the proposals are emerging as U.S. Bankruptcy Judge Steven Rhodes is deciding whether Detroit is eligible for Chapter 9 bankruptcy. A ruling in the case, which could come as early as today, would launch a new phase in the largest municipal bankruptcy in American history, pitting unions, retirees and pension funds against a cash-strapped city burdened with more than $18 billion in debt. An estimated $3.5 billion shortfall in the city’s two pension funds is a key component in the contentious bankruptcy case. In a June proposal to creditors, Detroit Emergency Manager Kevyn Orr proposed exchanging the city’s unfunded liability of $11.5 billion for a share of a $2 billion note that likely would leave the funds short of the cash needed to fully honor obligations to retirees. It is unclear how and whether a foundation-backed fund, or bond, would augment the proposed settlement. But a key part of the thinking behind Rosen’s exploratory discussions is to supplement pensions, improving the likelihood of the city emerging from bankruptcy with a comparatively clean slate and the ability to move forward with a sustainable budget. DIA officials did not attend the meeting. Nor did union or pension fund representatives, whose lawyers see portions of a museum collection that could be used to recoup pension losses exacerbated by mismanagement, under-funding, alleged corruption and a brutal recession. Orr wants the DIA to help answer demands from creditors seeking to turn valuable works into cash. Christie’s, the global auction house, is in the final stages of valuing 3,500 pieces of the DIA’s 65,000-work collection. Orr has not ruled out selling key pieces or exploring ways to raise cash for creditors without selling art outright. Rosen’s proposal raises many questions, participants in the meeting say. Would creating a nonprofit trust for the DIA pave the way for deeper state involvement in the the city’s plan of adjustment? How would the fund impact the tri-county millage that provides $22.6 million a year to operate the DIA? Could foundation leaders, governed by independent boards hewing to individual missions, persuade their boards of directors to participate in what would amount to a private-sector bailout of the city’s pensions? Would the fund drain foundation dollars committed to fighting blight, rebuilding infrastructure and supporting critical social services needs? Those questions, and more, could be answered in the coming weeks as foundations and civic leaders explore ways to answer the challenge posed by Rosen, as well as the harsh realities of a complicated municipal bankruptcy with real human consequences. “This bankruptcy is one of the most consequential events in the history of our city and our region,” Rosen said in a statement following last week’s session. “The meeting was intended to give them a perspective — not only on some of the challenges raised by the bankruptcy — but also some of the very real opportunities that the bankruptcy provides for a brighter future.” daniel.howes@detroitnews From The Detroit News: detroitnews/article/20131114/METRO01/311140048#ixzz2keHNg8vr