There is a reason that Detroit must not pay its creditors in Rembrandts and Matisses.
First, Chapter 9, or municipal bankruptcy, does not play out like how a loss in Monopoly plays out. A municipality doesn’t have to sell city hall or fire stations because it landed on the metaphorical Boardwalk or Park Place, nor is Detroit’s bankruptcy similar to the bankruptcies of General Motors and Chrysler.
Bankruptcy, whether it be Chapters 7, 11, 13 (which apply to persons and businesses) or Chapter 9, is meant to enable debtors to seek relief from debts that cannot possibly be paid back. In fact, part of the test Detroit must first pass is to prove whether or not it is truly unable to repay those who lent the city money.
Assets are sold off in bankruptcy in order to satisfy creditors to a limited extent. General Motors, which filed for Chapter 11 bankruptcy in 2009, sold off subsidiaries Hummer, Pontiac, Saturn and Saab.
Detroit can’t sell fire stations, schools, police stations or libraries, and it won’t be forced to in bankruptcy court. Assets like Joe Louis Arena and, as I fear, the Detroit Institute of Arts collection, may be used to satisfy creditors.
In an interview with Charlie Rose, Gov. Rick Snyder, a Republican, said the city has two responsibilities in the bankruptcy process. “One, it addresses the crushing debt burden…The second piece, that I consider even more important, is it’s about presenting a plan for services to citizens.”
A third, which Gov. Snyder did not mention, is that the city must develop a plan for financial stability to ensure that it will not fall back into insolvency like Prichard, Ala., which filed for bankruptcy once in 1999 and then a second time a decade later.
The DIA attracts between 200,000 and 400,000 visitors each year by its own estimates. Those visitors spend money in the city which eventually falls into city coffers by way of tax collection.
This is why the city and the DIA must resist all efforts to sell its art collection. Entreaties that focus on the cultural importance of the museum’s art collection are not without merit. The most important issue is the city’s return to fiscal balance, which the DIA helps.
Bill Schuette, the Michigan Republican who serves as the state attorney general, said the art collection “is held by the City of Detroit in charitable trust for the people of Michigan, and no piece in the collection may thus be sold, conveyed, or transferred to satisfy city debts or obligations,” in an article by the Detroit Free Press.
Public trust doctrine or charitable trust doctrine, which Attorney General Schuette referenced, states “that certain natural and cultural resources are preserved for public use, and that the government owns and must protect and maintain these resources for the public’s use,” as defined by Cornell University Law School’s library.
The invocation of public trust doctrine is buttressed by the fact that in 2010, residents of Wayne County, Macomb County and Oakland County voted for a property tax increase to help fund the DIA.
Detroit is a city in ruin. Most of the structures that remain are worthless. The DIA’s art collection is not only priceless, but the art draws money and people to a city that needs money and people.
City contractor DIA Corporation used its insider position ...
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