Detroit and the DIA

A testament to the complexity of Detroit’s bankruptcy has been how many people have written about the matter incorrectly. Namely, on the proposition that the Detroit Institute of Arts sell its collection in order to settle the city’s debts.

On March 29th, Robert H. Frank of the New York Times broached the idea that the city should sell the collection. “Yes, communities benefit from famous paintings, but they also benefit from safer roads and better schools.”

One of the simplest replies to the question of why shouldn’t the city sell the collection when they’re bankrupt is because they don’t have to. Unlike a corporate bankruptcy where assets are sold in order to repay creditors – even in cases where the company wishes to restructure itself rather than liquidate – municipalities are under a different set of rules. A municipality is its own political entity, and ultimately it is responsive to its own citizens and the state, not a federal bankruptcy court.

The rules of Chapter 9 bankruptcy, which apply to municipalities, say that cities and towns have sole discretion over the monetization of their assets.

That technicality hasn’t stopped writers like Hamilton Nolan of Gawker and others from attempting to make the city’s art and whether or not to sell it a morality tale. “I can think of no higher expression of Van Gogh’s artistic worth than the fact that Detroit could—with the sale of a single one of his paintings—provide water to all of its citizens,” wrote Nolan in “Sell Detroit’s Art, Save Detroit’s People” on July 10th.

Not only is the rich versus the poor framework incorrect, but even under those assumptions the roles would be reversed. A poll by the Detroit Free Press and WXYZ found that 78 percent of the city’s residents opposed selling the collection.

The two parties which have most ardently asked for the collection to be sold are the “elitist” – Syncora and Financial Guaranty – two bond insurers. They want the money from the art’s sale to be used in order to repay other creditors so they’re not left on the hook for the payment of bonds which the city defaulted on – not out of any sense of beneficence.

More importantly, the sale of the city’s artwork would not fundamentally improve its situation. An appraisal by Christie’s, the auction house, found that the collection would fetch anywhere between $454 million and $867 million. A pretty penny, but a pittance compared to the $18 billion in liabilities Detroit has accumulated. Even under the more expansive appraisal done by Artvest Partners, which encapsulated more pieces of art and renewed interest in the art’s sale the amount does not make the city solvent.

The second appraisal said that the art collection was worth as much as $4.6 billion. However there was an important caveat. That isn’t how much the collection would likely fetch in the marketplace. There isn’t the demand for that much art; the museum houses 66,000 works of art. All of those pieces on the market within a small time frame would saturate the market and decrease the value of multiple pieces.

To understand the situation more fully, while the city’s collection has received the most attention, it should be noted there hasn’t been monetization of other city assets for the most part. In the city’s plan of adjustment – a proposal to repay creditors and achieve solvency – there aren’t any major asset sales included. The city doesn’t sell broad swaths of publicly held land or any municipal structures. Briefly, there is discussion of the sale of Coleman A. Young International Airport, but that is far from a certainty.

In any case, the proceeds from any asset sale could not be used to fund the litany of projects that should be undertaken by the city: infrastructure improvements, expanse of police force, parks and recreation, etc. Plain and simple, the money made from the sale of an asset in bankruptcy would be used to make creditors – who have much to lose – at least partially whole. So Nolan’s opinion piece should have been titled “Sell Detroit’s Art, Save Creditor’s Money.”

The so-called “Grand Bargain” between the state and the philanthropic community which collectively raised $816 million for the museum really was a grand bargain. Because that money is for the most part all tied up in a bow for the museum, as compared to speculation about how much the collection would raise on the open market. Just as important is the fact that the money will be used in part to save pensioners from deeper cuts than they would have faced had the deal not been made.

For these reasons the DIA’s art collection should not be sold.