On Monday a coalition of philanthropies and charitable foundations pledged $330 million to boost the bankrupt city of Detroit’s pension funds and to prevent the potential selling off of the collection of the Detroit Institute of Arts. U.S. Chief District Judge Gerald Rosen, the mediator in the city’s ongoing bankruptcy case, suggested that the pledge would be one component of a solution in the unprecedented municipal bankruptcy, rather than a total solution, according to the Detroit Free Press.
Meanwhile the coalition of foundations, which includes local, Michigan-based organizations as well as national philanthropic groups — including the Community Foundation for Southeast Michigan, William Davidson Foundation, Fred A. and Barbara M. Erb Family Foundation, Ford Foundation, Hudson-Webber Foundation, Kresge Foundation, John S. and James L. Knight Foundation, McGregor Fund, and Charles Stewart Mott Foundation — issued this statement regarding their pledge.
As philanthropies with ties to Detroit and Southeastern Michigan, we share a strong commitment to the revitalization of the region.Many of us have worked for years to help rebuild the city and ensure its prosperous and sustainable future.
For these reasons, when Chief Judge Gerald Rosen and his mediation team facilitated an opportunity for us to work together for Detroit’s future, we readily agreed. As a diverse group of local and national philanthropies, we are pleased to contribute to what we hope will be a balanced, workable plan that will enable Detroit to emerge from bankruptcy renewed and stronger.
The proposal we’ve been working on has one overarching goal: to enable Detroit and its citizens to focus on the task of renewing this great American city. Intended to be part of a larger, agreed-upon plan of adjustment, this plan furthers that goal in two critical ways, by helping the City honor its commitments to its retirees and preserving an extraordinary community cultural asset, the Detroit Institute of Arts.
While we approach this matter from different perspectives, we are united in the view that the plan offers an important opportunity to help Detroit find much needed solutions to its unique challenges.
Helping to protect the hard-earned pensions of city workers while also preserving the DIA’s collection for all the people of Southeastern Michigan are worthy components of a balanced overall settlement that will help ignite Detroit’s renewal.
Our participation in this plan is not intended to be the totality of our investment in Detroit now or in the years to come, and it does not replace our existing philanthropic commitments. The philanthropies in this working group are thinking carefully about how this proposal can complement our ongoing individual efforts in Detroit, and be part of our overall strategies for supporting Detroit and Southeastern Michigan to build a strong future.
As foundations, we recognize the limitations of the role we can play. But helping the leaders of this community put forward workable solutions to vexing issues is something to which we can contribute.
The foundations’ pledge is contingent on all $330 million going towards propping up the city’s badly underfunded pensions and protecting the DIA collection from being sold off to pay back the city’s creditors. According to Kevyn Orr, Detroit’s emergency manager, those city pensions may be underfunded by as much as $3.5 billion. Christie’s recent valuation of the DIA collection pegged it at between $454-867 million.
2. Detroit - Debt Proposal Favors Pension Funds
Rate to Resolve Obligations Would Be Roughly Double That of Bondholders
Matthew Dolan Wall Street Journal
Updated Jan. 30, 2014 8:18 p.m. ET
DETROIT—This bankrupt city is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.
The plan's balance-sheet projections show the base scenario designed by the city calls for $4.2 billion to be divvied up among the city's unsecured creditors, including some bondholders and the city's pension funds. The pot of money would be divided to allow Detroit's two municipal pension funds to recover more than 40% of the money the city says they are owed. In contrast, less than 20% of the money owed to unsecured bondholders would be paid.
If the city completes a deal to lease its water and sewerage department to a new regional authority with its suburbs, the recovery for pension funds and bondholders would grow slightly. Leasing the water department would bring about $339 million to the city, according to the plan.
In its July municipal bankruptcy filing, the largest such case in the nation's history,, the city reported about $11 billion in unsecured debt, including $6 billion in health and other benefits for retirees; $3.5 billion for retiree pensions; and about $530 million in general-obligation bonds. City officials said at the time it would have about $2 billion to resolve those obligations.
It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.
Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.
So far, the plan which is considered to be a rough draft,doesn't include any major settlements with the city's creditors. But it could be more welcome news for unions and pension funds if they agree to settle.
The proposal appears to bake in pledges from the state and private groups for more than $800 million to save Detroit's art collection and help pay off the city's pension obligations. The city, however, is still speaking with debtholders, unions and pension funds, seeking their agreement, which is required by the state and foundations. Detroit's suburbs are also balking over paying to move the city-owned water system into a regional authority they would help control.
The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.
"The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city's efforts to achieve long-term financial health," Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr's spokesman declined Thursday to comment on the plan's details. Several creditors, who were opposed to the city's early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment.
The plan could be key for more than 20,000 on city pensions after U.S. Bankruptcy Judge Steven Rhodes ruled pensions aren't entitled to special protection from potential cuts, despite a Michigan state constitutional provision aimed at shielding pensions. Unions and pension funds argued the pensions essentially were untouchable and have appealed the judge's ruling.
Write to Matthew Dolan at email@example.com
3. DETROIT, MICH.- As an anchor and investor in Detroit’s Midtown neighborhood, an educational resource for students and residents of Detroit, the tri-county area and all of Michigan and a provider of creative programs for numerous social service and community organizations in the City of Detroit and beyond, the Detroit Institute of Arts confirmed its participation in the plan being facilitated by Judge Gerald Rosen, Chief Judge of the U.S. District Court for the Eastern District of Michigan, to help bring an end to the City’s bankruptcy, expand support for Detroit’s pensioners and protect the museum’s collection for the public in perpetuity. Today, the DIA’s Board of Directors approved a commitment by the DIA to raise $100 million from corporate and individual donors toward these efforts. The DIA joins the foundation community ($370 million) and the State of Michigan ($350 million) in support of Chief Judge Rosen’s plan to benefit the people of Detroit and the State. “The DIA’s management and volunteer leadership forthrightly agreed to accept this challenge, despite its difficulty and the many other fundraising commitments the museum manages annually,” said Eugene A. Gargaro, Jr., chairman of the DIA Board of Directors. “We are hopeful this agreement will allow Detroit’s bankruptcy to move forward smoothly as we all work toward a brighter and better future for Detroit.” None of the funds raised by the DIA will directly benefit the DIA. The funds will be directed to a third party, which will disburse the funds for pension payments. As part of the agreement, the City of Detroit will transfer to the DIA free and clear legal title to the museum building, the art collection and all related assets. The DIA will continue to operate the museum with funds raised from its current donor base and from the tri-county millage. “It’s important to note that the DIA is not in bankruptcy, in fact it is functioning extraordinarily well. And, while this new challenge will stretch our fundraising abilities to their capacity, the DIA will continue to provide the residents of Detroit and Michigan with amazing art and exciting programs,” Gargaro said. “The DIA has consistently met its financial challenges and goals and will meet this challenge with enthusiasm and confidence.” The DIA will focus its initial fundraising efforts on Detroit’s corporate community. DIA leadership has compiled a list of initial prospects, finalized support materials, and held several preliminary conversations with interested donors. Details of the overall agreement are still in negotiation, but the DIA is moving forward with fundraising as those talks continue. “The mediators are deeply appreciative of the DIA’s decision to step forward in such a significant way as a partner in this effort to help protect pensions of Detroit’s retirees and safeguard for our City, region and State the DIA’s treasured art collection,” said Chief Judge Rosen. “We all recognize the magnitude of this great undertaking and appreciate the depth of the DIA’s commitment to the City of Detroit and its retirees. As the mediation team continues to work toward a complete, fair and balanced agreed-upon Plan of Adjustment, the DIA’s significant undertaking will play an important role in our efforts.”
4. BANKRUPT DETROIT: Continuing coverage Update: