CHICAGO — Bankruptcy court officials announced the outline of a deal to raise money for Detroit's unfunded pensions while protecting its famous art collection.
The plan was announced Monday by Chief District Judge Gerald Rosen, who is overseeing mediation in the Chapter 9 case.
The deal, which would be the first of its kind in a Chapter 9, creates a new coalition of national and local foundations. The group has already raised $330 million, and wants to raise at least $500 million, which would be pledged to the city's underfunded pension liability.
In return, the city would promise to protect the storied art collection in the city-owned Detroit Institute of Arts.
Officials said they expect the plan to play a key part in the city's plan of adjustment, the court-filed plan to rebuild Detroit.
The possible sale or monetization of the city's art collection is one of the most controversial aspects of Detroit's bankruptcy. Emergency manager Kevyn Orr has warned several times that he might try to sell or lease the art, considered one of Detroit's most valuable assets.
"In an extraordinary and unprecedented effort to help resolve two very challenging sets of issues — the underfunding of Detroit's two pension systems and the preservation of the DIA and its iconic art collection — some of the leading national and local foundations have stepped forward with a truly generous philanthropic offer of assistance that, to date, has resulted in commitments of more than $330 million in assistance, with additional foundations expected to announce their participation in the near future," the mediators said in a press release.
"The foundations' agreement to participate is specifically conditioned upon all of their funds being committed to the twin goals of helping the city's recovery from bankruptcy by assisting the funding of the retirees' pensions and preserving the DIA's art collection as part of an overall balanced settlement of disputes in the bankruptcy," the release said.
"All recognize that if these two goals can be accomplished, a third absolutely critical goal of facilitating the revitalization of the city in the aftermath of the bankruptcy will also be greatly advanced," it said.
The DIA hopes to have the plan finalized within the next few weeks when Orr prepares the plan of adjustment, expected to be filed with the court sometime in late January.
"We've been told that we need to be efficient and work quickly and be smart and get this thing going," said Annmarie Erickson, the museum's chief operating officer.
"We still have fund-raising to do and obviously a whole lot of legal and operational issues to work through," Erickson said. "But this is a moment to celebrate."
The unique deal shows how every Chapter 9 situation is different and solutions can be tailored to circumstances, said James Spiotto, bankruptcy expert at Chapman and Cutler LLP.
"In Chapter 9 the whole purpose is to help the municipality help itself, and so the use of creative ways of dealing with this is to be encouraged," said Spiotto, who likened the deal to holding a fundraiser for the arts and using the proceeds to fund the pensions.
"But you want to make sure you thoroughly vet it, because you don't want to create another problem," he added. "It serves a helpful purpose, as at least it's something to look at and might provide a basis for helping to bridge the pensions."
Spiotto noted that European corporations are increasingly relying on assets to cover unfunded pensions.
A leadership committee that will lead fundraising is made up of the presidents of the Ford Foundation, the Kresge Foundation, the John S. and James L. Knight Foundation and the Community Foundation for Southeast Michigan.
A separate fund has been set up for individual contributions, and has so far attracted just under 130 contributors, including a $5 million pledge from one Detroit-area resident.
A working group consisting of several of the foundations that have pledged dollars said Monday that the deal is meant to be part of the city's larger restructuring plan.
"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," the group said in a statement.
"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."
The size of Detroit's unfunded pension liability is in dispute. Orr estimates it at $3.5 billion, but the city's two pension funds argue $650 million is a more accurate figure.
Christie's auction house recently valued part of the art collection at between $454 million and $867 million.