The Art Of Getting Out Of Bankruptcy

Detroit’s bankruptcy plan was approved last week. Jordan Weissmann focuses on the role played by the city’s art museum, which had been instructed “to contribute at least $500 million to paying off Detroit’s debts, even if meant selling off paintings at auction”:

Instead, the museum essentially went on an ambitious fundraising drive, in which it managed to raise more than $800 million, including $330 million from nine different philanthropic foundations. Another $200 million came from the state of Michigan, which, despite Gov. Rick Snyder’s protestations that he wouldn’t bail out Detroit, did apparently feel compelled to preserve some of its cultural heritage.

In return for the money, the deal will essentially “ransom the museum from city ownership,” as the New York Times puts it, placing it in control of an independent charitable trust. So Detroit gets to keep its art collection. Pensioners get to keep a little more of their income. And the museum never has to worry about municipal finances ever again. A nice bargain all around.

The Economist ponders the city’s post-bankruptcy future:

The big question is whether Detroit will manage to become an attractive city again where people want to live, invest, work—and pay taxes. At the moment this seems a long way off: roads are in disrepair; more than one-third of city lights don’t work; public schools are failing the pupils who bother to turn up; ambulances break down; thousands of households don’t have water and there are 84,000 blighted and vacant parcels of property. (The city is demolishing 200 houses a week at a cost of, on average, more than $8,000 each.)

The adjustment plan approved by the judge sets aside $1.7 billion over the next nine years for investment in basic services and infrastructure. It is a vast sum for a city that has trimmed investments to a minimum in recent years, but Detroit’s needs are such that this pot could run out in as soon as five years.

Claire Groden digs into the specifics of the exit plan:

Fewer than 700,000 people live in Detroit after decades of white flight into the surrounding suburbs. They are mostly poor, with 38 percent living below the poverty level. Last year, half of Detroit’s property owners were unable to pay their taxes, which are the highest in the state for cities with a population over 50,000. The combination of high taxes and poor residents puts the city and its residents in a lose-lose cycle. “Part of the goal of the exit is making Detroit attractive to people who are not poor, who can pay taxes,” says Wayne State University bankruptcy law professor Laura Bartell.

But making the city a desirable place to live is going to take a lot of moneymaybe even more than the approximately $1.7 billion set aside in the plan. It’s no secret that Detroit is a difficult place to live. The bankruptcy trial put the inner workings of the city in the harsh spotlight, methodically detailing all of the ways the Detroit no longer works for its residents.

A 2013 report by Emergency Manager Kevyn Orr found that 15 percent of all “parcels” of land in the city were vacant, and 38,000 vacant structures were in potentially dangerous condition. Response times for highest priority crimes took an average of 58 minutes. Around 40 percent of streetlights were out. All of these problems will have to improve for Michiganders to start looking at Detroit as a reasonable place to open a business or raise a family, Bartell said.