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Detroit bankruptcy presented a "once in a lifetime" opportunity for foundations

Nov 7, 2014

It’s hard not be awed by the scale and detail in Diego Rivera’s Depression-era “Detroit industry” murals at the Detroit Institute of Arts, but these scenes depicting both the splendor and hardship of an industrial powerhouse were potentially at risk in the city’s bankruptcy.

That’s because right now, Detroit owns the museum and its world-class collection.

And that made Detroit’s creditors—collectively owed billions of dollars—ask: Why shouldn’t the city have to sell at least some of it to pay them?

Darren Walker, President of the Ford Foundation, says the idea was offensive.

“The idea that the art could actually be auctioned off was so … antithetical to our idea of democracy and the role of cultural organizations.”

But that fear actually turned out to be an important lever in the bankruptcy case.

The mediators who worked behind the scenes in the case came up with an idea that came to be known as the “grand bargain.”

Mariam Noland is the President of the Community Foundation of Southeast Michigan. She was one of the very first foundation leaders to hear the pitch late last year.

“They knew that to move the mediation forward, it would be enormously important to take care of the pensioners the best they could, and to save the art of the DIA.”

The deal would work like this: non-profits come up with the money to cushion the blow to the city’s most vulnerable creditor group: its pensioners.

In return, the art is transferred to a charitable trust, where it’s protected from city creditors forever.

National foundation leaders soon came to Detroit to hear the pitch. The Ford Foundation’s Darren Walker says it was impassioned and persuasive, but there were also some big concerns.

“The most important condition was the public commitment.”

The foundations got that commitment when the state of Michigan agreed to kick in almost $200 million.

The Ford Foundation alone is putting up $125 million. Walker says that’s because the group sees Detroit as an important bellwether—and “a laboratory for cities across the country.”

“The challenge and opportunity now is to rebuild the civic grid, the public commons in Detroit is frayed, and it needs to be strengthened,” said Walker.

But others sound a note of caution about the grand bargain.

William Schambra directs the Bradley Center for Philanthropy and Civic Renewal at the Hudson Institute. He thinks it could set a “dangerous precedent.”

“Any major city that faces similar pension problems is going to be thinking, ‘If Detroit can go to the major foundations and can get stop-gap funding, we should be able to do that too,’” he said.

Schambra also worries about bigger implications for democracy.

He says that while the grand bargain’s funders may have noble intentions, the arrangement smacks a bit of feudal Europe—where weak central governments meant civil society was dominated by the church and aristocracy.

“And it’s almost like Detroit is going back to that situation.”

But the Community Foundation for Southeast Michigan’s Mariam Noland says it’s hard to know how precedent-setting the grand bargain really is.

She says it does prove foundations can step up in extraordinary situations.

“But in no way can it replace public dollars, federal, state and local. It was maybe a once in a lifetime opportunity for foundations,” she said.

We’ll find out if the grand bargain becomes reality this afternoon.

Mariam Noland and other civic leaders will be in the courtroom to hear the judge’s historic ruling.