Paying Detroit's Debts: Start with the Art
As Javier said, a judge ruled yesterday that Detroit can file bankruptcy. From the New York Times:
“This once proud and prosperous city can’t pay its debts,” the judge said. “It’s insolvent. It’s eligible for bankruptcy. But it also has an opportunity for a fresh start.”
City unions and other creditors are expected to appeal the ruling, but the case will continue to move forward, with the next step being the city filing a “plan of adjustment.” It is unclear, however, what portions of the judge’s ruling may be appealed.
I wrote about this issue here on The Conversation a few months ago. The judge's decision basically means the city of Detroit will need to present a plan, which could be a combination on defaulting on pension payments and selling assets.
I totally understand the knee-jerk reaction some have to this ruling. "Take that, unions!"
I am not in that camp. If you or I were to file for bankruptcy, we would be forced to sell our assets before defaulting to our creditors and other contractual obligations. That Warhol passed down from your crazy aunt who partied at Studio 54? Gone in 15 minutes. And that's exactly what should happen in Detroit.
The Detroit Institute for Art has billions of dollars in art, but elitists in Detroit suburbs are conspiring to keep the art so the collection can't be split off and sold. A few foundations attempted to raise money to secure and "own" the art through a private fund of $300-500 million, just a fraction of what it is worth. Basically, this fund was trying to buy the art at a deep discount so it was off-limits and Detroit's entire debt would fall on taxpayers and pensioners. Pensioners that include firemen and police officers. We may not agree with public sector unions and their tactics, but promises were made to these workers and the city must put all options on the table before sticking pensioners with the bill.
Now the valuation of the art has fallen on Christie's. From an op-ed in The Detroit News:
Some estimates place the DIA’s selection of masterpieces — works like “Madonna and Child” by Giovanni Bellini, “The Wedding Dance” by Pieter Bruegel the Elder and a 1887 self-portrait by Vincent Van Gogh — at $2.5 billion, while the entire collection of 66,000 objects could be worth between $10 billion and $20 billion.
Kevyn Orr, the emergency manager appointed by Gov. Rick Snyder to deal with Detroit’s financial crisis, has said that the city’s debt is $18 billion.
Now that a judge has ruled that the city of Detroit qualifies for bankruptcy, the city should present a responsible plan that doesn't play shell games with their assets to appease a few elitists. Get over yourselves and sell the art for the good of Detroit.