Foundations Aim to Save Pensions in Detroit Crisis

National and local philanthropic foundations have committed $330 million toward a deal to avoid cuts to Detroit retirees’ pensions and to save the Detroit Institute of Arts’ renowned collection, federal mediators involved in the city’s bankruptcy proceedings announced on Monday.

The plan was a first both in the foundation world, which has not been a source of money to shore up public-sector pensions in the past, and in municipal bankruptcy cases, experts said. It also offered the first indication of progress in the intense mediation with Detroit’s creditors to resolve the city’s financial crisis. Those talks have been proceeding under strict secrecy guidelines.

Nine foundations, many with ties to Michigan — including the Ford Foundation, the Kresge Foundation and the John S. and James L. Knight Foundation — have pledged to pool the $330 million, which would essentially relieve the city-owned Detroit Institute of Arts museum of its responsibility to sell some of its collection to help Detroit pay its $18 billion in debts. In particular, the foundation money would help reduce a portion of the city’s obligations to retirees, whose pensions are at risk of being reduced in the bankruptcy proceedings. By some estimates, the city’s pensions are underfunded by $3.5 billion.

As part of the plan, which negotiators have been working on quietly for more than two months, the museum would be transferred from city ownership to the control of a nonprofit, which would protect it from future municipal financial threats. The foundations would stipulate that Detroit must put the money into its pension system, said Alberto Ibargüen, president of the Knight Foundation.

The unusual effort by the foundations was not the first instance of charitable groups’ and high-profile figures’ trying to help the ailing city. Previous contributors include Lloyd C. Blankfein, the chief executive of Goldman Sachs, and Warren E. Buffett, the billionaire investor, who attended an event with city and state leaders in November to announce a $20 million initiative to help small businesses in Detroit.

But it is far from certain whether the new pledges will bring about a deal to save the museum while also helping the city meet its pension obligations, and several possible roadblocks remain. As much as $500 million may be needed to protect the art from an auction, officials have said, so additional philanthropic donations are being sought. Detroit is also contending with some 100,000 creditors in its federal bankruptcy case, and some are expected to oppose the plan. Even if the notion were to proceed, it would not be enough to resolve the city’s pension underfunding, but merely to ease it somewhat.

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Last year, [Emergency Manager Kevin] Orr’s office hired Christie’s to appraise a portion of the collection that included many of the museum’s masterpieces. The auction house said that selling this portion would generate $454 million to $867 million. A group of creditors, including unions and financial institutions, is scheduled to challenge the appraisal in bankruptcy court next week.

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Darren Walker, president of the Ford Foundation — the nation’s second-largest private foundation, with $11 billion in assets — said that it was “unprecedented and monumental for philanthropies to undertake this kind of initiative,” but that “if there was ever a time when philanthropy should step up, this is it.” {snip}

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