Detroit might resort to selling off precious works of art as one piece of a complicated solution to the city's fiscal woes, including multibillion-dollar public pension liabilities.
Just before Memorial Day, Kevyn D. Orr, Detroit's emergency manager, told executives at the Detroit Institute of Arts and other city-owned entities that they could face exposure to creditors should the city be forced to file a Chapter 9 municipal bankruptcy plan.
Mr. Orr told sister publication Crain's Detroit Business on May 15 that he expects to decide whether to seek Chapter 9 protection in the next two months.
A federal bankruptcy court can't force the city to sell part or all of the DIA collection to meet pension and other liabilities, but as Detroit's emergency manager, Mr. Orr may include artwork sales in a possible Chapter 9 bankruptcy recovery plan.
“I could foresee that if the assets of the DIA were not sold with the proceeds used to pay down debt, you could see the creditors arguing that they have these assets that can be sold and converted into cash,” said Douglas Bernstein, a partner at law firm Plunkett Cooney.
Detroit's long-term liabilities total $15 billion, including $2.1 billion of pension liabilities, of which $1.45 billion were pension obligation certificates, akin to pension obligation bonds.
The funded statuses of the $2.77 billion Detroit General Retirement System and the $3.4 billion Detroit Police & Fire Retirement System are not clear, and Mr. Orr appointed a pension task force to look closely at valuation practices.
There is not a specific plan on the table to sell any city assets, said Bill Nowling, a spokesman for Mr. Orr, in a statement.
But Mr. Nowling admitted “it is possible that the city's creditors could demand the city use its assets to settle its debts.”
Sherri Welch and Kirk Pinho, reporters at Crain's Detroit Business, a sister publication of Pensions & Investments, contributed to this story.
