The biggest municipal bankruptcy in U.S. History advanced another step toward resolution on Monday when the three Detroit-based automakers contributed $26 million. The money will help the Detroit Institute of Art maintain control of precious city-owned paintings and sculptures that could be sold.
General Motors (GM) and its foundation gave $10 million to the museum, Ford Motor’s (F) philanthropic fund gave $10 million, and Chrysler Group gave $6 million.
“While it is our duty to focus on the revival of this city, it is equally crucial to cherish the treasures the city already offers–not just for ourselves, but for the generations that will follow,” said Sergio Marchionne, Chrysler Group chairman and CEO.
The automaker’s money will count toward a $100 million sum that the art museum was told it must contribute as part of a “grand bargain” that includes a $195 million payment by the state and a pledge of $366 million by large nonprofit foundations. The “grand bargain” calls for valuable artworks that are owned by the city to be placed in museum-controlled trust–in effect, a sale to the museum.
Under the plan of accommodation proposed by the city, the contributions will be used by the city to replenish pension funds for city workers that are underfunded due to mismanagement and the city’s financial incapacity. Pensioners are being asked to vote on the “grand bargain,” which will result in a loss of about 4.5% of an average annual payout of $19,000 and the loss of other benefits–though the cuts will be smaller than if the state, nonprofits, and automakers hadn’t agreed to contribute.
According to Reuters, the president of the Detroit Retired City Employees Association, Shirley Lightsey, spoke at the ceremony marking the automakers’ contribution and urged pensioners to vote in favor of the plan. Pensioner ballots must be returned by July 11; some sources say ballots returned so far are running 2-to-1 in favor of approving the “grand bargain.”
Referring to some pensioners who have vowed to oppose anything less than 100% recovery of pension payments and benefits, Lightsey said: “You cannot eat principle.” A vote in favor from pensioners, who are creditors in the bankruptcy proceeding, could weigh heavily in favor of the plan of accommodation. In the event of a defeat, the $816 million pledged as part of the plan almost certainly would vanish.
Corporate creditors, especially the insurers of city-backed bonds that could be rendered nearly worthless, have opposed “the grand bargain.”
Other Detroit corporations, following the lead of the automakers, are expected to contribute as well, increasing the likelihood that the city’s plan will prevail. So far, the cooperation of a variety of interest groups spanning the political spectrum points to a victory for Kevyn Orr, the Jones Day bankruptcy specialist appointed emergency manager of the city. It’s been a triumph as well for the state’s Republican-controlled legislature, U.S. District Court Judge Gerald Rosen, and for Gov. Rick Snyder, who appointed Orr.
Judge Steven Rhodes, the bankruptcy judge, has set July 24 as the trial date. Corporate creditors are expected to attempt delays that could drag the trial into the fall, when Kevyn Orr’s tenure as emergency manager expires.
