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A Foundation of Support Saves a Devastated Detroit

Posted on November 17, 2014 by Mark Neithercut

History happens every day, but on Friday it happened in a big way for both the City of Detroit and the philanthropic community. Nov. 7 marked the approval of the city’s federal bankruptcy plan, but as many in the foundation world know, this was no ordinary financial restructuring plan. It was an unprecedented display of the power of philanthropy.

At stake throughout the 16-month financial restructuring process were hundreds of millions of dollars in municipal pensions. Like many other public systems, Detroit’s pension system suffered from years of under-funding. As the city experienced many years of budget deficits, the under-funding problem became more acute, contributing greatly to the city’s insolvency. Given its financial straits, one of the most obvious – but least savory and politically viable – solutions for restructuring the city’s debt was cutting pensions. The city’s creditors also saw the Detroit Institute of Arts’ world-class collection of paintings and sculptures, each one vulnerable to auction in order to satisfy debt, as another source of funds. The city and its advisors, therefore, faced a major challenge: how to resolve the city’s debt crisis and confirm a viable plan of adjustment without drastic cuts to pensions and putting the city’s artwork at risk.

Enter the “Grand Bargain.”

Under the Grand Bargain, dozens of foundations, the State of Michigan, the Detroit Institute of Arts, Detroit’s water and sewer systems and businesses pledged north of $800 million to bolster the municipal pension system. The plan stipulated that the city-owned Detroit Institute of Arts be transferred into an independent charitable trust in order to put it out of the reach of Detroit’s creditors now and in the future.

As a result, retired city workers will receive slightly reduced monthly pension checks and benefits, the DIA’s treasures are protected, and significant improvements to municipal services and infrastructure have been funded. The state’s contribution to the Grand Bargain lasts until 2023, with the foundations and the art museum continuing their funding until 2033.

The Grand Bargain represents the integral role foundations play in advancing the goals of our communities and, more broadly, society. We are proud to be a member of a foundations community that recognizes and seizes opportunities to collaborate in innovative ways to achieve worthy goals. While Detroit’s Grand Bargain may not be a model for other municipal restructuring plans, it is a testament to the spirit and civic-mindedness of the philanthropic community.