Detroit’s Journey from Bankruptcy: A Tale of Art, Debt, and Recovery
In December 2014, Detroit emerged from the largest municipal bankruptcy in U.S. history, having restructured or canceled approximately $7 billion of debt. An additional $1.7 billion was earmarked to enhance city services, marking a new chapter for the city.
Gerald Rosen, a former chief U.S. District Judge and the chief mediator in Detroit’s bankruptcy case, shares insights in his book, Grand Bargain: The Inside Story of Detroit’s Dramatic Journey from Bankruptcy to Rebirth. He recently discussed these experiences with Doug Tribou on Michigan Public Radio’s Morning Edition.
When the bankruptcy process began, Detroit was drowning in debt, totaling around $18 billion. The city’s basic services had severely deteriorated. Kevyn Orr, the state-appointed emergency manager, highlighted these challenges, describing a city that was “service delivery insolvent.” Problems included 150,000 blighted properties, inadequate snow plowing, and police response times exceeding an hour, compared to the national average of 11 minutes.
One of Detroit’s most valuable assets, the Detroit Institute of Arts (DIA), was at risk of being liquidated to mitigate financial woes. Rosen, however, opposed this idea, recognizing the cultural and emotional loss it would entail. He recalled, “I tried very hard to think of a way to leverage the value of the DIA without liquidating it.”
In a breakthrough moment, Rosen sketched a plan on a legal pad, which later became known as the Grand Bargain. His concept involved protecting the art by placing it in a trust and using it to secure funding for retirees’ pensions, which were the city’s largest financial obligation.
Private foundations played a crucial role in Detroit’s recovery, contributing $380 million towards pensions and other city needs. Rosen initially faced challenges in securing state funding but found an ally in Mariam Noland of the Community Foundation of Southeast Michigan. Noland facilitated meetings with prominent foundations, which swiftly resulted in funding commitments.
Despite the progress, the Grand Bargain did not satisfy everyone. Municipal employees faced pension cuts, a significant disappointment for Rosen. He noted, “The pensions were $3.5 billion underfunded. Now the pensions are in extremely solid financial footing.”
The involvement of Kevyn Orr as the state emergency manager was another contentious aspect. While emergency management received criticism, particularly in Flint, Rosen acknowledged that Orr’s powers were instrumental in Detroit’s unique situation. He stated, “Detroit’s situation was just so desperate, and I really doubt that we could have done what we did in the bankruptcy without having the emergency manager powers.”
Detroit’s recovery is a testament to the collaboration between state and local officials, alongside private foundations and city leaders. Although not perfect, the city’s journey from bankruptcy highlights the power of innovation and cooperation.
Editor’s note: Quotes in this article have been edited for length and clarity. You can hear the full interview on Michigan Public Radio’s website.
Further reading: Grand Bargain: The Inside Story of Detroit’s Dramatic Journey from Bankruptcy to Rebirth by Gerald Rosen
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