Detroit Institute of Art Caught up in City’s Municipal Bankruptcy

Officials involved in Detroit’s bankruptcy are weighing if they can include the Detroit Institute of Art’s collection as an asset in the city’s bankruptcy and if they should recommend the sale of that artwork to help satisfy the $18 billion in debt the city owes.

Detroit Institute of Art a Largely Unknown Asset to the People of Detroit

Detroit founded the museum in 1885.  Although other museums in the United States have better name recognition, such as the Art Institute of Chicago and the Metropolitan Museum of Art in New York City, the Detroit Institute of Art was the first museum in the United States to buy works created by Matisee and Van Gogh.  The museum houses what experts consider to be a world-class art collection, including paintings by Picasso, Warhol, Van Gogh, and Matisee.

Although the city no longer provides funds for the museum to operate or buy works of art, the city owns the museum’s building and some argue the art itself.

Kevyn Orr, Detroit Emergency Manager, considers the museum’s art collection as an asset of the city.  However, Bill Schuette, Michigan Attorney General, has issued a formal legal opinion indicating that because the art collection is part of a charitable public trust, the art is not an asset of the city and the city does not have the power to leverage the art as an asset.

Although Orr considers the art an asset of the city, he has also indicated he would prefer not to sell the art.  Rather, he has proposed using the art as collateral for a loan.

The people of Detroit tend to agree with those who do not want to sell the art.  A recent poll of Detroit citizens found that 78 percent of them prefer not to sell the art, as they see the value of the collection in the power it has to draw people to the city as it works to attract businesses and residents in the future.

However, the opinions on the matter may shift once the true value of the museum’s art collection is known.  Christie’s Auction House is presently valuing the museum’s collection.  Experts believe the value will come in somewhere between $10 and $20 billion, which could theoretically be enough to satisfy all of Detroit’s debt.

The Bankruptcy Court’s Ruling is the One that Matters

Regardless of the input from others, Orr is the one ultimately responsible for submitting the city’s plan to emerge from bankruptcy to the bankruptcy court.  It is not clear what stance Orr will formally take on the sale or leveraging of the art in that plan.  In addition, even if Orr recommends sale of the art, it is not clear if the bankruptcy court will agree the art is an asset of the city.

Administrators with the museum are understandably concerned about how the city’s bankruptcy could affect their ability to continue operations.  Although the museum previously received funding from the state of Michigan and through a non-profit organization, as of 2012, funding has come from a property tax collected by three surrounding counties.  That tax provides approximately $23 million per year to the institute, funds that will largely go away if the bankruptcy court moves to sell the museum’s art.

“Two of those counties have said that if we sell art they will stop the property tax,” noted Annmarie Erickson, Chief Operating Office of the museum.  “That represents about two thirds of our annual operating budget.  If they stop that tax we will be sent into a death spiral.”

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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.