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Detroit's assets are under review amid crushing debt

River Court inside the Detroit Institute of Arts
Photo courtesy of the DIA
River Court inside the Detroit Institute of Arts

Kevyn Orr is Detroit’s state-appointed emergency manager. And he has some pretty extraordinary powers to chart the course of Detroit’s potential bankruptcy—and its future.

Last Friday, Orr took questions from reporters. The very first question he faced was pretty much, ”What’s for sale?”

“Right now there’s nothing for sale, including Howdy Doody.”

Orr was actually referring to the Detroit Institute of Arts, whose collection includes the original puppet from the 1950s children’s TV show. Though no one knows for sure, the DIA’s total assets — which include masterpieces by Van Gogh and Picasso — could be worth about $2.5 billion.
John Pottow is a professor and bankruptcy expert at the University of Michigan. He says parts of the museum’s collection could potentially be liquidated and sold off to the highest bidder — at least, in theory.

“So if someone came in who had a complete mathematical mind and an actuarial’s insight and perhaps a lawyer’s sensibilities…he or she might come in and just liquidate as many assets as possible.”

But there are lots of reasons why it’s not quite that simple. For one, the museum claims the art can’t be touched because it’s held in a public trust. It’s not clear how well that argument would hold up in bankruptcy court.

Considering Detroit's economic future

Pottow says there’s another argument—one that could also apply to some of Detroit’s other heart-and-soul assets.

“I can imagine an economic argument being made, that look, the Detroit Institute of Art is critical to the very model, brand, spirit of the city. So if you liquidate that, you could be crushing the prospects of economic rejuvenation.”

Another Detroit asset in that same spirit is Belle Isle. The island park in the Detroit River is a lovely natural sanctuary just east of the city’s downtown. Generations of Detroiters have escaped the city heat here, and the beach was packed during the recent heat wave.

Michael Keith was there for the third day in a row. He says the city’s hazy skyline across the Detroit River is “some of the prettiest scenery in the state.” 

“I love the water. I love Belle Isle. I’ve been here my whole life.”

But Belle Isle also needs some major work to make it the world-class park it was in the city’s heyday. Earlier this year, the state of Michigan proposed leasing Belle Isle and running it as a state park — a move that would have saved the city a few million dollars a year.

But the City Council rejected the plan. Now, Orr has the power to push that deal through — and has said he’ll do that.

Of all Detroit’s major assets, the city’s water and sewerage department might be the most intriguing to some investors. It’s long been a major source of contention between the city and its suburbs.

Orr has put forth a plan that would let Detroit technically retain ownership, but essentially lease its facilities to a regional authority that would operate the system. The authority would pay Detroit for that.

But not everyone is a fan of the idea. Kurt Heise is a Republican state representative from suburban Detroit. He thinks the idea still gives Detroit too much power over the system.

Others fear this is a back door move to selling the water department completely. And Heise says that’s not completely out of the question.

“I don’t rule out privatization. Privatization does not always work in every circumstance,” he said.

Of course, Detroit has many other assets. Orr’s team is trying to figure out what all those assets are worth.

In Chapter 9 bankruptcy, even a federal judge can’t force a city to sell off assets—though he can certainly apply pressure. So Detroit’s creditors might be eyeing Van Gogh, but they can really only get what the city puts on the table.

As for what he plans, Orr remains coy.

“We’re not going to address the issues of what we’re going to sell because frankly, that’s an open item to be dealt with in the future,” Orr said.

Assuming the bankruptcy case proceeds, Orr will have to file what’s called a “plan of adjustment” to cut the city’s debt. That should give us some more clues about what’s headed for the auction block.

Sarah Cwiek joined Michigan Public in October 2009. As our Detroit reporter, she is helping us expand our coverage of the economy, politics, and culture in and around the city of Detroit.
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