Judge OKs Detroit bankruptcy filing but questions selling DIA art

The bad news for the Detroit Institute of Arts today is that a bankruptcy judge has authorized the city that owns the museum to declare bankruptcy, giving its creditors a legal forum for insisting that the most valuable masterpieces from the DIA’s admired collection be sold to help pay the city’s debts.

The good news is that, in clearing the way Tuesday for a Chapter 9 bankruptcy filing, the judge made a point of questioning whether it makes any sense to sell the art.

Noting the proposal that the DIA’s walls be stripped of their most admired paintings to help pay off $18 billion in municipal debt, U.S. Bankruptcy Judge Steven Rhodes suggested that the point of a bankruptcy proceeding is not to liquidate assets needed to sustain a city or organization that’s trying to reorganize its finances, but to give it a new lease on economic life.

“When the expenses of an enterprise exceed its revenue, a one-time infusion of cash, whether from an asset sale or borrowing, only delays inevitable financial failure unless the enterprise reduces expenses or enhances income,” Rhodes said, according to the Detroit News.

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In other words, after you’ve sold off the odd Rembrandt or Van Gogh, have you really done anything to give your city a fighting chance at a stable and dignified future?

Kevyn Orr, the emergency manager appointed by Michigan’s governor to oversee Detroit’s finances, nevertheless said that he still considers all city assets to be potential chips in the bankruptcy, including the DIA’s art: “I don’t want to take it off the table.”

Orr said he’ll continue with an appraisal of the collection, saying that its initial phase, covering 496 works, has come up with an estimated value of less than $2 billion -- “much smaller than people thought.” Orr said the Christie’s auction house is being paid $200,000 for the appraisal. Reuters reported Wednesday that Christie’s plans to release a full report on its appraisal the week of Dec. 16.

At the moment, the Detroit mess pits the museum, which has vowed to take legal action if necessary to defend its art, against city creditors who include current and former municipal workers, who fear seeing their pensions shaved in bankruptcy proceedings.

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Also in the mix are the region’s voters, who in 2012 approved a special ten-year property tax increase intended to generate $23 million a year for the DIA to make it financially secure. Officials in Oakland County have made it clear that selling art to satisfy the city’s debts will violate the terms of the tax vote, ending its participation in financing the museum.

“Oakland County and the entire region have a vested interest in protecting our art,” county treasurer Andy Meisner told the Detroit News. “Judge Rhodes’ statement is a clear indication that the sale of this world-class art collection has no long-term financial benefit for the city.”

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