Detroit art museum warns auction could be death knell By Nick Brown and Joseph Lichterman Thu Aug 1, 2013 11:48am EDT (Reuters) - A top officer at the Detroit Institute of Arts predicts near-certain closure for the museum if Detroit sells major pieces from the 60,000 works in the institute's art collection as a way to address the city's dire financial situation. In an interview Wednesday, Annmarie Erickson, the DIA's chief operating officer, told Reuters the museum could lose significant funding if pieces from the collection are sold. "It would certainly mean the closure of the museum, maybe not tomorrow, but eventually," Erickson said. Our situation is in some respects just as dire as that of the creditors. But with Detroit facing more than $18 billion in debt and retired city workers confronting cuts to pension and health benefits, the museum could have a tough time making a case for preserving its assets, bankruptcy experts say. Kevyn Orr, the state-appointed financial manager, has not ruled out the sale of DIA treasures to address the city's financial plight. The rocky outlook for cultural assets like the DIA illustrates the tough choices facing a city once considered the cradle of American vehicle manufacturing. Like General Motors and Chrysler - Detroit titans that survived collapse by having painful decisions thrust upon them via bankruptcy - the city may have to part with cultural gems to bounce back from disaster. Mark Young, president of the Detroit Lieutenants and Sergeants Association, which represents about 500 mid-level managers in Detroit's police department, said art should not outweigh workers, whose pensions and benefits are likely to face big cuts as Detroit restructures. "The Van Gogh must go," said Young. We don't need Monet - we need money. The Detroit Institute of Art is not the only major cultural institution that could be caught up in Detroit's bankruptcy proceedings. Belle Isle, a 982-acre recreational spot in the Detroit River, as well as the Detroit Zoo could both be sold. While the cultural assets may have a strong book value - the DIA collection is said to be worth billions - converting them to cash may prove both politically and practically challenging. The state of Michigan first offered to lease Belle Isle from Detroit in January, agreeing to assume $6 million in annual operating costs. But Governor Rick Snyder abandoned the plan after the City Council stalled a vote on it. Orr has said he intends to enter a new agreement with the state under "generally the same terms" as the January offer. In one of the more improbable proposals, a local developer, Rod Lockwood, has floated a plan to buy Belle Isle for $1 billion and turn it into a libertarian commonwealth where residents would pay a $300,000 citizenship fee. But public officials have expressed determination to keep Belle Isle open to the public, and Orr's spokesman, Bill Nowling, on Wednesday dismissed the Lockwood proposal as "out of the mainstream." The Detroit Zoo, supported by a tax voters approved in 2008, is owned by the city but operated by the nonprofit Detroit Zoological Society, which received $475,018 from the city in 2012, down more than $100,000 from 2011, to reimburse security and insurance costs. "The primary asset is really the land," the zoo's spokeswoman, Patricia Janeway, told Reuters. The facility has obviously been developed as a zoo and would require major expense for other use. The zoo's animals, she added, "fundamentally have no commercial value." None of the cultural assets has caught the attention of the public quite like the Detroit Institute of Art. One of the largest U.S. fine art museums, it features works such as a Vincent van Gogh 1887 self portrait and a 27-panel fresco by Mexican artist Diego Rivera. It is a rare shared point of civic pride for citizens of both Detroit and its suburbs. The DIA is owned by the city and run by a nonprofit group whose board includes some of Detroit's most high-profile civic leaders. Residents of Detroit and its suburbs agreed to help cover operating costs through a tax levied according to the value of their real estate. Erickson, the museum official, warned that art sales could lead to revocation of the tax, which provides nearly two-thirds of the museum's roughly $35 million budget. Doug Bernstein, a bankruptcy expert and lawyer at Plunkett Cooney, said Detroit could argue in bankruptcy court that it needs to keep the DIA intact. "If you're going to ever restructure a city, you've got to revitalize the tax base, and part of that is having attractions," he said. Even if Orr does try to sell DIA art, he could run into obstacles. The museum has said the art cannot be sold because it is held in a charitable trust for the people of Michigan, a position backed by state Attorney General Bill Schuette. Individual pieces of donated art can also carry contracts that bar their sale, Erickson said. Robert Hudson Tannahill, the late Detroit art collector, donated 470 objects, but his will stipulates that if the DIA sells any piece, the entire collection must be offered to another museum, Erickson said. Orr may be able to overcome those blockades under bankruptcy rules that let debtors reject unprofitable contracts, said Bill Brandt, a bankruptcy expert and head of turnaround consultant Development Specialists Inc. In the end, some art is likely to go, said Brandt. "You can't kill pensions but save the art," he said. If Orr does move to sell the art, he will probably face public resistance, along with a costly, time-consuming legal battle. The DIA has retained bankruptcy guru Richard Levin and has saved for months to fund its legal costs, Erickson said. There are alternatives to flat-out sales, like creating a public-private partnership to run the museum. "But the private entity has to make money," said one bankruptcy expert, who declined to be named because he is involved in the case. Where's it going to come from? Charging for admission? Then your attendance goes down. Orr could seek to charge the DIA rent, but Erickson said the museum already pays $31 million a year in operating costs and cannot afford much more. Politically, there may be no winning formula, with strong feelings on both sides of the argument. Richard Feigen, chairman of the Richard L. Feigen & Co gallery, said some collectors would be repulsed by a sale of DIA art. "The auction would be tainted," he said. Even if I had the financial capability, I wouldn't buy. The city's creditors are likely to view the DIA's art a bit differently. "I would say all dollars are green," said one creditor-side professional who declined to be named. It won't be a quick process. Erickson said Orr has yet to meet with the DIA to discuss his plans for the art. A person close to one creditor said Orr has not brought the issue up in discussions with creditors, either. "In spite of all the attention given to this, I think we're pretty far down (Orr's) list," Erickson said. We're in it for the long haul. Reporting by Nick Brown in New York and Joseph Lichterman in Detroit; additional reporting by Bernie Woodall and Nick Carey; Editing by Claudia Parsons