Sometime in the next month Detroit pensioners, creditors and the Detroit Institute of Arts should have some clarification as to how they fair in Detroit’s bankruptcy.
While all groups involved can expect to receive a reduced level of compensation, the current agreement protects the DIA and limits the losses for pensioners. Bondholders stand to see the biggest drop, which explains why they are also the most vocal opposition to the current plan that many are calling the grand bargain.
As with any bankruptcy, the goal is to restructure debt in a way that allows the bankrupted party — the city of Detroit in this case — a chance to recover and become a functioning entity again. For this reason, protecting the DIA from a fire sale makes a lot of sense. The DIA hosted over a half million visitors last year and has seen in increase in attendance for each of the past four years. It brings people to Detroit and gives the community a world-class cultural facility.
While the DIA is perhaps the most visible and one of the most valuable public assets in Detroit, it is far from the only one. If Michigan officials are serious about rebuilding Detroit, they should consider taking some of the 50,000 or so government owned properties and offer them to the creditors. This could be a win/win for both parties since it offers creditors a chance to recoup some of their lost profit by constructing commercial properties, parking structures, grocery stores, apartment buildings, shopping malls, or entertainment complexes.
Imagine if the Motor City were to have a new complex that hosted NASCAR or Indy car races that also served as a state of the art facility that the big three could use to show off new products. Imagine if the Detroit casinos were flanked by a number of Las Vegas style theaters that hosted acts like Cirque du Soleil, the Blue Man Group or top Michigan music acts. Imagine if Detroit had the facilities to host a top golf, tennis, boxing or horse racing event.
The more attractions Detroit can provide, the more people will visit and these visitors will create jobs that Detroit and Michigan desperately need.
No one should feel bad for some of Detroit’s biggest creditors, since they knew going in that they could lose their investment and they would receive a good return based on this risk. Risk is the nature of investment. Risk means that your money could be lost.
Free blighted properties aren’t necessarily a prize for these investment firms. But if the state sweetened the deal by offering tax abatements, they might be more motivated to develop the property or partner with a company that will.