In Detroit bankruptcy, what will happen to DIA?

[Rosa]

I'm sure you're right, LodgeDodger. However, I'm thinking of how personal bankruptcies are usually carried out. For instance, if I file Chapter 7, I have to provide the court with a list of all my assets. Any assets in excess of the state exemptions are eligible to be seized by my creditors. If Detroit filed BK, would the DIA artworks be assets that could be sold off or seized, or are city bankruptcies handled differently?

And I'll have that nice medieval chapel with the gorgeous stained glass that's near the Kresge Court. It would make a nice add-on to the homestead here in Hamtown.

[cman710]

Welcome to the Forum, Rosa. I hope you continue to participate here.

In order to answer the question, I think we would need to know what Detroit "owning" the DIA means, if Detroit owns it at all. Does Detroit own the DIA's building? Does Detroit own any of the works of art? Is the DIA owned technically by an entity that is not the city of Detroit? Those are just some of the questions.

In order to try to find more information about the DIA, I consulted the DIA's 2008 Annual Report. [[The 2009 report has not been posted yet).

In the section of Note A of the financial statements entitled, "Art Objects and Collection," it states:

In conformity with allowable museum practice, the value of the Art Collection is excluded from Statements of Financial Position. Title to art objects purchased by or donated to the DIA is offered to the City of Detroit Arts Department and title transferred when accession to the permanent collection has been approved by the Board of Directors of the DIA and the Arts Commission of the City of Detroit...Sales of works of art are subject to a policy that requires proceeds from their sales to be used to acquire other items from the collection.

So the city does hold title to the artwork in the museum.

Note C, "Relationship with the City and State of Michigan" provides a clearer answer to the ownership question:

Effective February 1, 1998, the DIA entered into an operating agreement with the City to administer, manage, and fundraise for the museum with the mission to promote and maintain the excellence of the museum. The City continues to own the museum's permanent art collection, including works of art acquired prior to or subsequent to the operating agreement, as well as the building museum and grounds. The operating agreement expires June 30, 2018.

The note also indicates that the DIA manages the museum without compensation.

So the city does own the DIA and its artwork. I am not sure how that would play out in bankruptcy. The museum does not state the value of its artwork in the financial statements, so I do not know what the estimated value of it is, though I would imagine it is in the hundreds of millions. If I can find any more information about bankruptcy and how it would play out, I will post it here.

[cman710]

As a side note, in the financial information section of the annual report, we can get a window into the sources of the museum's revenues. The information below is for the fiscal year that ended June 30, 2008.

That year, the DIA had just under $45 million in revenues, and $42.2 million in expenses. Of the $45 million in revenues, $23.6 million came from private donations. $7.6 million came from membership and development, and $6.5 million came from programs and operational activities. Just over $1 million came from government appropriatons [[most of which was probably state funding). About $2.9 million came from Board appropriations, but I am not sure where these revenues ultimately originated from. At the least, this shows that the museum relies very little on public funding for its operations, but it relies very heavily on its endowment and donations. That source has undoubtedly taken a big hit since the 2007-2008 fiscal year, especially with the accelerating downturn of many Michigan companies.

While the museum's revenue was greater than its expenditures, the museum nonetheless had a deficit of $1.2 million because of other changes in net assets, such as capital expenditures. The museum's net [[total) deficit was $9.89 million. The DIA did have positive cash flow, however, and at that point, had $8.3 million on hand in cash and short-term investments.

[Coaccession]

Since Detroit owns the art collection at DIA, it's one of the wealthier cities in the USA. All that financial value is off the books -- that's how museums keep their books, with FASB 116 blessing -- but we're not talking the hundreds of millions of dollars cman710 mentioned. The number is way, way up in the billions -- enough to generate cash income on an endowment that would fully fund Detroit's arts and culture budget and essential services to boot. If Detroit mobilizes that value, the structural deficit goes away and there's no need for any bankruptcy.