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Ed Driscoll

It’s Time for Detroit to Part with its Art Collection

December 16th, 2013 - 6:26 pm

“If Detroit Cares About Its Future — and Art — It Will Sell its Museum’s Masterpieces,” Nick Gillespie writes at Reason:

Don’t get me wrong: In its attempts to deal with an estimated $18 billion in debt, Motown will absolutely be giving out buzzcuts worthy of an Army barber to everyone who has ever drawn a paycheck from City Hall or was stupid enough to lend it money. But with a collection valued at somewhere between $452 million and $866 million, the DIA’s collection—featuring pieces by Picasso, van Gogh, Matisse, and other masters—should absolutely be on the market.

Critics of the idea consider such an option not only “delusional” but reminiscent of Stalinist art sell-offs during the 1930s. “Michiganders might remember that in the 1920s and ’30s, the cash-hungry Soviet government sold off Russia’s art treasures, dispersing them to other countries,” sniffs Judith H. Dobrzynski in TheWall Street Journal. “Today, that episode is viewed as a national tragedy.” That may well be true, but if so, it’s among the least objectionable crimes against humanity perpetrated by the USSR. After all, they didn’t destroy the art—they merely sent it to places where it could be appreciated without fear of execution.

Let’s get real: What sort of message would it send to current and future residents—not to mention current and future bondholders—if Detroit refuses to put everything on the table? You can’t eat the DIA’s “Still Life With Fruit, Vegatables, and Dead Game,” no matter how well-rendered, and for most of the past 80 years, the city has been subsidizing not just the day-to-day running of the museum but also its acquisitions. Such spendthrift priorities are one small reason why the burg is in such bad shape to begin with (and also why the city has relatively clear title to the artworks under consideration).

Building a future around a slogan like Detroit: Come for the Bankruptcy but Stay for the Bruegel is no way to resurrect a city whose population peaked back in 1950. As urban theorist Joel Kotkin has put it, “We get it wrong. We think the cultural amenities drives the prosperity [in cities], when it’s really the prosperity that drives the cultural amenities.” Artifacts from past periods of wealth—especially publicly funded museums, sports stadiums, orchestras, and the like—are luxury goods that never pay for themselves, either directly or indirectly. Detroit can rebuild its municipally owned art collection if and when it can afford to cover expenses related to activities beyond the core functions of government. Until then, let the bidding begin!

Kotkin’s quote sounds very much like a codicil of Reynolds’ Law:

The government decides to try to increase the middle class by subsidizing things that middle class people have: If middle-class people go to college and own homes, then surely if more people go to college and own homes, we’ll have more middle-class people. But homeownership and college aren’t causes of middle-class status, they’re markers for possessing the kinds of traits — self-discipline, the ability to defer gratification, etc. — that let you enter, and stay, in the middle class. Subsidizing the markers doesn’t produce the traits; if anything, it undermines them.

Besides, as we’ve written before, Detroit’s local government deliberately turned its back on its cultural past during the two-decade long racialist “Start From Zero” regime of Democrat Mayor Coleman Young. Like the Soviet Union in the 1920s, why would his successors want all that artwork that’s simultaneously both politically incorrect and PC (Pre-Coleman) continuing to contaminate Detroit’s carefully lobotomized cultural purity?

So how did Detroit wind up in such dire fiscal straits? At City Journal this month, Steven Malanga spots a large mile marker on the city’s road to perdition — the 13th check:

Most press accounts note that city-worker pensions in Detroit are modest. They rarely mention that, for two decades, the city supplemented those pensions with annual, so-called “13th checks” for retirees—an additional monthly pension payment. Pension-fund trustees—themselves city workers, retirees, city residents, and elected officials—handed out nearly $1 billion in these annual payments to retirees in the city’s general pension fund. The trustees defended the payments as rewards to workers in years when the pension system’s investment returns exceeded projections. In lean years, they justified them as social policy. “Many retirees relied on that check to pay their increased utility bills during the winter,” wrote an attorney for the city’s pension system in 2011. “Also remember that the money would go directly into the local economy.”

Some reform-minded Detroit officials tried to halt the payments, understanding that they undermined the pension system’s finances. When he succeeded Coleman Young as mayor in 1994, Dennis Archer grew alarmed at the extra payments. He was rightfully concerned—as the Free Press noted, the pension system “was largely controlled by union officials acting as trustees.” Archer placed a voter initiative on the ballot in 1996 to cease the extra payments, but ferocious union opposition helped defeat it. “That’s a whole lot of money that if it was in the pension fund today, that may have made a difference in terms of where the pension fund stands,” Archer recently said.

Astoundingly, the 13th checks continued even after the city borrowed $1.44 billion in 2005 to plug a funding hole. Even today, the city’s unions are pursuing legal action to restore the bonus checks. Retirees haven’t been the only beneficiaries. The pension plan also created a savings system for workers to deposit their money. Unlike most private plans, though, this one offered workers guaranteed high rates of return. In some years, according to a report by the Conway MacKenzie consulting firm, workers got an interest rate far exceeding pension investment gains. In 2009, for instance, the pension system gave workers a 7.5 percent return on their savings, even though pension assets slumped by 24 percent. In its report, Conway MacKenzie called such payments “an abuse of discretion” and noted that the trustees, who determined the yearly guaranteed return, were “effectively robbing (the General pension fund) of precious funds necessary to support the traditional pensions the city had promised.”

As Megan McArdle wrote in September at Bloomberg.com on “Detroit’s Pension Madness:”

These “bonuses” were used to lower the contribution the city was required to make, to give retirees a little something extra around Christmas time, and to fund individual savings accounts that workers are offered along with their pensions. In 2009, when the financial markets were completely frozen and the automakers were shotgunning through the bankruptcy courts, the pension trust paid 7.5 percent interest into those accounts — which is about 7.5 percent more than they would have gotten at a bank. This while the pension funds were busy losing about a quarter of their value.

I literally slapped my forehead while reading some of the explanations that the trustees offered for their behavior. The spokesman for the trustees has the nerve to complain about the actuary’s report that outlines these wild deviations from sanity. Here is how she justified draining the pension fund assets:

She said that the trustees were administering benefits that had been negotiated by the city and its various unions and that they had established an internal account to set aside “excess earnings” that would cover the cost. She said it was appropriate for retirees to benefit from market upturns because they had paid into the pension fund, so their own contributions had generated part of the investment gains.

“People were having a hard time, living hand-to-mouth, and we thought we would give them some extra,” Ms. Bassett said.

It does not seem to have occurred to Ms. Bassett, or the other trustees, that people would have a very hard time when the pension that they were depending on went up in smoke.

Something that can’t go on forever, won’t. ™

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