Detroit's Grand Bargain
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Detroit’s Grand Bargain Philanthropy as a Catalyst for a Brighter Future Irene Hirano Inouye Philanthropic Leadership Fund The Center on Philanthropy & Public Policy University of Southern California About the Center on Phil AnthroPy & PubliC PoliCy The Center on Philanthropy and Public Policy promotes more effective philanthropy and strengthens the nonprofit sector through research that informs philanthropic decision-making and public policy to advance public problem solving. Using California and the West as a laboratory, The Center conducts research on philanthropy, volunteerism, and the role of the nonprofit sector in America’s communities. In order to make the research a catalyst for understanding and action, The Center encourages communication among the philanthropic, nonprofit, and policy communities. This is accomplished through a series of convenings and conversations around research findings and policy issues to help key decision makers work together more effectively to solve public problems and to identify strategies for action. This case study is underwritten by the Irene Hirano The Center on Philanthropy & Public Policy Inouye Philanthropic Leadership Fund at The Center Sol Price School of Public Policy on Philanthropy & Public Policy. University of Southern California We want to acknowledge the assistance of Michael Lewis Hall, Room 210 Thom, and the insights and perspectives offered Los Angeles, California 90089-0626 by the individuals interviewed for this case. Listed Phone: (213) 740-9492 at the end of the case, they included many of the Email: [email protected] principals involved in the Grand Bargain. Website: cppp.usc.edu An electronic copy of the case can be downloaded Copyright ©2017 by on The Center’s website at cppp.usc.edu. The Center on Philanthropy & Public Policy All rights reserved Design by Printed in the United States of America Detroit’s Grand Bargain Philanthropy as a Catalyst for a Brighter Future A case study of the irene hirAno inouye PhilAnthroPiC leAdershiP fund James M. Ferris june 2017 C ontents PREFACE.............................................................................................................................................. I EXECUTIVE SUMMARY......................................................................................................................... II Detroit’s Grand Bargain.................................................................................................................. 1 Overview................................................................................................................................. 1 Detroit Falls into Bankruptcy after Decades of Decline............................................................ 2 Bankruptcy Arrives................................................................................................................. 3 The Seeds of the Grand Bargain.............................................................................................. 5 Philanthropy Comes to the Table............................................................................................ 6 Table I: Foundations of the Grand Bargain.................................................................. 8 The State Joins in.................................................................................................................. 10 The Detroit Institute of Arts Steps Up..................................................................................... 10 Box I: Detroit’s Treasures: The Detroit Institute of Arts................................................. 11 Table II: Contributions to the DIA’s $100 million Commitment...................................... 12 The Retirees: The Real Heroes................................................................................................ 14 Exiting Bankruptcy................................................................................................................. 14 Table III: Detroit’s Financial Emergency, Bankruptcy, and The Grand Bargain: A Timeline........................................................................ 16 Philanthropy: Working Without a Script...................................................................................... 19 Getting to Yes....................................................................................................................... 19 Working Out the Details......................................................................................................... 21 Summing Up......................................................................................................................... 22 Lessons for Philanthropy................................................................................................................ 25 Questions for Discussion....................................................................................................... 28 REFERENCES...................................................................................................................................... 30 GRAND BARGAIN INTERVIEWEES........................................................................................................ 32 PrefC A e Bold philanthropic leadership is critical to addressing community problems. Yet, foundations can only chart such a course if there is shared governance between foundation boards and their executives. To this end, The USC Center on Philanthropy & Public Policy launched a fund to support research and programs to explore foundation leadership as it solves society’s most pressing problems. It is named in honor of Irene Hirano Inouye for her exemplary leadership and success in building effective foundation boards. Hirano Inouye, president of the U.S.-Japan Council, served as board chair of both the Ford Foundation and The Kresge Foundation. The Irene Hirano Inouye Philanthropic Leadership Fund elevates and amplifies the role of philanthropic leadership in strategies for scaling impact, bringing greater attention to the issues of shared governance between boards and executives in foundations, including effective board practices, through the development of cases that can stimulate conversations with foundation trustees and executives. In that spirit, this case describes the story of Detroit as it teetered on the brink of financial collapse in 2013, and the uncommon role that philanthropy played in resolving the crisis. The case examines how philanthropy catalyzed a brighter future for Detroit and the bold leadership that was required to do so, offering lessons and a set of discussion questions to stimulate conversations among foundation boards and executives. I exeCutive summAry When Detroit went into bankruptcy on July 18, 2013, Rosen’s idea centered on creating an “art trust.” Even many observers thought that the troubled rust belt as he spoke to the foundation leaders, however, he city was on the ropes, and in for years of litigation. realized that his argument for enlisting philanthropy’s Yet it emerged from bankruptcy in less than 16 involvement was slightly off point. Many of the months, its claims settled. In large part, that foundations did not fund the arts, and none of achievement was due to an unprecedented and them provided support to pensioners. His focus extraordinary collaborative philanthropic effort. shifted to argue that what was needed was an investment in Detroit’s future. Critically, his audience This case first describes the circumstances that led then saw that the proposal before them, if not to Detroit’s bankruptcy. It discusses how emergency fully formed, nonetheless presented an opportunity manager Kevyn Orr, appointed by Michigan Governor they could not ignore. Rick Snyder, came to understand that there was no other way than bankruptcy for Detroit to settle its The foundations recognized that the consequences of obligations, reduce blight, restore services, and open leaving the adjudication of the bankruptcy to litigation a viable path towards revitalization. Then it chronicles would have created uncertainty, exacerbating the the events that followed as a group of foundations crisis and leaving no way out in sight. And they led the State of Michigan, the Detroit Institute of understood that those circumstances would have Arts (DIA), and the city’s pensioners to craft the undermined the good work in Detroit that they had Grand Bargain, the complex set of agreements and done in the past, and set them up to struggle to commitments that raised $820 million in “new money” regain lost ground in the future. Thus, they came to settle the claims of the city’s pensioners. The to share a common vision and commitment for the Grand Bargain was the lynchpin in creating a path to future of the city, each finding their own way to see resolve Detroit’s financial crisis and putting the city that their involvement in a “Grand Bargain” was on a sustainable course towards recovery. integral to their goals, even if supporting the city in such a way was not articulated in their mission In brief: U.S. Chief District Judge Gerald Rosen, statement or specified in their strategies. appointed to mediate creditors’ claims by U.S. Bankruptcy Judge Steven Rhodes, initially approached In that spirit, they agreed to put up $370 million a diverse group of foundation leaders with an eye towards settling the pensioners’ claims – the largest towards raising money to leverage the city’s one share of the city’s outstanding obligations. Rosen was significant asset: the DIA’s art collection.