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December 23, 2014

Grand Canyon and Detroit

The recent bankruptcy of Detroit inappropriately analyzed what the art owned by the city was worth to Detroit. It only took into account what the art would sell for on the open market and ignored how the city could benefit by utilizing these assets in a different manner.
Detroit will never have the opportunity to fully utilize the value of the art stored at the DIA because the Grand Bargain, which was the centerpiece of the Plan of Adjustment under the recent bankruptcy, accepted far less than it was worth. There were two appraisals of the art, one placing the value at $4.6 billion and the other at $8.5 billion. In either case both appraisals were substantially higher than the $500 million in present value terms that the city benefited by in the bankruptcy. The city walked away from at least $4 billion and got nothing in return.

The logic used by those selling the Grand Bargain was that the city will still benefit from all of the dollars spent in the local economy by those visiting the Detroit Institute of Art. This is true but no one bothered to look at other possible uses of the funds tied up in art and comparing the return from the arts visitors to the return from these other uses.
The city would have benefited far greater if it held onto the art until after the bankruptcy and slowly sold it off over a 10 year time period utilizing the funds to build one of the best public school system in the state. The city will never fully recover to prosperity without growing its middle class. Middle class families will never move to Detroit if it does not improve its schools.

Sure the DIA will continue to attract visitors but the Grand Canyon attracts visitors but not many want to live there. If Detroit does not do something about its failed school system it will become another canyon that people will visit but will never make it a home.

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