Looking Back: Before the Bargain Was Struck

By Susan Drake Swift

“What we have before us are some breathtaking opportunities disguised as insoluble problems.”
—John W. Gardner, 1965

At the Grand Bargain’s beginning there were enough doubts and doubters to derail the entire initiative in a dozen different ways.

IS board member Kyle Caldwell observed what transpired wearing two different hats: the first as head of the Michigan Nonprofit Association, and, subsequently, that of the Pathways Out of Poverty program officer at IS member, the Flint-based Charles Stewart Mott Foundation, whose namesake was an industrialist associated with General Motors, headquartered in that city. (Caldwell currently serves as president and CEO of the Dorothy A. Johnson Center at Grand Valley State University in Grand Rapids.)

As far as Michigan’s nonprofit community was concerned, “there were two schools of thought, one philosophical and one practical,” Caldwell says. “One held that nonprofits should by definition take a stand and fight the bankruptcy with the Detroit Institute of Arts in the mix, the other advanced the realization that we could litigate for ten years at a great expense of funds and not be sure we would win.” Caldwell believes nonprofits were “less concerned about the art and more about the Detroit Institute of Arts being one of the city’s last remaining jewels. If it went up for public sale, there would be nothing left.” Nonprofits were also worried about “sacrifices being asked from pensioners who were not flush to begin with. Then there were the broader concerns for the sector, as to what precedents would be set. Could the nonprofit community be held hostage in the future in other municipal bankruptcies? Was Chicago next?”

“At the time, many people asked: ‘Is this even possible?’ says Katy Locker, Detroit program officer for the Knight Foundation. Like many Detroit families, Locker’s had left the city when she and her siblings reached school age; she circled back after law school at University of Michigan to work in the nonprofit sector. To her surprise, the Grand Bargain not only proved possible, it restored her faith in government, while also instilling some school pride at the number of fellow alums who were central to its success. “After a long period of time during which people had no faith in public officials,” marvels Locker, “They were acting in the best interests of the city, following the law, making commitments, and acting with intelligence and integrity.”

At the time, David Egner was president and CEO of IS member, the Hudson-Webber Foundation, endowed by a prominent Detroit family that grew a single men’s and boy’s store into a retail giant. He also was executive director of the New Economy Initiative for Southeast Michigan. (He is now president and CEO of the Ralph C. Wilson, Jr. Foundation, named for the late owner of the Buffalo Bills football franchise, which supports philanthropy in and around Detroit as well as Buffalo.) Egner points to a significant hurdle that had to be overcome, one that burdened the minds of many people in Detroit. “People feared that the Grand Bargain would shoo off philanthropic money for other purposes. Just the opposite occurred.” The Knight Foundation’s Ibargüen agrees: “Some people feared that our significant contribution might be a one-time gift to the arts in Detroit.” It wasn’t.

No stranger to win-win partnerships, Egner says the Grand Bargain took collaboration to a whole new plateau. “The Grand Bargain was a unique moment in time when institutions with unique missions and programs worked together. It taught us to stay in touch and know each other’s work.” While proud of the role foundations played, Egner reserves his highest praise for the federal court system and the top-notch credentials of the Eastern District’s judges, characterizing presiding Judge Steven W. Rhodes as “extremely thoughtful” and Judge Gerald Rosen, the intensely persuasive, Churchill-quoting bankruptcy mediator, as “masterful.”

Judge Rosen didn’t always feel that confident. He recalls his presentation to the board of the Mott Foundation and how president and CEO William “Bill” White took his elbow before entering the board room. “He said, ‘You know, you don’t have a single vote in the room.’ Stunned, I asked, ‘What about you?’ and he replied deadpan, ‘I don’t know.’” Humorous in retrospect, says the Judge, but at the time, not so much.

It was feared that securing board sign-offs on a fast track basis outside of regular meeting schedules would be a challenge in and of itself, but the approvals moved ahead. When all was said and nearly done, the calculus became clear: each foundation leader, every board on record favoring participation in the Grand Bargain represented significant victories that helped the cause. But for the math to work, the plan needed a very large infusion of funds from foundations not based in the Detroit area, or even in Michigan.

Detroit Institute of Art

The Dinner Party and the Cab Ride

On the evening of the day Judge Rosen described with passion and precision the plan for Detroit’s mediated bankruptcy, Mariam Noland hosted a dinner at her home in the suburb of Grosse Pointe. The guests included Judge Rosen and his fellow mediator, noted Detroit attorney Eugene Driker, Mott Foundation’s Bill White, Knight Foundation’s Alberto Ibargüen, and Darren Walker, who shortly before had been named president and CEO of the nation’s second largest philanthropy, IS member, The Ford Foundation.

The evening waxed on, until it came time for the two out-of-town dinner guests, Walker and Ibargüen, to head back to their respective lodgings in the city. This trip has come to be known as “the $100 million cab ride,” in Walker’s words, and recounted so many times, it has become the stuff of legend. Ibargüen remembers it went like this: “For this to work Ford has to come in big,” said Walker. Ibarguen, noting that he was paying for the car, asked: “How big?” Walker’s reply: ”Fifty or 100 million.” “Well, you piker,” teased Ibargüen, using a gambler’s term for one who makes only small bets, “if you do $100 million, I have to do $20 million, and you are more than five times bigger than me.”

The repartee flew fast and furiously but, eventually, the results were in. Noland learned later that night that the two leaders had agreed to propose to their boards $20 million (eventually $30 million) from the Knight Foundation and $100 million (eventually $125 million) from The Ford Foundation. Together with contributions from other foundations, a critical mass of philanthropic dollars for the Grand Bargain was ensured. “Every single one of the foundations ended up giving, in many cases, the largest grant in their history, and for what?” said Noland, “To bail out a bankruptcy to pay pensioners and buy an art museum for $100 million? The fact they did that says that just like any other natural disaster you do things, because not to do them is unthinkable. Because of our structure and of who we are, whether as a community foundation or private foundation, we have the ability to do these things.”

Walker and Ibargüen also donated considerable staff time and put their own personal leadership capital on the line to ensure the foundations’ messaging was powerfully on target. “Anytime anyone flagged,” said Ibargüen, “Darren would wrap his arms around them.” Walker convened Sunday afternoon conference calls that, says Noland, “Kept us all together.” “There was such clarity of vision, unity of purpose, and joy in participation all the way through,” says Ibargüen. “What lessons can you draw from that? We all knew we had different things to contribute. The actual plan allowed us to be a part of a big tent that included social justice, community engagement, the opportunity to save an art treasure which was the symbol of the soul of the community, the most important single collection of art, not just in Detroit, but in the state. It was also about the city keeping a covenant with retired municipal workers who had earned their pensions, making annual salaries of just $20,000 for white collar workers and $30,000 for police and firefighters. Fifteen percent of those pensioners are city residents.”

As Egner and Ibargüen have already testified, the philanthropic spigot did not close with the conclusion of the Grand Bargain. In June 2015, Walker’s Ford Foundation announced that its new overarching focus on fighting inequality would start – where? – with additional grants to Detroit and his board of trustees met in Detroit for the first time since 1948. “The most stark manifestation of inequality is between Detroit the city and the region of southeast Michigan,” Walker told The Detroit News. “There has to be more support for efforts to build the community.” In November 2015, on the first anniversary of the Grand Bargain, the Knight Foundation announced a new round of grants. Ibargüen’s op-ed in the Detroit Free Press that same week evoked the ardent, in-it-for-the-long-run loyalty other Grand Bargain foundation heads continue to express. “Our continuing commitment to the people of Detroit, who chose to uplift and renew this city in the face of difficult odds, is as alive as when John S. Knight ran his newspapers.”

‘We Are Building a New Narrative’

Detroit Institute of Art

Mariam Noland’s core question to her colleagues was this: “If you are a foundation and you have the opportunity to save your community, are you going to be willing to step up?” For all of the IS member foundations party to the Grand Bargain story, the answer was yes. However, for some foundations, it wasn’t about writing a simple check. It was about needing a mechanism to pay into an unprecedented fund that would pay out pensions to retired city workers for a full two decades.

The mechanism is called a 509(a)(3). If you guessed that it has something to do with the IRS, you are right. In this case, it is also another name for the Foundation for Detroit’s Future.
The IRS defines it as a supporting organization or, in other words, “a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. This classification is important because it is one means by which a charity can avoid classification as a private foundation, a status that is subject to a more restrictive regulatory regime.”
Mariam Noland explains: “The Community Foundation for Southeast Michigan is in this for the next 20 years. We put in place a 509(a)(3), which is subject to various conditions from the federal courts. The board is made up of three members from our community foundation and two from other foundations. If we didn’t have this, we would have had to invent it.”

The Grand Bargain by the Numbers

A total of $816 million was generated to stave off the worst potential effects of Detroit’s bankruptcy. Nearly half was contributed by the philanthropic community.

FOUNDATION DONATIONS DESIGNATED FOR DETROIT’S GRAND BARGAIN (*IS members)

Detroit Institute of Arts Board Chair and business leader Eugene Gargaro also has a list, albeit confidential – of corporations, foundations, and individuals who helped the DIA raise the $100 million it agreed to provide for city pensions as part of the Grand Bargain. “When I heard of the historic and generous commitment from foundations both national and local, and that the governor had stepped forward on behalf of the state, I knew that the Detroit Institute of Arts had to play in this game. But I had very little idea how I would raise the $100 million.” He was told he had 20 years to come up with the sum, but “I didn’t have 20 years as board chair and I wasn’t going to leave it to my successor.” DIA raised the $100 million in ten months.
The DIA was founded in 1885 and has been a staple of Detroit arts, culture, and tourism ever since. With nearly 700,000 visitors each year, the museum is the epicenter of small businesses and enterprises that bolster and enliven its midtown neighborhood. It includes 100 galleries and is probably best known for Mexican artist Diego Rivera’s Detroit Industry fresco cycle and Vincent van Gogh’s Self Portrait, the first Van Gogh painting to enter a U.S. museum collection. The museum also holds significant works of African, African-American, Asian, Native American, Oceanic, Islamic, Ancient, European old master paintings, and Renaissance decorative arts.

During the Grand Bargain days, Mariam Noland’s Community Foundation for Southeast Michigan set up an online giving portal to benefit a Fund to Support Detroit’s Retirees, Cultural Heritage, and Revitalization. Donations were received from two foreign countries and 17 states from Maine to Wyoming.

Once DIA’s role in the proposed Grand Bargain went public, Gargaro began receiving “sizeable million dollar pledges.” He was no stranger to the top people at Ford, GM, and Chrysler who had not only given to the DIA, but served on its board. Told that they seldom worked together, he forged ahead and successfully solicited an aggregate pledge of $26 million ($10 million each from GM and Ford and $6 million from Chrysler). The auto supplier community, “generous on a continual basis to Detroit culture, also wanted to be part of this success story. After that it was one new company after another in Detroit and elsewhere in the state. I rarely made a presentation where someone said ‘no.’ It was, ‘how long do I have to pay?’”

Toward the end of 2014, Gargaro was “elated” to report to the governor that with the support of his “amazing partners,” the money was raised without the sale of a single piece of art. But, as Gargaro puts it, “the entire DIA is covered with a veneer of education.”

Protected, along with the famous works of art, was the museum’s central role in mentoring thousands of Detroit schoolchildren every year on the beauty and importance of art and culture. “On any school day throughout the year you will see yellow school buses lining the streets in front of the museum. As a grandfather of two, I know that this is about the future.” Just like the Grand Bargain.

Self-Portrait, Vincent van Gogh, 1887, oil on canvas. Detroit Institute of Arts