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A man walk past graffiti in Detroit, in this file photo taken December 3, 2013. (JOSHUA LOTT/REUTERS)
A man walk past graffiti in Detroit, in this file photo taken December 3, 2013. (JOSHUA LOTT/REUTERS)

Detroit brings bankruptcy plan to court with billionaires in tow Add to ...

Detroit’s plan to fix its finances with hundreds of millions of dollars in private donations comes years after the U.S. automotive capital got hooked on philanthropy to rebuild its blighted neighbourhoods, revamp its riverfront and lure new businesses.

Since at least 2003, few big-city governments in the U.S. have leaned as heavily as Detroit on charity for community redevelopment, a habit that won’t change as it seeks to shed about $7.4 billion of debt and end court oversight of its finances.

U.S. Bankruptcy Judge Steven Rhodes is to start a trial today in Detroit on whether to approve the city’s plan to exit its record $18 billion municipal bankruptcy with handouts from some of the richest foundations in the world.

Under a deal with state lawmakers and wealthy donors, the foundations offered to shore up Detroit pension funds as long as the city didn’t use its art collection to pay debts. The city may call billionaire Dan Gilbert, the founder of Quicken Loans Inc., and Penske Corp. founder Roger Penske as witnesses to testify in support of the plan.

“There is a growing concern about who is controlling the decision-making here,” said Dale Thomson, director of the Institute for Local Government at the University of Michigan at Dearborn. “The scale and length of commitment in Detroit is unique,” according to Thomson, who’s writing a book about the role of foundations in urban revitalization.

More Help

Per capita, only one large U.S. city got more help than Detroit from philanthropic foundations and the rich who dominate their boards, according to data collected by the New York-based Foundation Center, which tracks such giving. It exemplifies a trend of local officials, pressured to cut spending, looking to charity for help.

“Governments used to lead and now they can’t,” said Joel Kotkin, director of the Center for Demographics and Policy at Chapman University in Orange, California. “They are bogged down, in large part, by the pensions and debt they can’t handle.”

In the decade before the city went bankrupt, charities spent more per person on community projects in Detroit than in any other big U.S. city except San Francisco, which has access to Silicon Valley megadonors like Google Inc. Detroit’s fiscal woes make it far more dependent on charity than San Francisco, where the median income is almost three times higher.

Private foundations poured $421.5 million into community development grants in Detroit from 2003 to 2012, according to the Foundation Center data.

$600 Each

That equals about $600 for each of the city’s almost 700,000 residents. The money replaced government spending on matters including economic revitalization, neighborhood development and public-policy planning. The Foundation Center figures don’t include hundreds of millions of dollars pledged to help the city exit bankruptcy.

The linchpin of Detroit’s plan to address its liabilities is cash from a group of foundations, and the state of Michigan, to shore up public pensions. In return for $466 million from the foundations and $350 million from the state, the city agreed not to sell its art collection to pay off its debts.

Only three other big American cities got more private money from 2003 to 2012: New York with $1.6 billion, San Francisco with $582 million and Chicago with $430 million.

The groups doing the most work in Detroit include the Kresge Foundation, Ford Foundation, John S. & James L. Knight Foundation and Skillman Foundation. They were among the charities that rebuilt, beginning about 2002, the city’s riverfront park through a nonprofit. The park is maintained by a $50 million endowment from Kresge.

Housing Subsidies

Foundations supplied housing subsidies to attract workers to the Midtown area, with $5 million set aside to draw 15,000 new residents by 2015. Even an effort to plan and build a commuter light-rail system is being led by foundations, which have pledged $100 million toward the effort.

Such projects are typically put together by government agencies, mainly using local taxpayer money supplemented with public and private grants.

“We’re in a very dangerous situation, where you have very small groups of people not arguing about policy, but implementing policy,” said Kotkin, author of “The New Class Conflict.”

City officials don’t agree that the increased influence of private money is necessarily harmful.

“You are seeing this across the country,” Bill Nowling, a spokesman for Detroit’s emergency manager, Kevyn Orr, said in an interview. “There is much greater cooperation between the public and private sectors when it comes to planning.”

Detroit Future

The city’s blueprint to rebuild after bankruptcy, called the Detroit Future City project, was inspired by and funded, and remains dominated, by a group of foundations. That plan lays out where future development should take place.

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