SCOTT DETROW, HOST:
In 2013, Detroit, Michigan, found itself in bankruptcy court. The city was some $18 billion in debt. And the man who was tapped to help find a solution, Federal Judge Gerald Rosen, says things were really bad.
GERALD ROSEN: Forty percent of the street lights were out. The water and sewer system was completely beyond its shelf life. We were springing floods all over the region. Snow wasn't being plowed. Garbage wasn't being picked up. Police response time was over an hour. The national average was 11 minutes. There were 12,000 fires a year. City workers had no collective bargaining agreements. And really, the city had no assets other than the Detroit Institute of Art, and all of the creditors wanted to liquidate it.
DETROW: Meaning sell the art, which would have been a huge blow to one of the most revered museums in the world, as well as the city as a whole - so Rosen figured out a plan to both keep the art and pay off the city's debt. A decade later, now retired from the bench, he has written a full account of his time as the mediator at the center of the complicated deal. The book is called "Grand Bargain: The Inside Story Of Detroit's Dramatic Journey From Bankruptcy To Rebirth." To get a sense of the scale of the problem Rosen faced, I began by asking how many different entities Detroit owed money to.
ROSEN: Well, there were 170,000 different creditors, but, of course, those would be broken into groups, and the major groups were, of course, the retirees. And with their retiree health care debt, which was almost $6 billion, and their pension under funding debt, which was $3 1/2 billion conservatively stated - really, it was much more than that. The other creditors were bond issuers and their insurers of all kinds. Of course, it was a bankruptcy, so anything that one creditor got would leave less for other creditors (laughter).
DETROW: Yeah.
ROSEN: In addition, the city workers had had no collective bargaining agreements for years and years, so the unions were an important component of it. The water system - water and sewer department, as I mentioned, was completely broken and needed to be reconstructed almost entirely from the beginning. These are just some of the, you know, groups that we had to contend with. There were many more, of course, on the political side. There were the Republicans and Democrats in the legislature and the governor and, of course, the county executives, the emergency manager who had been appointed by the governor. Then overlaying all of this was the art, the...
DETROW: Yeah.
ROSEN: ...Detroit Institute of Arts, which was the only asset in the bankruptcy.
DETROW: So you have people whose, you know, livelihoods are at stake because they were counting on this pension plan as they planned their lives around it and worked for years thinking that it would be there. You have this zero-sum-type situation of creditors who want millions and millions of dollars that they're owed. You have the basic services that need to be met. I'm curious how you even begin to get started. Like, who - how do you decide what the first phone call you're is going to make is? How do you sort through all of the different angles of a problem like this at the very beginning?
ROSEN: I began talking to the lawyers for all of the creditors and for the city and for the state, and it was pretty overwhelming. And I began to think of the bankruptcy as bookended, Scott, by, on the one hand, the retirees whose plight was pretty desperate. I mean, these are people who had given their entire working lives to the city, and they were in great danger of having their pensions cut 30- to 35%, which would have been devastating.
And on the other hand, the art, which was the city's only asset that could be monetized - and selling the art, selling the museum, liquidating it, seemed to me to be just terrible idea. You know, Scott, Detroit had been cannibalizing its heritage to mortgage its future for decades, and where had it gotten us? And it just seemed to me that liquidating the art would be the exclamation point on Detroit's obituary.
DETROW: And just to hop in there, I think a lot of people listening know really well, but for those who don't, when we're talking about the art of the Detroit Institute of Art, we are talking about world-class paintings and murals and sculptures, like, a phenomenal museum. And this - like you said, it would have been totally devastating to liquidate and sell them off, piece by piece.
ROSEN: Yeah, just as a note, I'm very happy and proud. You know, we saved the art as part of the Grand Bargain Plan, and for the last two years, '24 and '23, the DIA was selected as the No. 1 art museum in the country. It's a remarkable collection. And in some areas, it had the premier collection of art in the world.
DETROW: As best as you can in a broadcast interview, because I know we're talking about an agreement that ran probably thousands of pages, incredibly technical - but can you explain the way that you figured out how to check both these boxes at the same time - monetize the art, fund the pensions, keep the art in the museum?
ROSEN: Well, it actually started with a little doodle that I did when I was down in Florida on the cardboard backing of a legal pad. And I'd had this idea that if we could somehow use the art and the pensions to leverage that and raise money, put the art in a trust, and all the money that we raised - flow all the money through the trust to the retirees to reduce their pension losses and maybe even get them off the creditor runway, that could be the beginning of a solution.
So I just doodled this idea, which was to have the state kick-start the funding and put the art in a trust, lock it off from all the other creditors and use the trust to flow any money that we raised over to the retirees. And then I had a bunch of questions, which I wrote down under that. And perhaps quite surprisingly, that little doodle is hanging in the Detroit Institute of Arts now as the core of the solution to the largest municipal bankruptcy in history.
DETROW: So this deal has now held for 10 years. You have seen a lot of success in Detroit rebounding in a lot of different ways. And I think over the course of that 10 years, the broader political system has gotten a lot trickier and a lot less likely to craft big agreements to deal with big problems. So I'm wondering, you know, especially - you're now a full-time mediator. How much of this is replicable to other tricky negotiations or impasses, whether you're talking about municipalities that are facing bankruptcy or just broader big negotiating questions?
ROSEN: It all starts with will, the willingness to find common ground. In Detroit, we had it. We had all these people from all different points on the geographic, political, demographic, cultural compass come together to find common ground and unite around a big idea. If people have the will to find a solution with a little nudging maybe from a mediator, most problems can be resolved, and that's really the story of Detroit.
DETROW: A lot of this came down, in many different points, to relationships. You're making a lot of phone calls. You're having a lot of meetings. You're having a lot of breakfasts. You know, that's - I think relationships is one of those things that are kind of frowned upon when it comes to the political culture right now. How important are those? How is - important is actually knowing the person you're trying to cut a deal with when you're in a position like this?
ROSEN: Absolutely critical because it starts with trust. And to trust somebody, you have to get to know that person. Talk to them, and listen to them. Try to understand what their concerns are. Try to understand what their objectives are, what the issues are that are most important to them. And if you don't do that, I think it's very hard to get the kinds of agreements that we got.
DETROW: That is Gerald Rosen, a retired U.S. District Court judge and author of the book "Grand Bargain: The Inside Story Of Detroit's Dramatic Journey From Bankruptcy To Rebirth." Thank you so much.
ROSEN: Thanks for having me, Scott. Transcript provided by NPR, Copyright NPR.
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