It was July 18th- I will always remember where I was the day Detroit filed for bankruptcy. I was on business in Sault Ste Marie and remember feeling helpless because I was so far away from my hometown when I heard the news. While I wasn’t surprised, I was saddened by the news initially because it gave the city of Detroit yet another undesirable distinction: largest municipality to file for bankruptcy. Later, I remember the sense of anxiety I felt thinking about what this meant for the hundreds of nonprofits serving the needs of those in and around Detroit. What would the impact be of such a drastic and bold measure?
I immediately began doing a bit of research about the impact to nonprofits after the Jefferson County, Alabama filing and then the Stockton, California filing. Although these municipalities filed for bankruptcy, the scope and size of their debt was not comparable to Detroit’s $18 billion in debt. I spoke with nonprofit leaders in state and out of state to get their opinions regarding their thoughts of what I should be concerned about.
Some of the things I was asked to consider were very logical, such as, if the city of Detroit is not able to pay it debtors, they may rely more heavily on the nonprofit sector to deliver more services than before. This could be devastating for the sector which has already stretched itself thin from the demand in services from a high unemployment rate, the fallout from foreclosures and the reduction of city services over time.
Then there was learning more about the unsecured creditors. Were there any nonprofits listed as unsecured creditors? Detroit Economic Growth Corp was listed as a creditor for roughly $20 million of the debt. I was certain there were many more nonprofits that were creditors that paled in comparison to the amount owed to DEGC, but would suffer still the same without payment from the City of Detroit.
Over time, things became a bit more complicated, when there were talks about seizing art from the Detroit Institute of Art to satisfy bad debt. While this might be a viable option for generating cash for a cash-strapped city, it raised more anxiety about the scope of how deep and wide the filing of bankruptcy could be. At the moment the assets of the DIA seem protected, however, the very threat of such an impactful asset to the community is enough to take the wind right out of its sails.
Being a statewide, nonprofit member-based organization, I was afforded the opportunity to survey members serving residents in the City of Detroit. I was also able to ascertain some insight to nonprofits that contracted with the city of Detroit for Community Development Block Grant dollars which were unsecured creditors with no real means to extract their funds from the City to keep their programs and services intact.
I learned there was quite a bit of anxiety around the notion of difficulty associated with retrieval of CDBG dollars owed to the organizations. Additionally, there was a need to advocate on behalf of the nonprofits who are unsecured creditors but may not have legal counsel on staff or available to them to attend the bankruptcy hearings and state their claim.
The prospect of having federal funds not being activated because the city is going through this process seems counterproductive to the outcomes the Emergency Financial Manager seems to be striving for. While the financial challenges of the city are overwhelming, we in the nonprofit sector realize there needs to be a stronger partnership between public, private, and nonprofit sectors to reach a sustainable city.
So over the next several weeks, I plan to dig deeper and attempt to connect, with the help of others, with Kevyn Orr and his team in earnest. My specific goal in doing this is to position the nonprofit sector as a partner, one that is used to adversity and has creative ideas to solve some of the challenges the city is facing. This isn’t just a good thing to do, it is a more efficient and cost effective way of addressing a better financial path for the city.
There seems to still be a window of time to create a partnership that realizes everyone’s goals: a thriving, financially solvent Detroit.
Submitted by Donna Murray-Brown, President & CEO, Michigan Nonprofit Association
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