'Grand Bargain' in Detroit Exemplifies New Kind of Philanthropy

'Grand Bargain' in Detroit Exemplifies New Kind of Philanthropy

With Detroit's plan to exit bankruptcy approved by U.S. Bankruptcy Judge Steven Rhodes earlier this month, the Foundation for Detroit's Future (FDF) soon will be tasked with moving hundreds of millions of philanthropic dollars into the city's public pension system, the Detroit News reports.

Under the so-called "grand bargain," twelve foundations have pledged a total of $366 million — along with $350 million from the State of Michigan and $100 million still to be raised by the Detroit Institute of Arts — to bolster the municipal pension system and prevent the DIA collection from being sold to meet the city's debt obligations. The nonprofit FDF was created earlier this year to collect and disburse the foundations' contributions over twenty years and, according to documents detailed in the city's Plan of Adjustment, will make annual payments of between $17 billion and $18 billion to the city's General Retirement System and the Police and Fire Retirement Systems.

Governed by a five-member board of directors, FDF also is tasked with monitoring the city's compliance with ongoing grant conditions, including pension fund oversight, and will provide status reports to the participating foundations — which include the Community Foundation for Southeast Michigan (CFSEM) and the Ford, Kellogg, Knight, and Kresge foundations. The New York Times notes, however, that unresolved problems with the pension system, including its reliance on a funding formula that understates the true cost of the pensions and is predicated on generous projections of future returns, could lead to risks down the road, given that the city's pension payments will total more than $500 million a year — more than twice its annual income-tax receipts in recent years — even after benefit cuts mandated by the bankruptcy plan.

Still, for some, the foundations' commitment to the grand bargain and large-scale revitalization projects in Detroit represent a new kind of philanthropy — one that sees foundations and nonprofits taking on riskier and more assertive roles in a variety of areas and situations. Or, as Kresge Foundation president Rip Rapson told the Detroit News, the challenges in Detroit have forced foundations to think outside the box.

"When a community is faced with these difficulties — the financial collapse, the foreclosure crisis, disintegration in City Hall, combined with the auto industry collapse — it [raises] the question...whether philanthropy...[is] prepared to step out in a slightly more assertive way and be helpful," said Rapson. "The entire philanthropy community is behaving differently than they did seven years ago. We are taking more and different kinds of risk."

Lawrence T. McGill, vice president of research at the Foundation Center, said the $366 million pledged by foundations toward the grand bargain is historic. By way of comparison, foundations nationally gave a total of $550 million between 2008 and 2012 in support of efforts to ameliorate the effects of the economic crisis. "As far as I can tell," said McGill, "[the $330 million is] pretty close to unprecedented in terms of...foundations trying to solve the solvency issues."

Jennifer Chambers. "Nonprofit to Move Funds to Detroit Pensions." Detroit News 11/12/2014. Jennifer Chambers. "Foundations Think Out of Box to Aid Detroit." Detroit News 11/11/2014. Mary Williams Walsh. "Detroit Emerges From Bankruptcy, Yet Pension Risks Linger." New York Times 11/11/2014.