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Foundations, Social Services Expected Detroit Bankruptcy

By Mark Hrywna - July 19, 2013

With more than $18 billion in estimated liabilities, the City of Detroit joins Jefferson County, Ala., and Stockton, Calif., in having filed Chapter 9 bankruptcy in recent years. What that means for charities and independent sector investing in the Motor City is still being calculated.

There’s a sense in the city that the bankruptcy filing was inevitable and now the city can look and move forward, according to Mariam Noland, president of the Community Foundation of Southeastern Michigan in Detroit. “There’s some truth to that,” she said. “We’ll have to pay attention to what happens as it unfolds, there may be opportunities to do things that are different.”

Noland is optimistic and hopeful that bankruptcy actually will bring new interest and resources to the Motor City. “It’s not going to scare people away at all,” she said, but rather, draw interest to the city. “”As a community foundation, we were getting tons of interest from people who lived here before, asking what can we do.

“It may actually make it easier for outsiders to come in who see opportunity here,” she said, adding that she’s already received calls from people expressing interest. The bankruptcy may well galvanize positive impact within the city and elsewhere, she said.

“No reasonable alternative to rectifying the city’s financial emergency exists other than confirmation of a plan of adjustment for the city’s debts under Chapter 9 of the United States Bankruptcy Code,” Emergency Manager Kevyn Orr said via a statement. He presented a restructuring plan to creditors last month before formally filing Chapter 9 bankruptcy on Thursday.

In a video on his website, Gov. Rick Snyder said filing for bankruptcy provides the city with “a fresh start” and “realistic promises” for creditors — of which there are estimated to be more than 100,000. The largest creditors are related to the city’s pensions for public workers and bond holders.

Looking beyond the issues of pension and bond liabilities, Noland said: “I’m not so sure nonprofits are going to fare less well because of” the bankruptcy filing.

“Detroit nonprofits across the board have had eight years of pretty deep depression and financial challenges and we’re coming out of it. The economy is turning around in Michigan, turning quickly,” said Noland. “If you look at the nonprofits in Detroit and the state, they’ve had to deal with the challenges of lack of revenues for a long time,” she said.

Tim Delaney, president and CEO of the National Council of Nonprofits (Council) in Washington, D.C., agreed with Noland. “I think it’s important for people to recognize that while the official filing occurred yesterday, this has been a financial struggle for a number of years,” he said. “Nonprofits have been stepping up and a lot more has been demanded of them. It’s not lie a switch has been flipped and things are automatically different, because they’ve been struggling to meet increased needs for several years.”

A number of issues arise for Delaney, foremost of which is, what will happen to nonprofits that have contracts with the city. “They become another creditor and it’s one more piece of the puzzled that goes before the bankruptcy judge. The fact is, Detroit has some 700,000 residents with ongoing needs that need to be met. You can’t deliver all the needs to that many people on just hope and well wishes. It takes resources.”

Donna Murray-Brown, president and CEO of the Michigan Nonprofit Association, said sees the bankruptcy as an opportunity “for not just nonprofit organizations but residents to really create the next Detroit,” she said. Although Murray-Brown acknowledged that the demand for services will probably continue to rise, she’s optimistic. “Nobody wanted to be here, it’s a scary thing to be n a city that just filed for bankruptcy, but it’s also an opportunity,” she said. “Kevyn Orr wants to maintain services to residents. This is a time not to acquiesce but to be proactive and figure out the best role for nonprofits.”

Kathy Moran of Focus: HOPE, a human services nonprofit in Detroit, said the bankruptcy demonstrates the necessity of the nonprofit sector. “We exist to help fill the gap between what government can provide and what the community needs,” said Moran, communications manager. “While the bankruptcy filing highlights the problems here in the local economy, it also challenges us to work even harder to meet the needs of local residents.”

Community foundations have been monitoring the financial health of nonprofits in the area for a long time. “While I think the filing of bankruptcy immediately doesn’t make much change, it’s going to have an impact on people’s lives as they play out, and where does $18 billion come from?”

Officials have said that everything is going to run as normal but Noland question what exactly is the definition of normal at this point. “It’s a beginning of what is a longer story on what’s going to happen,” she said.

There will be conversations about what are public assets and what’s available in a bankruptcy. There are organizations that are basically city assets, such as the Detroit Zoo and Detroit Institute of Arts. “What’s this mean for them? Some I think will fare very well. The state is probably willing to help out in some cases, but a bankruptcy of this scale has not happened yet,” she said.

The Battle Creek, Mich.-based W. K. Kellogg Foundation has about $105 million in active grants in Detroit. It recently opened an office in the city and plans to double the number of staff working there, from three to six, to “reaffirm the commitment,” said Jim McHale, vice president of program strategy.

There’s no way that foundations will be able to fill all the gaps that might arise in city services but Kellogg, which focuses on poverty and early childhood development, will look at how the bankruptcy decision impacts the area and adjust programs accordingly, McHale said. “Just revisiting work we’re currently doing, and does this situation allow us to think differently in our strategies,” he said.

“I don’t necessarily see increasing our budget but increasing staff, bringing more staff, in helping to bring about a turnaround. We’re already in the midst of a turnaround,” McHale said.

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