Alberto Ibargüen’s foray into an unusual form of philanthropy began with a phone call last fall from Mariam Noland, head of the Community Foundation for Southeast Michigan.
Ms. Noland asked the president of the John S. and James L. Knight Foundation to meet with the chief mediator in Detroit’s bankruptcy. The mediator, a federal judge, wanted help from the foundation community, but there were few details. “We decided to go based on Mariam’s say-so that this guy was serious,” Mr. Ibargüen says.
Today, Mr. Ibargüen is a headliner in the “grand bargain"—an $816-million government-philanthropic deal embedded in Detroit’s financial-reorganization plan, which this month won approval from a federal bankruptcy judge. It’s a deal that some people see as a dangerous precedent, given the shaky finances of many cities.
Knight and other national foundations, including Ford and the Michigan-based Kresge, Mott, and Kellogg foundations, promised nearly $320-million over 20 years to help shore up Detroit’s pension system, protect its art museum, and lift the city from bankruptcy.
That’s the lion’s share of the $390-million committed by charitable trusts as a cash infusion to help the city pay worker and retiree pensions.
Nevertheless, Mr. Ibargüen and others in the deal insist that Ms. Noland, the museum, and Detroit’s local foundations were key to the arrangement.
The Detroit Institute of Arts made what its board chairman, Eugene Gargaro Jr., describes as a "$100-million sprint” to fulfill its commitment to the deal. The museum gathered pledges from the Andrew W. Mellon Foundation and the J. Paul Getty Trust, among others, even though it meant tabling plans for a critical endowment campaign.
The family foundation of the late lumber magnate Fred Erb donated $10-million, an unusual step because the philanthropy usually focuses on environmental issues.
John Erb, Fred’s son and the head of the foundation, says he acted in part because his late parents’ caregiver, a former fire-department worker for the city, was among the retirees facing a crushing drop in benefits. “We really believe this is a new day for Detroit,” says Mr. Erb.
Lingering Skepticism
Not everyone sees such impact in the foundations’ work. “They managed to save a museum in the middle of a city that we still have no firm evidence is going to turn around,” says William Schambra, director of the Hudson Institute’s Bradley Center for Philanthropy and Civic Renewal.
In Detroit, there is some concern that the grand-bargain commitments will take away from the foundations’ investments in the city. So far there’s no sign they’re pulling back, but cultural organizations are watchful as they plan a series of new campaigns, says Anne Parsons, chief executive of the Detroit Symphony Orchestra. “It remains to be seen how the investment in the grand bargain will impact those.”
Still, Ms. Parson says she has faith in Ms. Noland and the others. “When Mariam speaks, we all listen. And we feel confident in what she says.”
A veteran of the Cleveland Foundation and Minnesota’s Saint Paul Foundation, Ms. Noland opened the Community Foundation of Southeast Michigan in 1985. Then it had just a couple million dollars in assets. Now, three decades later, it has nearly $800-million in assets and annually makes grants totaling more than $50-million.
Over time, the foundation has become known as a coalition builder, according to Susan Mosey, president of Midtown Detroit, a planning and development nonprofit. “They’ve played a major role for years in putting together broad strategies and aggregating capital for a whole wide variety of issues. I think that’s something Mariam has a particular skill at doing.”
Innovative Response
One day last fall, Ms. Noland was asked to build a coalition of an unusual sort.
U.S. District Judge Gerald Rosen, the chief mediator in Detroit’s bankruptcy, invited her to his office in the Detroit federal courthouse, where she says he outlined a plan to shore up the city’s pension system.
The city had suggested that it might be forced to sell the world-class collection of the Detroit Institute of Arts. But Judge Rosen said the art could never draw its fair value on the market. Worse, any sale would probably lead to years of lawsuits, stalling Detroit’s revitalization.
Judge Rosen, according to Ms. Noland, proposed that foundation leaders assemble a package of support—likely hundreds of millions of dollars—to be funneled to the pension system over many years. The city, in turn, would transfer ownership of the museum to the nonprofit that runs it, protecting the art from a sale.
“My initial reaction? What an amazing idea,” Ms. Noland says. “Here was a way to save the art and the pensions.”
Judge Rosen asked Ms. Noland to round up foundation leaders to hear his plan. Her first call went to Mr. Ibargüen, at the Knight Foundation. To pull off the deal, she says, there had to be big money from one or two national foundations, and Mr. Ibargüen was a trusted friend. When he was hired by Knight in 2005, Ms. Noland had been a foundation board member and served on the search committee.
“She’s invariably thoughtful, she’s insightful, and she does her homework,” Mr. Ibargüen says. “There’s a steel will behind the most ethical and polite person that you’re ever likely to meet.”
‘We’re In for $30-Million’
Representatives from about a dozen national and local foundations gathered in Judge Rosen’s office on November 5, 2013. He delivered a sobering assessment of Detroit’s financial woes, then outlined his art museum-and-pension idea.
“I was simply shocked,” says Darren Walker, head of the Ford Foundation. “It was so bold and ambitious and so out of the ordinary.”
That evening, Ms. Noland hosted a dinner at her suburban home so that Mr. Walker, Mr. Ibargüen, and others could talk more with Judge Rosen.
Sharing a car for the ride back to Detroit, the Ford and Knight chiefs agreed to join the deal, pledging big numbers to persuade others—Ford to the tune of $100-million, Knight with $20-million.
When Mr. Ibargüen presented that number to the Knight board, it voted to increase the commitment to $30-million, a record for the foundation.
He remembers: “I called Darren and said, ‘Listen, you piker: We’re in for $30-million.’ " Ford later committed $125-million.
Detroit is expected to formally exit bankruptcy later this month. Ms. Noland is heading the newly created Foundation for Detroit’s Future, which will control and monitor the grand-bargain funds. Coming out of the bankruptcy, Ms. Noland says, the city has an opportunity to reset. “The world is watching.”
