Thursday, June 13th, 2013

Cities Need a “Deaccessioning Policy” for Public Assets

One of the major controversies following the appointment of Kevyn Orr as emergency financial manager for the city of Detroit has been the exploration of whether or not the art at the city-owned Detroit Institute of the Arts can or should be sold to satisfy creditors in the event of a bankruptcy filing. This obviously sent shock waves of indignation through the community.

Following on from that, the Detroit Free Press took a look at what other assets could be on the auction block. In addition to extremely valuable masterpieces by the likes of Van Gogh and Matisse at the DIA, there are also classic cars at the city history museum, the animals at the zoo (estimated price of a female breeding giraffe: $80,000) and Belle Isle Park.

Obviously with $15-17 billion in long term debt and no way to pay it off, Detroiters are delusional if they don’t think they are going to face painful sacrifices. This is the day of reckoning for a region that has failed in its basic duties.

On the other hand, having an asset fire sale is not a good idea. Cities are not companies, where you can file Chapter 7 and liquidate. Indeed, cities can’t be forced to sell assets at all under bankruptcy, though certainly pressure can be brought to bear.

This reminds me of the approach that has too often be taken regarding privatization. Mayor Daley in Chicago seems to have selected assets for privatization not based on any public interest criteria, but based on where he thought he could generate cash. This seems to be common. What public assets have positive market value? Sell them off! Similarly, the Orr seems to be looking at Detroit’s assets merely as sources of cash.

NYT Economist Paul Romer presciently told me that better handling of assets in bankruptcy is a key issue for cities and something on which private sector restructurings might shed some light. Corporate bankruptcies not only restructure debts, they ensure assets are allocated productively. But municipal bankruptcy today is almost entirely about paying what is owed. “How can we make sure that civic assets end up used more efficiently in municipal bankruptcy?” Romer asked.

I think it’s a good question, and one that deserves thought well before bankruptcy emerges. Cities accumulate assets over time but often fail to manage them. Corporations suffer from the same issue, but there’s generally a more rigorous asset management approach. For example, when I was working in corporate technology, we held quarterly asset impairment reviews to ensure we fairly valued any capitalized assets on our balance sheet. We also performed application portfolio reviews to classify systems in terms of things like “invest and enhance”, “maintain”, or “retire” and formalized these in our annual SLAs with user groups.

Retiring assets is a hugely contentious issue anywhere. I’ve yet to not find a corporate software application that someone somewhere didn’t scream bloody murder about getting ride of. A common tactic for things like reports is for IT departments to simply stop producing one to see if anyone screams. (I one time launched a new system where the legacy environment that was being replaced had over 1,000 reports. We managed to go live on the new system with 15. Given that it has been in production for a long time now, I suspect they are back up to a thousand).

I really haven’t seen much in the way of analogous processes for government. But I think there should be. That is, there ought to be some type of criteria developed to articulate the public interest and policy goals with regards to assets, and then the existing asset based managed according to that. The idea is to invest limited resources wisely and make sure that the asset base of a city is being utilized properly. And when assets are to be disposed of, it’s not some emergency cash raising exercise.

When it comes to asset disposals, perhaps cities should in fact look to museums. They are organizations that hold precious assets in trust with the idea that they will be cared for in perpetuity. However, there’s also a recognition that disposing of artwork can sometimes be appropriate, if safeguards are put in place.

As one example of how to do it right, the Indianapolis Museum of Art developed a formal deaccessioning policy that includes reasons for disposing of art work, the process for doing it, and restrictions on the use of proceeds. They also maintain a deaccessioning database where the public can review and comment on artwork that is proposed to be disposed of, and see which works were sold and where the proceeds actually went.

Something analogous for cities, along with an actively managed process for asset review and management, might help help avert these frantic searches through the attic looking for heirlooms to sell and such. It would also provide a robust framework for saying No to privatizations and/or asset sales. Otherwise there will be no way to separate the signal from the noise because some group of people will always complain loudly when you want to do something.

It might be too late for Detroit to do something like this at this point, but other cities should look to develop more rigorous asset management policies and procedures.

10 Comments
Topics: Public Policy
Cities: Detroit

10 Responses to “Cities Need a “Deaccessioning Policy” for Public Assets”

  1. John Morris says:

    What’s so disturbing about the DIA rumor isn’t that the idea came up, but that people- act like a forced sale is the worst case scenario and anything else is a success. Obviously, the destruction or loss of the art through neglect or theft would be far worse- and putting it in the hands of entities able to take care of it the highest priority.

    There is a pretty clear record from Eastern Europe & former Soviet States as to what will likely happen. The same thing is happening today in Greece but is rarely reported.

    The idea that this is some kind of shock is also absurd. The museum’s board should have long ago worked to make the institution more financially independent.

    There is an almost zero chance that DIA’s art collection will be sold but that hardly means that it is safe.

  2. George Mattei says:

    Aaron, I like the idea, but don’t you think that in a dire financial situation such as Detroit’s that this Deacessation plan would just be tossed in the sale heap with everything else?

  3. bettybarcode says:

    A museum professional needs to chime in here. Museums have a rigorous accreditation process to make sure that professional standards and ethics are being adhered to. I work for the first museum to achieve accreditation in my rust belt city.

    As the Toledo Blade explained:

    “Museums that receive accreditation by their industry’s organizations must meet certain criteria, and selling a collection to pay debt violates the standards of the American Alliance of Museums, by which the DIA and 1,000 museums from art to zoos, are accredited. It is a museum’s promise to keep and care for its goods for the people that makes them different from an individual or corporation that can own and sell its art at will.”

    Does that mean that museums can never dispose of anything? No. Museum can and do deaccession all the time, subject to specific rules and conditions. But this is very important: proceeds can be spent only on collections: new acquisitions, conservation, housing, storage.

    In other words, you cannot sell your Van Gogh to make payroll, reroof your building, or meet your pension obligations. If you do, you can lose your accreditation.

    Can you still function as a museum without accreditation? Sure, but you lose eligibility for NEH and most other major grants. Plus, once you are in the business of selling artifacts, you are not a museum, you are an antiques dealer, and your not-for-profit status can and should be yanked.

  4. John Morris says:

    I’ll be honest, the official museum deacessation policy is a joke that says nothing about what really troubled institutions should do.

    It’s all fine to say that no museum should ever sell work for any purpose other than acquiring more art. What should a museum that truely can’t fix it’s roof, keep the lights on or provide security do? According to the current guidlines letting the art rot is ok just as long as it’s not sold.

    I applaud IMA for openly saying it must sell any objects it can’t properly care for.

    All public services and assets should be reviewed to see that government entities are performing at some basic level. If a city cannot consistently maintain parks, playgrounds or public buildings plans have to made to transfer the assets to those who can.

  5. John Morris says:

    @bettybarcode

    I agree that this is- or was the American Alliance of Museums policy.

    The question is in the actual world does this make sense?

    Suppose, an institution actually has a $200 million painting under a leaking roof with no other assets? Is it supposed to let the roof collapse? Does that pass as “ethical”? (I’m not saying that is DIA’s situation)

    By the way, The current AAM website does suggest that

    “an object does not fit the
    organization’s scope of collections, cannot be cared for properly or poses a hazard to
    staff, so it may be considered for deaccessioning.”

    This is at least a nod to the reality that many institutions face.

  6. Brent says:

    The thing is, the DIA is only owned by the City of Detroit, not operated by it, so the art is in no danger of being stolen (any more than at any other museum), and the building is being properly maintained. This is through a tax levy on the residents of Wayne, Oakland, and Macomb Counties, not just the City.

  7. John Morris says:

    Yes, I tried to acknowledge that the art in DIA doesn’t seem to be in tremendous risk. It’s a relatively small museum without huge overhead. It’s important because of the quality of the collection.

    However, many other institutions are seriously underfunded and or mismanaged and huge amounts of work is at risk. For many the best move may be to transfer or sell the works to more viable museums.

    The AAM’s policy is to bury it’s head in the sand.

    A distinction should probably be made between sales to other museums and sales to private collectors. In almost all cases, selling work from a public collection onto the private market should be a last resort.

  8. bettybarcode says:

    @johnmorris,

    As I said up front, “Does that mean that museums can never dispose of anything? No. Museum can and do deaccession all the time, subject to specific rules and conditions.”

  9. John Morris says:

    @bettybarcode

    This is your quote:

    “In other words, you cannot sell your Van Gogh to make payroll, reroof your building, or meet your pension obligations. If you do, you can lose your accreditation.”

    Please stop and think about what you wrote. A museum in need of a new roof or unable to make payroll should absolutely be thinking about doing whatever it can to protect it’s collection- or transferring to someone who can protect it.

    The AAM guidlines seem to clearly state, not being able to take care of work is a good reason for selling it.

    Your attitude is nothing more than burying your head and acting like situations like that don’t happen.

  10. John Morris says:

    I think we need a broader definition of “default” for public entities like non-profits and governments that goes beyond just finances.

    We should know if they are meeting some basic standards.

    Is a museum able to protect it’s collection?
    Is a city maintaining it’s parks, housing, public art etc… at some bare bones level?
    Are they providing fundamental services?

    That concept exists a little with education where states come in to take over poorly performing school districts.

    How many so called “public parks” in Detroit can actually be used and enjoyed by it’s residents?

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