Taxes for Art

Photo by k.l. macke, Kerrytown, July 2009

Since its inception, I’ve been stunned at the wrongheadedness and profligacy of the Ann Arbor Percent for Art program (based on a 2007 ordinance).   (See our previous posts, For Art’s Sake  and Money for Art’s Sake.) Now the subject is back under discussion by the Council (see AnnArbor.com’s coverage of the Council meeting and their earlier article about the issue).  Rumor is (via email gossip) that a Council working session may be discussing the program on October 10.   It is even more urgent in this time of scarcity to restructure this program, if not to eliminate it.

There are three problems with the Percent for Art program.

1. It is almost certainly  illegal.

2. It is based on a false premise.

3. It erodes the public trust in government.

For this post, we’ll just stay with the first point.

Why Ann Arbor’s Percent for Art program is illegal

Supportive council members sometimes cite the existence of similar-sounding programs in other cities to justify the legality of Ann Arbor’s  Percent for Art program.  (Carsten Hohnke is thus quoted in the recent AnnArbor.com article.)  But those programs are different from Ann Arbor’s in significant ways.

In Philadelphia, which was one of the first cities to adopt such a program, the ordinance states,

An amount not to exceed one percent of the total dollar amount of any construction contract for a building, bridge and its approaches, arch, gate or other structure to be paid for either wholly or in part by the City, shall be devoted to Fine Arts; provided that the Art Commission certifies in writing that said ornamentation is fitting and appropriate to the function and location of the structure.

That language clearly indicates that only major construction projects that have a monumental character will have art attached to them.

In New York,  the program requires  “that one percent of the budget for eligible City-funded construction projects be spent on artwork for City facilities”.   Note that word “eligible”.  Their website continues, “the Program began in 1983 with the development of a procedure for determining eligible projects…(the program) offers City agencies the opportunity to acquire or commission works of art specifically for City-owned buildings”.  Again, we are talking about buildings, and not all are eligible.

New Orleans stresses that it engages local artists to supply public facilities with artworks. They are paid for with “funding generated by 1% of eligible municipal capital bonds“.  Note that word “eligible” again?  And if the project is paid for with a bond, it is likely a large project like a building.

The State of Wisconsin has had a program since 1980.  While “two-tenths of one percent of the total construction budget for selected new state buildings or renovation projects is designated for the commission or purchase of artwork”, it notes that  “Only state buildings with a high degree of public access are eligible for Percent for Art funding“.   That word “eligible” again!

Our Ann Arbor ordinance, in contrast, says that the funding will be one percent of all capital improvement projects.  That means just about everything in the Capital Improvement Plan.

In case we didn’t get the message, the ordinance specifies:

Capital improvement project means any construction or renovation of any public space or facility including buildings, parks, recreation areas, parking facilities, roads, highways, bridges, paths, sidewalks, streetscape improvements and utilities.

Ordinary maintenance and underground stormwater detention are specifically excluded, but otherwise all the construction of any kind done by the city is assessed 1% for the arts program. One percent may not sound like much, but those pennies add up – and subtract.  It is not free money.  It comes from whatever was funding the particular capital project and that money is then not available to do the work that it was intended to do. And while the other programs mentioned have as their objective ornamenting significant buildings or other important structures, it’s hard to hang a painting on a water main.

To be fair, there have been some programs in other states that access a broader range of public projects.  See the excellent summary prepared by the Columbus (Ohio) Art Commission.  But few of them have tapped restricted funds.  According to A2Politico, the use of utility money for a Percent for Art program in Seattle was struck down in court.  And none of these programs have had to be legal under Michigan law.

Michigan law that directly applies to the Percent for Art program

Michigan law has its peculiarities, as surely that of any state must.  Since we are in Michigan, state law trumps practices in other states.  There are two court decisions from Michigan courts that apply directly to the Percent for Art program.

First, let’s note where the money has actually come from to date.  Thanks to CM Sabra Briere, a summary has been circulating that details collections and expenditures into May of this year.  Here’s where the money has come from:

The amounts shown in blue are from dedicated millages.

 The amounts shown in red are from funds based on user fees.

  (I’m not sure of the sources for Energy, Alternative Transportation, or Airport)

                                                                                                                                                                                                                                                                                                                                                                                                                            Note that most of the money has not been taken from funds that might be expected to pay for buildings, but rather funds that pay for services.  The largest amounts are from road funds and water utilities.  But the most important point is that most of the money has been taken from what should be considered restricted funds – that is, funds that are statutorily dedicated to a particular purpose.  Such reallocation of dedicated or restricted funds should be illegal. And this is the case, as shown by a couple of well-known Michigan court decisions.

1. City of South Haven vs. Van Buren County Board of Commissioners

It might seem obvious that if you vote for a millage that says it is to pay for a well-defined purpose, you should be confident that government will spend that money for that purpose.  But there is actual Michigan law to say so.  It is the General Property Tax Act (Act 306 of 1893).  That is where it says that millage proposals should include “A clear statement of the purpose for the millage”.   In the South Haven case, though the way the ballot proposal itself was worded was probably illegal and was clearly unfair to the city, the Supreme Court in essence held that the funds could not be used in any way other than shown on the ballot because the legislature meant what they said in the General Property Tax Act.  As the ruling states,

If funds that voters approved for the purpose stated on the ballot could be redirected to another purpose without seeking new approval, there would be no reason for including the purpose on the ballot.   Indeed, voters could be lulled into voting for a millage for a popular purpose, only to have the funds then used for something they may well have never approved. (My italics.)

Clearly, this has happened in Ann Arbor.  When citizens voted for a millage to repair roads, or to maintain our parks, nowhere on the ballot did it say “plus just a little tiny bit for the arts”.

2. Bolt vs. City of Lansing (1997), commonly called simply “the Bolt decision”.

Some services are not paid for by millages (based on property tax), but rather by user fees.  User fees are not considered to be a tax because they are intended to pay for the service based on its usage, thus are in effect a purchase by the user.  Mr. Bolt felt that his fees were being used to pay for services that he was not receiving.  The Supreme Court agreed, and further, they said that any user fee that was not assessed for the stipulated service was an unlawful tax.

As explained in an analysis from SEMCOG, the court established a three-part test for whether a required payment is a user fee or a tax.

• The fee must serve a regulatory purpose rather than a revenue raising purpose.

In other words, a fee may not be imposed merely to raise revenue, but must be related to the way the service is administered.

• A user fee must be proportionate to the necessary costs of the service.

Again, the amount of the fee should be no more than it actually costs to deliver the service.

• A user fee must be voluntary – users must be able to refuse or limit their use of the commodity or
service.

So if your water fees are eating you out of house and home, just conserve water and reduce your payment.  The idea is that the fee is related to the amount of the service that you use.

The real crowning point of the court’s decision was that any fee that did not meet these criteria was an unlawful tax, not a user fee at all.  And because it was a tax, it violated the Headlee Amendment – so it was unconstitutional.

The Headlee Amendment to the Michigan Constitution (1978) was intended to limit state and local taxation to 9.49% of total personal income.  It does this through several mechanisms, but the provision relevant to our current discussion is this:

It requires that voters approve local government tax increases not authorized by law or charter prior to November 1978 (that is, any local taxes not already in place at the time the Headlee amendment was adopted have to be approved by the people who will pay them).   (Quoted from Michigan in Brief, 6th edition.)

So if a municipality levies a “user fee” that is not properly constructed, and is thus actually a tax, it is illegal because it is a tax that has not been approved by the voters for the area where the fee is being levied.

Clearly using sewer and water fees to purchase art violates this standard.  We cannot deduct the portion of our water bill used to pay for art.  We did not vote for this tax.  And art is not related to the service for which we are paying the fees.  There is no wiggle room here.  If the one percent that is being withdrawn for art is not needed, we are being overcharged for the service.  If it results in even a minute decrease in needed construction and maintenance for the water utilities, the service is being compromised for a purpose unrelated to the service.

How hard can this be?

These are not abstruse legalities.  These are simple, understandable, unambiguous conclusions based on clear court rulings, backed by clear legislative intent.  Why has it been so hard for our city attorney’s office to make the same determination?

It is a mystery.

Explore posts in the same categories: civic finance, politics

11 Comments on “Taxes for Art”

  1. Murph Says:

    I’ll offer up an argument, primarily for interestingness. Both your discussion of dedicated millages and /Bolt/ rely on the idea that a Percent for Art program involves a removal of funds from a particular pot to a wholly separate “art” pot, and that this “money is then not available to do the work that it was intended to do.”

    In the case of dedicated millages approved at ballot, your assertion takes the form of ” nowhere on the ballot did it say ‘plus just a little tiny bit for the arts’”. Keeping in mind that ballot measures are limited to 100 words, if I recall correctly from Ypsi’s transit measure last year, what level of detail is required to meet your standard? If I vote for a millage for “streets”, does that include sidewalks? Curb & gutter? Street trees? Can I challenge a particular road project because the ballot language did not specify “high-type bituminous” as a paving material? Because the width of the right-of-way to be improved was not specified on the ballot? Because when I voted, I wanted the concrete used in the project to be made from recycled fly ash? Because the city switched to an updated set of ADA curb ramp specifications between the ballot and the construction of a particular project, thereby changing the actual project from what I had in mind when I voted on it?

    To some extent, this is a reductio ad absurdium argument–but there is a perfectly valid point here: when I vote on a ballot item, most of the time I am voting for a program that will, by necessity, have changing specifications and expectations over time. I expect that to go through a public process, to be sure–for example, the order in which streets are rebuilt gets specified as part of the regional TIP programming process, or the municipality might adopt a complete streets policy through the legislative process that updates expectations of a street project–but I don’t expect all of that can be either pre-determined completely at the time of the vote or included on the ballot.

    (It occurs to me that one way to address this question is a timing issue: we can question application of a Percent for Art program to any dedicated millage already in place at the time the PfA ordinance is passed–but, to continue the streets millage example, if the PfA ordinance is in place at the time the streets millage comes on the ballot, then it seems fairly clear that the newly passed millage would include the PfA, because it would then be part of the overall policy governing the millage as voters decide it, right?)

    • varmentrout Says:

      Murph, I hope that this is not an indication that you are becoming the Compleat Bureaucrat. Talk about legalistic sophistry! But you raise a useful question and one that is considered carefully every time a ballot measure is devised.

      The simple answer would be that the money should be used in the way that a reasonable person would consider related to the measure. So street millages could reasonably be used to construct dedicated bike lanes (on the street) in the course of reconstruction, but perhaps not on an unaltered street. If the millage is for street resurfacing (as stated), curbs and gutters might not be appropriate. But an argument might be made in some circumstances that they were necessary to safely resurface a damaged street. Trees don’t relate to street function so would be excluded.

      I can’t think of any way that art projects could be viewed as a part of street resurfacing.


  2. Vivienne,

    This is a simply fantastic overview of the parameters placed on other Percent for Art programs. What dawned on me when reading the language of Ann Arbor’s ordinance is that the Art Fund has built up $2.2 million rather quickly, and depending on the speed with which the money is spent, it would be possible to build up yet another “slush” fund to be tapped when necessary.

    That is the M.O. of those on Council at the moment.

    It’s quite clear that either Council needs to exempt projects funded with millage money AND projects funded with utility money, or the legality of the ordinance should be challenged in court.

  3. Tom Whitaker Says:

    To add insult to injury, City Council voted to raise our water, sewer and stormwater rates just this past June:

    Chronicle coverage: http://annarborchronicle.com/2011/06/20/ann-arbor-raises-water-sewer-rates/

    Quoting the article, “According to the city, the rate increases are needed to maintain debt service coverage and to maintain funding for required capital improvements.”

    This, while over $1.2 million taken from these three funds sits idle in the Percent for Art black hole.

  4. Nancy Shiffler Says:

    One question this opens up: What kind of legal advice is being provided when the city staff or the council write up the language for an ordinance? Seems like a bit of legal research could have surfaced these problems to begin with.

  5. Andy Says:

    Glad to see you tackling % for Art. #3 has been my primary concern — in light of the cuts to public safety resulting from the city’s budget situation, even the small amount going to this program just sends the wrong message to taxpayers. It is stunning how tone-deaf the mayor & certain members of council are being about this issue.


  6. [...] 2011, I wrote a three-part series on the Percent for Art program.  (Part I Part II Part [...]


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