DATELINE: March 18, 2009, Chicago
There has been a lot of ruckus the last few days about AIG and bonuses. We are sympathetic to the public outcry, but are more sympathetic to the sanctity of contract. People should be very nervous about a 100% tax on these bonuses. Works fine in an isolated case, but once Congress goes there, will they do it again and will you be the one paying the tax? Congress, the Bush Administration, and the Obama Administration should have done better due diligence.
We were particularly amused by the blogger referred to in the Chronicle of Philanthropy yesterday who suggested that the bonuses be...
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redirected to charity. We are getting tired of this old saw. Charity always is the perfect cleanser for all wrongdoing. A lot of AIG investors lost a lot of money because of what management did. They are entitled to that money long before it goes to charity. More accurately, we suspect AIG’s creditors are entitled to that money before it goes to charity. This is a self-serving solution put forth by members of the independent sector. Charity isn’t always the solution.
We were particularly amused by that blogger’s suggestion that the Starr Foundation be the recipient because it owned a lot of AIG stock. We can’t think of a worse charity were the bonuses redirected to a charity. As we understand the facts, the Starr Foundation has long been a tool used by AIG insiders to keep those insiders entrenched. To the extent the facts bear out our understanding, the Starr Foundation deserves what it got.
But our screed today is not really about AIG, but like AIG, our subject raises issues of private property. New York Assemblyman Richard L. Brodsky has introduced a bill in the New York Legislature that prohibits museums located in New York from selling art objects and other artifacts to fund operating expenses. Robin Pogrebin, Bill Seeks to Regulate Museums’ Art Sales, N.Y. Times (Mar. 18, 2009). Unfortunately the legislature’s Web site only provides the bill’s status, not its text (A06959), but the Times was kind enough to publish a copy of the bill.
We can understand why the New York Legislature would stick its nose into museum business if it is funding grants to those museums, but we don’t like this legislation to the extent it applies to private, self-supporting museums. The state is acting as if the artwork is public property. This should be viewed as threat to freedom of association. Restrictions on a private entity’s right to dispose of its property as its board believes appropriate is nothing less than a restriction on association. Maybe you believe art belongs to the public, but as is the case with AIG, there are bigger issues at stake.
Several weeks ago, we received a call from a reporter who was concerned that the Uniform Management of Institutional Funds Act (UMIFA), which is still the law in about 20 states (the newer UPMIFA has been adopted or is being considered in nearly 30 states), was impeding charities from looking to their endowments to avoid cutting programs as a consequence of budget shortfalls brought about by the economic downturn. We don’t think the reporter necessarily had the law right, but perception apparently shaped some behavior. Any blanket restriction preventing the sale of assets is a problem, whether it comes from a donor or the state. Times and circumstances change. Boards are in the best position to make the judgments that are necessary to respond to changed circumstances with respect to assets that are not donor restricted.
Very troubling is a provision that requires museums to make a good faith effort to sell the work to another museum located in New York. Although we are not constitutional law experts, we certainly have to wonder whether this violates the Commerce Clause. More importantly, it may effectively force museums that deaccession to take a lower price if they are unable to look to the world museum market. While it requires a good faith effort, suggesting that a sale to a buyer outside of New York might be theoretically possible, the question will be whether potential buyers outside of New York will be reluctant to buy for fear of being dragged into protracted litigation over whether there was a good faith effort. We repeat, museum assets are not public property. Those museums supporting this provision are selling the hangman the rope that may end up around the necks of those supporters.
As is often the case, stupid legislation is inspired by one or two high-profile incidents. In this case, the inspiration was the decision last December of the National Academy of Museum to sell two painting. Pogrebin’s article also refers to a historical site that gave some consideration to selling some artifacts, but which decided not to. Not surprisingly, the article also refers to the decision by Brandeis University to close the Rose Museum and to then sell its 6,000 or so works of art—that decision apparently is off the table. We should note that Brandeis University is not located in New York State.
Even more troubling is the fact that the bill specifies criteria for permissible deaccessioning. The museum board and curators apparently do not have unlimited discretion to sell works of art even if they plow the proceeds back into the collection through acquisitions. An artwork could be deaccessioned if it is inconsistent with the museum’s mission, fails to retain its identity because of decay, is being repatriated to the rightful owner, or is redundant—reminds us of the redundant Renoirs in the Barnes Foundation collection. Those criteria would seem to cover most reasons for deaccessioning, but why should boards and curators be required to obtain legal opinions and be restricted by a list if the proceeds will be used to buy art? We don’t think the State of New York’s heavy hand should be guiding these decisions.
According to Pogrebin, the bill would prevent museums from using works of art as loan collateral. At least the bill clarifies what is often a difficult legal question.
Probably most frightening aspect of the legislation is the possibility that museum buildings may be subject to the new rules. If the legislature takes that approach, museums will be faced with litigation virtually any time they want to alter their facilities. The silver lining might be the ability to sell artworks to make capital investments in facilities. Fortunately, the legislation requires a study before this provision will be added to the legislation.
What this bill does is place less established museums at the mercy of large, well-capitalized ones. To some extent, that might be the right answer to the extent we believe there are too many nonprofits, but we think a better approach would be to permit small museums to sell works to other museums to cover operating expenses. That keeps the art work public and allows small museums the opportunity to better capitalize themselves. Overall, we would much prefer the New York legislature keeping its nose out of private sector business.
Finally, we find the provincialism reflected in the preamble to the legislation to reveal the New York State Legislature as a bunch of rubes. The preamble claims that museums in New York are the finest in the world. Apparently the folks in Albany don't get to Italy, France, England, Turkey, Spain, Russia, Taiwan, or countless other countries. To suggest that one museum is better than another really misses the point. It also disturbing to see the assertion that all these museums "are all creatures of state government." We suspect that boards and donors to many museums would be surprised to read that finding.
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