Arts -- Alternative Funding

Posted November 20, 2003

NCSL Publications Catalog

Creative Solutions for Funding the Arts

Executive Summary

All across America the arts are thriving and crossing geographical, ethnic and socio-economic barriers to enrich the lives of both children and adults. The money for these activities comes from a combination of sources--private and federal, state and local government.

Public support for the arts has long tradition in this country; however, it was the creation of the National Endowment for the Arts in the 1960s that led to the establishment of most state arts agencies. These agencies play an important role in supporting arts organizations, artists and arts programs in many disciplines. They serve as the primary conduit for distributing federal and state arts money.

Despite their strong support for the arts, states are feeling the effects of fiscal and philosophical changes in Washington, D.C. Among the proposals for shrinking government is one to severely reduce or eliminate funds for the National Endowment for the Arts (NEA), a move that may have far-reaching effects on state arts programs. This possibility, combined with less federal discretionary money, is likely to result in state budget cuts.

Traditional state support for the arts is through general fund appropriations, either to state arts councils or direct line-item appropriations to arts institutions. But financial uncertainty has prompted some states to look for ways to continue funding the arts by generating a mix of funding sources.

Among their creative responses to the need for more money, policymakers and arts advocates have proposed supplemental funding sources that include trust funds, license plate programs and cable franchise fees. Broadly defined, "alternative funding" means any type of state funding other than general budget appropriations. These are the primary alternatives:

Endowment funds--Endowments are pools of money set aside for a specific use; they are the alternative funding method most commonly adopted by states to fund the arts. Endowments are created to either supplement or replace state general fund art appropriations. In most states endowments have not been more than a minor supplement to the state arts budget; however, both Missouri and Texas have established endowment funds with the goal of replacing general fund support.
Bond issues--Bonds are used to raise money for projects that require large expenditures on the front end, like buildings and other capital investments. However, states' ability to use bond instruments is often restricted by constitutional and statutory limitations on debt. If the use of bonds is restricted by statute, legislative action is needed to initiate a bond issue. If use of bonds is restricted by the state constitution, voter approval may be required to authorize the issue.
License Plate Programs--California, Tennessee, and Texas have license plate programs to support the arts. To date, license plate programs have not generated much money, but program administrators feel that the plates have potential because there is a large demand for specialized license plates.
Income tax check-offs--Income tax check-offs are a system in which taxpayers, by checking a box on the tax form, can contribute a portion of their tax refund to a particular cause. Income tax check-offs are a popular way to raise money for special interests, and several states adopted this strategy to fund the arts. Tax check-offs appeal to legislators because they are voluntary, but they have not been a very effective way to raise money for the arts.
Lotteries--Most states now have state lotteries, and a few states have tapped into the lucrative state lottery industry to fund the arts. The only arts council currently receiving a large portion of its total funding from a lottery is the Massachusetts Cultural Council.
Corporate filing fees--Florida and Arizona raise money for the arts by assessing a fee on corporations conducting business in those states. In each state a portion of the annual corporate filing fee is dedicated to the arts.
Special tax districts--Special tax districts for the arts have been established in several states. Special tax districts are adopted in metropolitan areas to support local cultural institutions. Legislative authorization usually is required to form special districts, followed by voter approval. Most legislation also stipulates periodic renewal.
Local option taxes earmarked for the arts--Rather than impose taxes to fund the arts directly, many states authorize the use of local option taxes in which localities can, at their discretion, collect and distribute the tax revenue. Hotel and motel taxes are the taxes most likely to be earmarked for the arts, but other possibilities include entertainment and admission taxes, cable franchise fees, video rental fees, taxes on computer software and other miscellaneous taxes and fees.

Legislators and arts advocates can follow these steps to assess whether supplemental funding for the arts is appropriate in their state:

Determine the state's art and culture funding needs;
Evaluate the current funding source;
Assess the political climate in the state;
Assess each alternative funding method.

Above all, they should keep in mind that the appropriate alternative depends on the specific need and the current political climate.

Arts & Historic Preservation

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