A work of great art is more than an inanimate object — it can succor us as in moments of sadness; in better times it can inspire us to great action. Not surprisingly, such art is protected in many ways. For example, some countries (e.g., Great Britain) attempt to inhibit the export of great art; important works (particularly sculptures) which have been looted from ancient sites are required to be restored to the original surroundings. A similar rule applies in the case of works of art deemed to have been looted by the Nazis during World War II.
Contributions of art to museums are encouraged by allowing the donor to obtain a full fair market value deduction, assuming the art is acquired by the donee organization for use related to its basic purposes, which in the case of museum would be exhibition.
The American Alliance of Museums has a promulgated Code of Ethics which requires museums to agree that any funds realized by disposition of art be solely used to acquire other art or maintain existing collections.
A museum that breaches this code is in effect "blacklisted," as demonstrated by the decision of the trustees of Brandeis University in 2009 to sell the art of its Rose Art Museum to provide funds for the university. After the board came under pressure, the decision was rescinded.
Normally the art collection of a museum (notwithstanding the Code of Ethics on disposition of art) would be subject to the claims of its general creditors unless the donor of the art had restricted its disposition.
If the art should be not owned by a tax-exempt museum, but instead by the municipality within which the museum resides, it would seem that the creditors of that municipality would have a claim against those works of art.
As is well known, the city of Detroit is in dire financial condition, and the emergency financial manager appointed by the state of Michigan, Kevyn D. Orr, was attempting to marshal the city's assets for the benefit of creditors. In contrast to the normal situation, the art owned by the Detroit Institute of Arts had been transferred to the city many years ago, in an effort to obtain additional city support for the museum. In August 2012, Detroit-area voters in Wayne, Oakland and Macomb counties supported the museum when they approved a tax levy that would raise an estimated $23 million a year for 10 years and put the museum on solid financial footing for the first time in decades.
Is this art collection (estimated value in the billions of dollars) in danger of liquidation, now that the city has filed for bankruptcy? An article in Barron's aptly describes what is going on with this title: "Detroit's Fire Sale…City bean counters have their eyes on the masterpieces at the Detroit Institute of Art." In an opinion dated June 13, 2013, Michigan Attorney General Bill Schuette answered with a resounding "no."
His conclusion is that the museum transferred the art to the city many years ago under requirements that "said property so conveyed shall … be faithfully used for the purposes for which such corporation (i.e., the Detroit Institute) was organized." In 1997, the structure and operation of the museum changed again — under an operating agreement, the city maintained its legal title to the art collection, but transferred operations back to the Founders Society (in effect, the museum). To address this issue, Attorney General Schuette cites "The Museum's Collections Management Policy," which is referred to in the operating agreement, the ethical policies governing museum collections; and the accounting practices that apply to such collections.
Under the operating agreement, the museum has the right to direct the acquisition and disposal of the museum's works of art, providing that it follows the deaccessioning principle mentioned above. The operating agreement further states: "The manner of disposition should be in the best interest of the Museum, the public it serves, the public trust it represents, and the scholarly and cultural communities it serves." The opinion holds that the city owns the works of art in a "charitable trust" and hence the value of the works of art do not appear on the books of the city as assets with monetary value, and thus are beyond the reach of creditors.
Now that Detroit has formally filed for bankruptcy, a key issue will be whether this "trust doctrine" will trump the rights of the creditors.
An interesting sidelight – given that many museums are facing increasing financial pressure — will the Detroit predicament influence the generosity of potential donors of art to museums?•