November 12, 2007

Legislative Update

Congress Locked in Appropriations Strategy

With appropriations bills bogged down on Capitol Hill, Congress may still be working on the Fiscal Year 2008 funding measures in December and January. By the end of October – one month into the new fiscal year – none of the twelve money bills have been sent to the President for enactment. The House has passed its entire package of appropriations legislation, but the Senate has completed voting on only seven of the bills outstanding. Congress has set a November 16 action deadline with the passage of a continuing resolution carrying funding through the week before legislators plan to break for the Thanksgiving holiday. That goal now seems unlikely to achieve. A second continuing resolution carrying federal spending for several more weeks at the 2007 levels is to be expected.

President Bush continues to threaten to veto the Interior money bill and any other appropriations legislation with a total dollar figure over the amounts proposed in his FY 2008 budget. The $22 billion in total extra spending which the Democrats in Congress insist upon is a small part of the $2.7 billion budget. However, the additional spending approved by Congress gives the President the opportunity to push for spending controls with little incentive to compromise with congressional Democratic party leaders. In the meantime, those same Democrats seem uncertain about a strategy for moving the bills onto the President’s desk. The delays in resolving the spending issues suggest that Congress will end up merging the unfinished bills into a single omnibus appropriations measure, which would include the Interior Appropriations Bill with the FY08 funding for the National Endowment for the Arts (NEA) and the other cultural agencies.

In June, the House passed its Interior funding bill with an increase of $35.6 million for the arts endowment, setting a proposed budget for the NEA at $160 million. The Senate Appropriations Committee has approved its version of the bill with an increase for the NEA to $133.4 million, adding $9 million over the current year’s funding of $124.4 million. The President’s budget requested an increase of $4 million for the NEA for 2008. Once the appropriations process draws to a conclusion, House and Senate appropriations leaders must resolve the differences between the bills. NASAA and other arts advocates are urging the Senate appropriators in these negotiations to support the larger funding increase passed by the House.

New Tax Bill to Encourage Museum Gifts

On October 17, 2007, Rep. Tom Udall (D-NM) and Rep. Phil English (R-PA) introduced the Promotion of Artistic Giving Act of 2007 (H.R.3881), a bill to make it easier for donors to make fractional gifts of art to charity and to reestablish the benefits long associated with fractional giving. The bill would remedy restrictive changes in the tax treatment of charitably donated artwork made last year in the Pension Protection Act. That measure changed the law covering this tax deduction, to the detriment of donors and many nonprofit arts institutions .

At a Capitol Hill press conference on the day the bill was introduced, Udall explained that, while fractional gifts are rare, they often represent the most valuable works of art in a museum’s collection, which would not be given were it not for the fractional gift option. He cited the Hope Diamond in the Smithsonian Institution and Vincent Van Gogh’s “White Roses” owned by the National Gallery of Art as examples of items which have been fractionally donated.

The Pension Protection Act of 2006 included a provision limiting a donor’s ability to contribute a gift of art over multiple years. Previously, a donor had been allowed to make a gift in fractions over the donor’s lifetime, and to take a fair-market value deduction for each fraction as it was donated. The recipient institution had the right to take possession of the work for part of each year. The 2006 change to the law requires donors to give the entire gift within ten years and does not allow a fair-market value deduction after the first fraction is given.

Museums have argued that the changes in the charitable contribution law have created a chilling effect on the donation of important works of art by requiring that a gift be completed in ten years, and limiting its deductibility to a value no greater than the gift’s worth at the time of the first installment. At the press conference, Udall said, “In trying to close a tax loophole, the Pension Protection Act suffocated a time-honored method of giving that has made many of our national treasures available to the public.”

The Udall-English Promotion of Artistic Giving Act modifies the Pension Protection Act provisions by requiring that all fractional gifts be completed within 9 months of the death of the donor (rather than within 10 years of the initial gift); by allowing for a fair-market value deduction for subsequent fractional donations (rather than at the lowest appraisal value of the piece at the time of the donation of the original fraction). The bill retains the requirement that museums have “substantial physical possession of the property” during the donation process. In addition, the measure seeks to prevent inflated appraisals by requiring review of donated fractions valued at $1 million to be reviewed by the Art Advisory Panel of the Internal Revenue Service.