Robert L. Quick
Direct Dial: (336) 721-3508
Direct Fax: (336) 733-8325
E-mail: [email protected]
September 4, 2003
Town of Chapel Hill, North Carolina
306 North Columbia Street
Chapel Hill, North Carolina 27516
Attention: W. Calvin Horton
Town Manager
Re: Financing Expenditures for Fine Art From the Proceeds of General Obligation Bonds
Ladies and Gentlemen:
You have requested our opinion as to the legality of the use by the Town of Chapel Hill, North Carolina (the “Town”) of proceeds from its general obligation bonds to finance the acquisition of fine art in connection with the acquisition, construction, equipping and installation of capital improvement projects by the Town. The following discussion attempts to summarize the circumstances under which such an expenditure of bond proceeds would be legal under the Local Government Bond Act, Article 4, Subchapter IV of Chapter 159 of the North Carolina General Statutes (the “Act”).
Any discussion of the use of bond proceeds from general obligation bonds must begin with an analysis of the pertinent provisions of the Act. Section 159-48 of the North Carolina General Statutes lists in detail the purposes for which general obligation bonds may be issued in the State of North Carolina. A copy of Section 159-48 is attached as Exhibit A to this opinion. Since Section 159-48 is the exclusive source of legislative intent with respect to the permissible uses of general obligation bond proceeds under North Carolina law, the power to finance expenditures for fine art from the proceeds of general obligation bonds must be found in Section 159-48 in order to allow a governmental unit to utilize general obligation bond proceeds for such a purpose.
Section 159-48(a) does not appear to contain any provision that could be used to support the expenditure by the Town of general obligation bond proceeds for fine art.
Section 159-48(b) authorizes the Town to issue its general obligation bonds to pay the capital costs of any one or more of 25 different categories of permissible purposes. Only clause (11), however, specifically mentions art as follows:
(11) Providing art galleries, museums, and art centers, and providing
for historic properties.
Clearly, the express language of Section 159(b)(11) specifically authorizes the Town to acquire, construct, equip and install art galleries, museums, art centers and historic properties and to finance such activities from the proceeds of general obligation bonds. The remaining 24 clauses of Section 159-48(b), however, contain no express reference to art as a permissible purpose for which general obligation bond proceeds may be spent by the Town. Consequently, the financing of fine art in conjunction with any one or more of these additional 24 categories of capital projects must be inferred from other provisions of Section 159-48 in order to be authorized under the Act.
Before leaving subsection (b) of Section 159-48, however, we must note that if the fine art is so incorporated into the building or other structure as to become an integral physical part of that building or structure, such as a staircase, a mural, an arch, a frieze or similar improvement, subsection (b) would clearly permit the financing by the Town of that improvement from the proceeds of general obligation bonds. Stated another way, artistic beauty is not necessarily an impediment to the classification of an expenditure by the Town as a permissible capital cost under the Act.
Subsections (c) through (g) of Section 159-48 seem to offer no particular guidance to the issue at hand. Section 159-48(c) by its terms is limited to purposes for which counties may expend bond proceeds and therefore is not applicable to the Town. Section 159-48(d) is applicable to the Town, but merely authorizes the financing of various utility ventures, streets and sidewalks and housing projects. Subsection (d) does not include any express mention of art or art related improvements. Section 159-48(e) regulates governmental entities other than cities and towns and is otherwise inapplicable for the purposes of this discussion. Section 159-48(f) merely clarifies that the purposes authorized in subsections (b), (c), (d) and (e) may be accomplished in a number of different ways depending upon the circumstances of the individual project. Section 159-48(g) provides that unrelated purposes must be set forth in separate bond orders.
Section 159-48(h), however, is somewhat more promising. Subsection (h) contains a list of permissible capital costs for purposes authorized by subsections (a) through (f) of Section 159-48. Two of these provisions are arguably relevant to our discussion. First, clause (2) specifically authorizes the capital costs of all “furnishings”. The term “furnishings” is not defined in the Act. Black’s Law Dictionary does not contain a legal definition of the term. Webster’s Third New International Dictionary provides the following definition of “furnishings: “an object or fixture that tends to increase comfort or utility; an article of furniture for the interior of a building.” The American Heritage Dictionary of the English Language defines “furnishings” as “the furniture, appliances and other movable articles in a home or other building.” The Cambridge Dictionary of American English defines “furnishings” as “furniture and decorative items, such as curtains and floor coverings.” Based upon these definitions of the term “furnishings” and depending upon the type of capital improvement project being financed and the form of fine art in question, an argument can be made that certain limited types of art should constitute “furnishings” within the meaning of Section 159-48(f).
Although we are unaware of any specific case law or other legislative precedent for such an argument, we believe that under the right circumstances certain types of art could be deemed to be “furnishings” within the meaning of the Act. For example, furniture, draperies, lighting fixtures, stained glass and patterned tile floors under certain situations could seemingly qualify as both fine art and “furnishings” within the meaning of Section 159-48(h)(2). We see no basis, however, for concluding that fine art per se constitutes “furnishings” as such latter term is used in Section 159-48(h)(2).
The second possible argument for the inclusion of fine art under Section 159-48(h) is found in clause (8). That clause effectively provides that “capital costs”, i.e. costs that may be paid from general obligation bond proceeds, includes “[a]ny other services, costs, and expenses necessary or incidental to the purpose authorized.” The argument for including fine art as a permitted cost of a capital improvement project financed with general obligation bonds would be that as long as the Town, as the issuer of the general obligation bonds issued for the capital project, believed that such art was “necessary” or “incidental” to the project as a whole, such cost should be an eligible or permissible capital cost under the Act. This argument seems reasonable under certain limited conditions. For example, the acquisition of photographs of distinguished local jurists to hang on the walls of a new courthouse would seem to be at least “incidental” if not “necessary” to complete the courthouse building being constructed from general obligation bond proceeds. On the contrary, a tapestry adorning the walls of a sewage treatment center or a sculpture on land acquired for open spaces, absent other considerations, would seem to be neither “necessary” nor “incidental” to the purpose of the capital project. Consequently, the facts and circumstances surrounding the type of capital project being constructed and the type of art to be added to the project, including, without limitation, the connection between the art and the purpose of the project and a comparison of the total costs of the fine art compared to the total costs of the capital project as a whole, would greatly affect the strength of the argument for including the cost of the fine art as part of the facility being financed from the proceeds of general obligation bonds.
In summary, there are two situations in which the financing of fine art from the proceeds of general obligation bonds is clearly warranted: the purposes outlined in Section 159-48(b)(11) (viz. art galleries, museums, art centers, etc.), and fine art that is incorporated as an integral physical part of the building or other structure being financed under Section 159-48(b). The financing of other fine art from the proceeds of general obligation bonds will depend to a great extent on the specific facts and circumstances of the situation presented and therefore will ultimately be resolved on a case by case basis.
We hope that the preceding discussion will clarify certain of the considerations regarding the availability of general obligation bond funding for the acquisition and installation of fine art in conjunction with capital improvement projects by the Town. Should you have any additional questions or concerns, please feel free to contact me at your convenience.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
By: ____________________________________
Robert L. Quick,
Member and Manager
RLQ/lc