The very banks that collect large fees for packaging and selling municipal debt for police brutality settlements whitewash their images by lavishly sponsoring museums, performance venues, and community arts programs.
On September 24, 2016, the National Museum of African American History and Culture opened on the National Mall in Washington, DC, to wide acclaim, with every timed-entrance ticket for the rest of the year already claimed. Founding member Bank of America soaked up the accolades. Few people knew that Bank of America, at the same time, was profiting from fees for packaging and issuing municipal bonds to investors to pay for cities’ police brutality settlements.
These bonds, issued to investors for profit and paid for by taxpayers often without any budget transparency, represent a redistribution of wealth from over-policed, under-funded communities of color to wealthy, predominantly white and male investors. The three Wall Street banks that package the most of these police-brutality settlement bonds — Bank of America, Wells Fargo, and Goldman Sachs — are also some of the art world’s biggest corporate sponsors. (Bank of America Corp. is the most active sponsor of symphony orchestras, theater companies, and other performing arts organizations with Wells Fargo & Co. in a close second, according to IEG research.)
As we are seeing via the unprecedented protests, there is a reckoning happening now in the US over policing in and of Black communities and communities of color. The emotional and psychological cost of police brutality in Black and Brown communities is unquestionably high, though hard to measure.
But what about the economic cost? Unlike the emotional toll, the fiscal toll of police brutality is quantifiable. So, what does that look like? How does police brutality affect city budgets? Who pays for it? And who profits?
The answer is surprisingly clear. In 2018, the Action Center on Race and the Economy (ACRE) issued a report, updated on June 24, 2020, titled, “Police Brutality Bonds: How Wall Street Profits from Police Violence,” written by Alyxandra Goodwin, Whitney Shepard, and Carrie Sloan.
The report found that municipalities often paid for settlements to victims of police brutality by issuing municipal bonds. This practice is different from paying for settlements directly from the city budget: Issuing a bond means going into debt, which banks package and sell (for a fee) to investors, who ultimately profit. Paying for settlements by issuing bonds means that the cost of the settlements to the municipality are nearly double the original amount, once bank fees and interest are paid.
Municipalities traditionally issue bonds to pay for big-ticket infrastructure projects, like building schools and bridges. In these scenarios, the bonds allow them to access larger amounts of capital than they could otherwise procure, and the added cost is justified by the investment in the community.
But clearly no municipality sees an upside from issuing debt to pay for police brutality. In fact, the ACRE report finds that the enormity of the bond payments actually displaces real investment in the community. While there is large tolerance for police budgets and settlements paid for by local taxpayers, the result is cuts in the budgets for education, social services, and healthcare.
If this expensive debt-issuance was temporary and its enormous size and cost served as a deterrent to violent police administrations and behavior, that would be one thing. But as the settlement costs became larger and cities turned to bonds to pay for them, the number of incidences has risen year after year. Despite police reform in many of these departments that have been sued and found negligent or harmful, incidents of brutality have increased, and so have the size of the settlements to victims’ families. And while city budgets are structured to be transparent and therefore accountable to taxpayers, paying for the settlements by issuing municipal bonds helps cities conceal what the money is actually used for. Municipalities spend up to 50% of their budgets on police. But these bonds are often allocated outside of these amounts and lack the transparency of a city budget.
Within the legal structure, settlement payouts are intended to act as a deterrent to improper behavior. Yet, looking at the numbers — the increase in number of incidents of misconduct and the increasing dollar amounts of settlement payouts, the deterrent effect of settlement payments is clearly broken.
Meanwhile, banks profit from packaging the debt and selling it to investors. Banks charge “issuance fees” for packaging such bonds, which average just over 1% of the principal of the initial bond. Investors, who buy the bonds, receive interest payments on their investments. Given the ramifications of a poor credit rating, cities must prioritize repaying bondholders over other uses of the money.
The ACRE report states:
Unlike funding for schools, mental health services, or street repair, for example, bond debt is not considered “discretionary spending”. This means that if a city is low on funds, it will prioritize paying back the bondholders over funding public services like schools. For example, Chicago has closed schools and mental health clinics, but the city and school district continue to make their bond payments on time.
This represents a transfer of wealth away from investment in over-policed communities of color, directly into the hands of banks and wealthy investors. The art world is implicated in this transfer of wealth.
The same banks that package police brutality bonds also generously sponsor cultural institutions, often with a stated mission of highlighting the work of artists of color — in part to whitewash their image, and in part to create prestige and goodwill among a well-heeled art collector class, and market their lucrative wealth management services.
What banks gain by sponsoring the arts is multifold: cultural prestige, visibility to the art-collector class, goodwill among the very crowd who might invest in their municipal bonds (whether directly or through mutual funds and workplace 401ks) as well as marketing for their wealth management services. As stated in the above, Bank of America is the most active sponsor of symphony orchestras, theater companies and other performing arts organizations with Wells Fargo & Co. in a close second. In raw numbers this means that 22% of performing arts organizations report a partnership with Bank of America, while 20% report a sponsorship with Wells Fargo. And according to a 2018 IEG sponsorship report, of the art museums that reported a bank as a sponsor, 28% were sponsored by Goldman Sachs, 38% by Wells Fargo, and 69% by Bank of America.
Given these numbers, it is clear that these banks find it valuable to foster their image as a generous and guileless supporter of the art world.
And cultural institutions gain more than money from these sponsorships. A Harvard Business School case study report titled “Corporate Sponsorship in Culture” illustrates how the non-profit art institution gains access through the bank to valuable potential partners and donors.
But beyond simple visibility to the wealthy arts patrons of the US, banks can whitewash their images by directing sponsorship towards theaters, dance companies and museum exhibitions that celebrate Black, Brown, and Indigenous cultures — while at the same time packaging police brutality bonds that harm these very communities. For example, Bank of America is a founding member of the National Museum of African American History and Culture in Washington, DC, and also sponsored the exhibitions African Arts: Global Conversations, at the Brooklyn Museum, and Nation to Nation: Treaties Between the United States and American Indian Nations at the National Museum of the American Indian, and it is also a sponsor of the Alvin Ailey Tour.
As a nation, we are reckoning with our country’s built-in systems of institutional racism. The art world is no exception — racist exclusion exists in our every corner. And even to one of the most violent, heinous components of racist oppression in the US — police brutality against communities of color — the art world is directly linked and benefitting financially from this relationship.
DISCLAIMER: True tax advice is a two-way conversation, and your accountant needs to hear your full situation to apply the rules correctly in your case. This post is meant for general information only. Please don’t act on this alone.