Wise words from Tyler Cowen at MR.
Like Tyler, I don't mind the indirect subsidy via the tax system. Unlike Tyler, I do not see the point of having government boards that dole out money. Let people vote with their voluntary contributions.
As a second best, I agree with Tyler's suggestion to have the funding at the federal level, rather than the state and local level. I would also focus it on mainstream cultural institutions that everyone can agree on and that have very low political content.