There's a similar project, but on a HUGE scale, in Detroit, called the Heidelberg Project. The artist there, Tyree Guyton, has been taking over an entire city block with his art, which some have called "defacement" as well, and a blight on the neighborhood. Sections of it have been bulldozed by the city.
Tyree:
The documentary about his work won an honorable mention at the Sundance Film Festival and Best Documentary at the Aspen shortfest. One of the key aspects of his work is pulling people into the process of making art, even those who do not consider themselves "artists."
http://www.heidelberg.org/Pages/Media/film.htmWe bussed our entire school to his site once, and he walked through the installation with our kids, explaining his philosophy and the history of the project, including his problems with the law. When the kids talk about bringing art into the public, about using it as a way to bring communities together, and about making it nonelitest, this is, in part, who they are getting their ideas from. The school deliberately presented him to our students as a role model.
Ironically, I ran into Tyree a few weeks ago, and he invited me back to his office where we talked for about an hour, one of the subjects being the idea of having my kids work closer with him as interns, or possibly doing a performance piece in his installation.
I really strongly recommend his documentary, by the way, if you are interested in the idea of public art that isn't state-sponsored and sanctioned. I was planning to show it to my kids during the first week or two of school this year. Within the Detroit area, public art is a very political issue, due in large part to Tyree's influence.