:h Division Report #6 B3^ 127 H >nomic Impacts of Arts nd Cultural Institutions: 'A Model for Assessment and tga Case Study in Baltimore National Endowment for the Arts November 1977 LIBRARY \ NATIONAL ENLX)WMENT FOR THE ARTS A Report by David Cwi and Katherine Lyall, The Center for Metropolitan Planning and Research, The Johns Hopkins University, October 1977 Digitized by the Internet Archive in 2012 with funding from Boston Library Consortium Member Libraries http://archive.org/details/economicimpactsoOOcwid PREFACE In February 1976, the Research Division released a program solicitation requesting proposals for a study of the economic impacts of arts activities and cultural institutions on their communities. The decision to undertake this project was based on recognition of the growing need for information that would explain the relationship between arts and cultural activities and the economic environment of the communities in which these activities take place. The research community showed keen interest in the project by responding with 42 proposals, many of them meritorious. Though the evaluation group recommended that five of the pro- posals be funded, resources permitted going ahead with only one. The proposal submitted by the Center for Metropolitan Planning and Research, The Johns Hopkins University, has led to the development of a general purpose model that may be used for the analysis of the economic effects of arts and cultural in- stitutions in many communities. The model is made up of 30 equations which may be modified as special community character- istics require. One of the features of the model is that the equations treat the individual effects separately, so that modifications can be made with clear understanding of their impacts. This report includes both the model and a case study appli- cation of the model to eight institutions in Baltimore. The Arts Endowment recognizes that other methods for the evaluation of economic effects are possible and may be valid. The experience of selecting the proposal from The Johns Hopkins University from many others submitted, confirms the possibility that other satisfactory approaches may be developed for this purpose. However, we believe that the model presented in this report can be adapted to a variety of settings; will take account of a wide range of local governments, as well as various social, insti- tutional and economic conditions; and may be considered suitable for general application. LIBRARY , ■ ■ ■ ■• •■ ■ ■ A Research Division NATIONAL 1 National Endowment for the Arts ENDOWMENT] ° Ct ° ber 1977 FOR THE ARTS INTRODUCTION The economic impact model uses 30 equations to determine a variety of direct and secondary effects on business, government, and individuals. It was developed to meet several objectives: (1) utilize data generally available from the internal records of arts institutions and from local, state, or federal documents (as applied to Baltimore, the model also required audience and employee surveys) ; (2) be used and understood by non-economists; (3) assess economic effects with as much accuracy as available data allows; and (4) identify negative as well as positive effects. Section I briefly describes the general structure of the 30 equations comprising the model, reviews the ways in which this report differs from other economic impact studies, and cites important caveats regarding the use and abuse of economic impact studies. Section II provides an overview of the Baltimore economy and its arts community. Section III summarizes results of the quantitative calculations for Baltimore and discusses the role of the arts in economic development and executive recruitment. Section IV provides concluding policy observations. Finally, Section V presents a detailed User Manual explaining the model and its application. The several appendices are important to an understanding of the assumptions and methods of the Baltimore case study and for the application of the model in other locations. In testing the model, we have had the indispensable assistance of Thomas Freudenheim, Director, and Ron Goff, Assistant Director, the Baltimore Museum of Art; Peter Lawrence, Managing Director, the Morris A. Mechanic Theatre; Ackneil Muldrow, Treasurer, and Camilla Sherrard, Chair of the Board, the Arena Players Theatre; Joseph Patterson, Business Manager, and Mark Gallagher, Center Stage Theatre; Richard Randall, Director, Edward McCracken, Administrative Officer, and Mary Cooney, Fiscal Secretary, the Walters Art Gallery; Robert Collinge, Director, and Josh Miller of the Baltimore Opera Company; Joseph Leavitt, General Manager, and Winifred Walker, Fiscal Officer, the Baltimore Symphony Orchestra; and Joseph Cerrone, Director, and Lynn Summerell, Associate Director, the Maryland Ballet. These individuals provided needed data from institutional internal records as well as information on their institutions' internal accounting practices which saved us from many errors. Their cooperation was also valuable in permitting us to survey their audiences and employees for other information vital to the computation of the model. Teresa Moore assisted with the programming and retrieval of the computerized survey data. Catherine Ingraham collected data and made many of the computations. Louie Fringer typed the manuscript. Sally Feingold managed the audience survey field work. David Cwi Katharine Lyall ii TABLE OF CONTENTS Page STRUCTURE OF THE MODEL, ITS USE AND ABUSE 1 THE BALTIMORE ECONOMY AND ITS ARTS COMMUNITY: AN OVERVIEW 9 SUMMARY OF INSTITUTION-RELATED ECONOMIC EFFECTS ON THE BALTIMORE METROPOLITAN AREA 13 Direct Impact of the Eight Arts Institutions on the Business Sector of the Baltimore SMSA 13 Spending by the Eight Institutions 13 Employee Residence and Spending Patterns 13 Audience Residence and Expenditures 14 Spending by Out-of-Region Audiences 14 Spending by Guest Artists 15 Secondary and Negative Impacts on the Business Sector 15 Negative Effects on Business Volume 17 Summary of Business Effects 17 Impacts on Local Government 17 Impacts on Individuals 21 The Arts and Economic Development 21 Industrial Location 22 Executive Recruitment 23 CONCLUDING POLICY OBSERVATIONS 24 USER MANUAL 30 Assumptions and Other Underlying Considerations 30 Direct Impacts on the Local Economy 33 in CONTENTS (continued) Page Secondary Impacts Impacts on Government Costs to Local Government Impacts on Individuals Appendices APPENDIX A: Guide to Model and Data Sources APPENDIX B: APPENDIX C APPENDIX D APPENDIX E APPENDIX F Multipliers and Secondary Spending Effects The Employee Survey The Audience Survey Total Full-Time Employees and Full-Time Equivalents Adaptations of the Model for Multi-Institutions and Multi- Jurisdictions 40 49 58 65 68 79 81 84 86 88 IV INDEX TO TABLES AND FIGURES Page T-l A Model to Estimate the Economic Impact of the Arts 5 T-2 List of Equations 6 F-l The Baltimore Metropolitan Area 10 T-3 Eight Baltimore Arts Institutions: Percentage Audience from Outside the Region 16 T-4 Direct Tax Payments to Local Government by Eight Baltimore Arts Institutions 18 T-5 Alternative Estimates of Foregone Property Taxes on Real Estate Property Owned or Occupied by the Eight Baltimore Arts Institutions, 1976 20 ,T-6 Summary of Economic Effects, 1976 25 T-7 Summary Data for Eight Arts Organizations in Baltimore SMSA, Fiscal Year 1976 27 T-8 Government Revenues of Eight Arts Institutions, Baltimore SMSA, 1976 28 T-9 Multiplier Values for Baltimore Arts Study 80 v STRUCTURE OF THE MODEL, ITS USE AND ABUSE The primary purpose of artistic and cultural institutions is not to create jobs, generate business for local entrepre- neurs, or boost sales of durable goods. These functions can be better performed by a variety of other institutions in the public and private sectors. Nonetheless, arts institutions, intentionally or not, generate a number of economic effects on the local community. The model we used to identify and estimate these effects consists of 30 linear equations* which we categorized into three groups: The letters B, G, and I designate these groups of equations which identify, respectively, effects on local business volume and expenditures, effects on government income and expenditures, and effects on personal income, jobs, and expenditures. Tables 1 and 2 schematically present the relationships among these equations. Within these groups certain equations can be solved only by first solving a series of other equations which provide needed values. Thus some equations are followed by a sub-set (or even sub-sub-set) which are indicated with decimal points. For instance, the equation Gl requires, among others, the solution of G-l.l and this equation requires, in turn, G-l.1.1 and G-l.l. 2. While the numeration of these equations may cause the layman to assume that they are difficult to solve, in fact the mathematics are quite simple. Each set of equations is aimed at describing some particular economic effect. For example, in the business sector — the "B" equations — arts institutions may directly affect local business volume by purchasing goods and services from local sources. Those related to the institution — employees, guest artists, and audiences — also spend locally. Certain equations estimate the total value of these institution- related direct expenditures during the fiscal year examined. The firms and individuals benefitting from institution- related direct expenditures will, in turn, spend a portion of this income locally. For this reason, other equations estimate the total secondary business volume that eventually results from institution-related direct expenditures, for example, the expansion of the local credit base eventually resulting from institution-related direct expenditures. The model then, also estimates economic effects involving local government: the "G" equations. To begin with, businesses annually pay property tax on their property, equipment, and, in some communities, their inventory. Also, inasmuch as *This model has been adapted from J. Caffrey and H. Isaacs, Estimating the Impact of a College or University on the Local Economy (Washington, D.C.: American Council on Education, 1971). -1- businesses have had to invest in plant, equipment, and inventory in part because of direct expenditures related to arts institutions, a portion of local business property tax revenues is attributable to the institutions under study and can be estimated by certain equations. In addition, the institutions themselves, as well as their employees, guest artists, and audiences, may directly pay a local sales tax and their employees may pay local income or real estate taxes. These direct tax payments can also be estimated by our equations. Local government may also receive revenues from state or federal sources. As is typically the case when localities receive state aid for education, these revenues may be provided on a per capita basis so that some equations estimate state and federal aid attributable to the examined institutions. Con- versely, arts institutions and their employees require govern- mental services, and public funds which must be spent to provide these services. An estimate can be made for a given fiscal year of the local governmental operating costs required to service the institutions and their employees. Further, government may forego property tax and other revenues due to an institution's tax-exempt status. The equations in the model estimate these foregone tax revenues. The third category, the effect on individuals, is the "I" series. Institution-related direct expenditures, together with institution-related local governmental expenditures, re- present a demand for local goods and services. To meet this demand, local businesses not only invest in property and inven- tory, but also add personnel or pay overtime, thereby increasing payrolls. The model provides equations which estimate these secondary effects on individuals. The utility of this study and model lies less in its precision than in its clarity and scope. We made a concerted effort to go beyond past studies and acquire needed data through the use of institutional internal accounts, audience and employee surveys, and locally available data. As a general rule, when we were required by our methods or the lack of data to make an assumption, we opted for the most reasonable or con- servative, that is, we adopted the assumption which attributed the highest negative economic effect or least positive effect to the examined arts institutions. Consequently, this study differs from previous efforts in several respects. Not only has no other study been as inclu- sive, but, to the best of our knowledge, prior economic impact studies of arts and cultural institutions have not: * examined employee and guest artist spending as well as audience and institutional expenditures; -2- * identified the toal of institution-related spending made with local firms and not simply assumed that all spending was local; * identified factors affecting an institution's economic impact on a community and established that institutions can have different impacts; * tried to account for the negative effects on local government and business of a community's arts and cultural activities to arrive at a picture of net cost, if any; * examined critically the common premise that the arts are important to industrial development and executive recruitment. In particular, this model's strengths are as follows: * it can be adapted to a variety of settings and take account of local governmental, social, institutional and economic conditions; it utilizes data generally available from an insti- tution's internal records or from local, state, or federal documents; * it focuses not only on the institution but also its employees, guest artists and audience; * it can be used and understood by individuals who have no training in economics and the social sciences; * it can be used to assess the effects of one institution or many; it uses as inputs a variety of policy-relevant data respecting an institution and its community; it identifies negative as well as positive effects: We are aware that some readers may draw unwarranted conclusions from this study. Therefore, we wish to caution the reader on four points. (1) It cannot be inferred from this or any other cur- rently available "economic impact" study that support for the arts, as an economic development strategy, is to be preferred over other alternative uses of public or private dollars; (2) It cannot be inferred that the economic effects identified would not have occurred had the examined institutions not existed. For example, arts institutions -3- vie for leisure-time dollars that might have been spent in the community even if they were not spent on the arts. Conversely, much of the interest in artistic and cultural activities is sui generis. In the case of Baltimore, some of the audience might have travelled to Washington or other cities to satisfy their desire for the arts. In short, if specific institutions had not existed, we simply do not know whether others would have, or, in any case, the extent to which the economic effects noted would not have occurred. (3) It cannot be inferred that the eight institutions examined in this study exhaust the effect of the arts on the Baltimore economy. The model utilized is intended to assess the economic effects of institutions. However, while the eight institutions studied include the region's largest arts institutions, these organizations constitute no more than 10 percent of the total arts employment in the Baltimore metropolitan area.* Further, it can be assumed that arts institutions and individual artists and craftsmen residing outside the Baltimore metropolitan area purchase arts-related goods and services from firms in the Baltimore region. These expenditures have not been accounted for. Finally, for those interested in artistic and cultural activities, the availability of the arts plays a role in determining the attractiveness of a community as a place in which to work and live. While it is easy to overstate the role of the arts in decisions by individuals to remain, invest, or relocate to a community, no attempt has been made to assess net dollar benefits to the community due to the preferences of individuals for the arts. (4) It cannot be inferred that economic effects are or ought to be important determinants of public policy toward the arts. We conclude this report with policy observations which include a caution against the inappropriate use of "return on investment" criteria in the evaluation of alternative public policies toward the arts. *For example, census data for 1970 show a total of 5805 Writers, Artists, and Entertainers, in the Baltimore SMSA. Total full-time equivalent employment of the eight arts institutions was 404 in 1976, or about 7% of the reported 1970 total for the region. 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H o -H CD Cn rd > — a c — • — U CD ■H w W H H W cu 05 H II en II ii II P5 II II > co cu > H CQ CQ CO w H CN ro ^ in CQ CQ CQ H CN U 2 cu • • c H H H rH rH T T ■H 1 1 1 1 1 1 1 CO H 03 CQ CQ CQ CQ CM ro T CQ CQ LD vo P 1 1 1 1 1 1 CQ m CQ CQ CQ CQ CQ CO 3 E CO -p cu •H u u CO X! 3 CO CD +J rd •H u Cu 5-1 cu cu rd «t CO CD CO >1 H rd C rd H rd C O •H +J U •H T3 CO •H 5^ 3 •n ■ i •H -P iH 3 E • T3 O C rd X •H C T3 C •H CD -P CU 3 CU -P < •H -P CD CO CD C Cfi ■H ■ 1 •H . 4-> V H CD P T3 E T3 rd 5h O CD Pn X! _5_ Table 2 List of Equations Economic Impacts on Local Business Direct Impacts B-l Total institution-related local expenditures (E) B-l.l Local Institutional Expenditures for Goods and Services (E.j ) B-l. 2 Direct Expenditures in the Local Community by Institutional Employees (E e ) B-l. 3 Local Expenditures by Guest Artists (E ) B-l. 4 Local Expenditures by Local Audience and Patrons (E a ) B-l. 5 Local Ancillary Expenditures by Non-Local Audience and Other Users (E v ) Induced Impacts B-2 Purchases by Local Businesses from Local Sources in Support of Institution-Related Expenditures in the Local Economy (B ) B-3 Local Business Volume Stimulated by Institution- Related Income Spent by Local Business Employees (BV) B-4 Value of Local Business Property Committed to Institution-Related Business (BI) B-4.1 Value of Local Business Real Property Committed to Support Institution-Related Business (RP) B-4. 2 Value of Business Inventory Committed to Support Institution-Related Direct and Secondary Business Volume (Inv) B-5 Expansion of the Local Credit Base Attributable to Institution-Related Deposits (CE) B-6 Local Business Volume Unrealized Due to Institution- Related Enterprises (NBV) Economic Impacts on Local Government G-l Total Institution-Related Local Tax Revenues (GR) G-l.l Local Real Estate Taxes Paid by the Institution, Its Employees, and Local Businesses Serving Both (RETX) G-l. 1.1 Local Real Estate Taxes Paid by Institutional Employees (RET e ) G-l. 1.2 Real Estate Taxes Paid by Local Businesses on Real Property Committed to Support Institution- Related Business (RET b ) G-l. 2 Local Sales Tax Revenues Resulting From Institution- Related Direct Expenditures (ST) G-l. 3 Local Income Tax Revenues Paid by Institutional Employees (YT) G-l. 4 State Per Capita Aid to Local Government Attributable to Institutional Employees (SA) -6- Table 2 (Continued) G-2 Operating Cost of Government-Provided Municipal and Public School Services Attributable to the Institution and its Employees (OC) G-2.1 Local Governmental Operating Costs (Excluding Schools) G-2. 2 Public School Operating Costs Attributable to Insti- tutional Employees (PSOC) G-3 Value of Local Governmental Property Committed to Support Services to Employees (GP) G-4 Foregone Real Estate Taxes Due to the Institution's Tax-Exempt Status (FTX) G-5 Value of Local Governmental Services Self-Provided by the Institution (SSVS) Economic Impacts on Individuals I-I Number of Local Jobs Resulting from Institution- Related Direct Effects on the Local Business Sector and Government (J) 1-2 Total Local Personal Income Due to Institution- Related Direct Effects on the Local Business Sector and Government (PY) 1-3 Durable Goods Purchases Attributable to Institution- Related Increases in Total Personal Income (DG) -7- -8- THE BALTIMORE ECONOMY AND ITS ARTS COMMUNITY: AN OVERVIEW A quick overview of both the economy and the arts community of the Baltimore metropolitan area will put into perspective the impact of the eight arts institutions examined in this study. As indicated by Figure 1, the Baltimore metropolitan area consists of Baltimore City and the five surrounding counties. While Baltimore City ranks seventh in population nationally, with some 900,000 residents, the metropolitan area, with a population of roughly 2.2 million persons, ranks thirteenth among SMSA's. (As defined by governmental agencies for the collection and aggregation of data, Baltimore City and the five surrounding counties constitute a Standard Metropolitan Sta- tistical Area, or SMSA. ) Major employers in the Baltimore SMSA are concentrated in three broad sectors which together constitute a remarkably well- balanced economic base: the Port of Baltimore and related transportation activities; diversified manufacturing; and business, institutional, and governmental services. As with other major east coast cities, Baltimore traces its economic origin to its suitability as a port. Currently, the port is ranked fourth nationally in terms of combined import and export tonnage and is the second leading container port on the east coast. A recent study has estimated that 26,000 jobs are directly related to port activities, while transportation and transshipment expenditures associated with the port activity pour over $400 million annually into the Maryland economy. * As is the case nationally, manufacturing, while significant, is of declining importance in Baltimore's total economy. By far the single most important individual manufacturing employer in the Baltimore SMSA is the vast Bethlehem Steel facility at Sparrows Point, claimed to be the largest tidewater steel manu- facturing complex in the free world. Some 25,000 to 30,000 people work at Sparrows Point both in the steel mill and in the company's shipbuilding operation. The size of the Bethlehem Steel work force accounts for as much as one-sixth of the total manufacturing employment in the Baltimore area; roughly half of these employees live in the city proper. Other particularly large manufacturing firms include the General Motors' Chevrolet assembly plant (5,000 employees), Westinghouse (13,000 employees), and Western Electric (8,000 employees) . In 1950 the garment industry employed as many as 20,000 people in the Baltimore SMSA. Today there are only about 12,000 jobs in this sector, and many of these seem threatened by the nationwide decline of this industry. ♦University of Maryland, The Economic Impact of the Port of Baltimore on Maryland (April, 1975). -9- Figure 1 The Baltimore Metropolitan Area -10- Maturation and expansion of the metropolitan economy has produced a surge of jobs in the "services" sectors, accompanied by a very substantial rise in government and institutional employment. The latter resulted in 70,000 new jobs between 1964 and 1970, or about one-half of the total regional employment growth in that period. The growth of federal and state government and medical and educational institutions has been particularly significant. Currently, there are some 70 firms in the Baltimore metropolitan area with 1,000 or more employees, and there are many times that number of smaller firms. All together these firms, large and small, employ a total labor force of some 900,000 non- agricultural workers, both full and part-time. According to the Washington Post , Baltimore City has a "growing reputation as a vital, diverse, culturally rich, and architecturally exciting city." The city has been an innovator and specialist in "urban homesteading" and other strategies to encourage the re-use and rehabilitation of old buildings and homes. Also, it has mounted one of the country's most ambitious renewal programs. It includes: the Charles Center office- shop-theatre-hotel complex; the transformation of Baltimore's in- town port area into one of the nation's most spectacular urban waterfronts; Coldspring, a new town-in-town designed by Moishe Safdi; and recent plans for a major renewal of the downtown retail district. In November of 1976, the Department of Housing and Urban Development recognized Baltimore's efforts with an unpre- cedented sixth design award in seven years. Baltimore City is unable, under terms of the state consti- tution, to annex its surrounding suburbs, with the result that it has increasingly become the locus for the region's poor and others with high service needs. The efforts highlighted above reflect a twenty year strategy to create a culturally exciting, physically attractive, and economically viable city in which the SMSA's middle class will want to work, shop, and live. The metropolitan area as a whole is rich in artistic and cultural resources. The region's amateur and professional arts activity is extensive. For example, in fiscal 1976, the Maryland State Arts Council made grants to some sixty organizations in the Baltimore SMSA. Within the SMSA are some fifteen institutions of higher learning, including six community colleges. There are several non-professional theatre and choral groups and at least six dinner theatres. Also there are a number of fully professional institutions, which are of cultural, if not strictly speaking artistic, importance, such as the Maryland Historical Society, the Baltimore and Ohio Transportation Museum, the Maryland Academy of Sciences, the Baltimore City Zoo, and numerous historic sites. In addition, the region is fortunate to have the Peabody Institute (a conservatory of music) and the Maryland Institute of Art. -11- The eight institutions examined by this study include the core of Baltimore's fully professional arts resources in repertory theatre, opera, symphony, dance, and the visual arts. They are: Baltimore Opera; Walters Arts Gallery; Baltimore Symphony; Morris A. Mechanic Theatre; Baltimore City Ballet; Baltimore Museum of Art; Center Stage; and Arena Players. Together, these eight institutions received more than $2.3 million in federal, state, and local support in fiscal year 1976. -12- SUMMARY OF INSTITUTION-RELATED ECONOMIC EFFECTS ON THE BALTIMORE METROPOLITAN AREA Direct Impact of the Eight Arts Institutions on the Business Sector of the Baltimore SMSA This section summarizes and discusses the major findings resulting from an application of the model to eight arts institutions in the Baltimore metropolitan area. While the identified effects are not large compared to many industries in the metropolitan area, they indicate that significant reductions in the budgets of these institutions would have perceptible effects on jobs, incomes, and regional business volume. Throughout this report, terms such as "local," "the Baltimore metropolitan area," and "the Baltimore region" are used interchangeably to identify the Baltimore Standard Metropolitan Statistical Area (SMSA) , which includes Baltimore City and Baltimore, Anne Arundel, Carroll, Harford, and Howard counties. In testing the model, we treated each institution separ- ately as well as identifying, when meaningful, each institu- tion's differential effect among the six local governmental units that comprise the Baltimore SMSA. Appendix F is devoted to a review of the complications associated with multi-juris- dictional and multi-institutional analysis. In this report, we have aggregated the effects of the eight institutions, while reporting them on a total SMSA basis. All figures are for fiscal 1976 unless otherwise noted. Spending by the 8 Institutions In fiscal 1976, the eight institutions spent $5.3 million for goods and services, of which 47%, $2.4 million, represents purchases from suppliers and individuals in the Baltimore region Another $4 million was spent for wages and salaries. Spending by employees, audiences, and guest artists is enumerated below. Employee Residence and Spending Patterns One striking feature is the extent to which the employees of the eight institutions live in the city. At least 80% of the institutions' professional and administrative staff members live in Baltimore City, with the remainder concentrated primarily in Baltimore County. Slightly less than half (47%) of all these employees are homeowners in the metropolitan area. At the same time, a relatively small number (approximately 50) -13- of children of employees attend public schools in the region. (We are unable to determine from our survey information whether this is because employee families have fewer children of school age than the population at large, or whether arts employees use the private school system more extensively. ) Employees reported that of $6.7 million of disposable family income (net income after deduction of taxes and social security contributions), two-thirds ($4.4 million) was spent in the metropolitan area. This figure represents one method of handling family income in circumstances, such as the Baltimore case, where the arts institution provides the bulk of household income for most employee households. For a discussion of alternative cases, see Section V. Audience Residence and Expenditures Total local paid attendance at all eight institutions during the 1976 season was approximately 718,000, with about 6% of the patrons coming from outside the metropolitan region. The percentage of out-of-region audience determined from our audience survey varied substantially among the eight institutions, ranging from 2% for the Walters Art Gallery and Center Stage Theatre to 14% for the Baltimore Museum of Art. Local audiences spent, in addition to the ticket price, sums ranging from $3.85 to $15.65 per party per visit for items such as meals, transportation, parking and babysitters. The amount varied depending on the institution and the type of performance. As might be expected, attendance at the museums entailed the smallest auxiliary expenditures, while attendance at the Symphony and the Mechanic Theatre involved the highest average supplementary expenditures. (For a dis- cussion of the technical problems associated with determining auxiliary spending patterns, see Section V. Because many persons attend performances and cultural activities in couples or groups, we formulated our survey questionnaire to elicit average expenditures by party size.) All together, local audiences in fiscal year 1976 spent an estimated $2,624,601 in addition to ticket and admission fees. Spending by Out-of-Region Audiences In fiscal 1976, some 43,000 visitors from outside the Baltimore region came specifically to use the eight arts institutions. These visitors contributed roughly half as much as resident audiences to local area spending despite the fact that they comprise only 2% to 14% of total atten- dance depending on the institution. Out-of-region patrons exert a disproportionate economic influence compared to local audiences, both because they spend more per visit and because a larger share of these visitors (7.5% to 63% depending on the institution) spend money at all. -14- Average per diem expenditures reported by out -of region parties ranged by institution from $11.80 to $48.60, yielding a total expenditure of $1,891,392 attributable to the drawing power of these institutions in attracting out-of-town visitors. It is important to remember that this calculation reflects expenditures only for those respondents who indicated that they came to Baltimore specifically to visit the arts institu- tion under study. This percentage ranged from 24% of out -of - region respondents at the Walters to 76% of out-of -region respondents at the Opera (Table 3) . It should be noted that these percentages reflect the presence nearby of the Washington metropolitan area. Audience and patrons from Washington, D.C., were counted in our survey among the out -of -region respondents because they are not technically in the Baltimore SMSA. Spending By Guest Artists Each year, arts institutions contract with designers, directors, conductors, choreographers, featured soloists, and others. These non-resident "guest artists" make a modest contribution to local spending. The eight examined institu- tions reported a total of 1,913 guest-artist days spend in the Baltimore region at per diem rates ranging from $30 to $40 for a total estimated fiscal 1976 local expenditure of $68,247. Our computation of guest artist spending is un- doubtedly conservative, since no attempt has been made to include members of family or entourages in the total estimate. Secondary and Negative Impacts On the Business Sector These direct expenditures by the institutions and their staffs, audiences, guest artists, and out-of -region visitors do not capture the full effect of such activities on the economic base of the region. Such direct expenditures generate second -order effects, as local businesses make purchases of their own to support the institutions ' local demand for goods and services. Eventually, Baltimore metropolitan region businesses purchase an estimated $9.1 million in local business volume. In addition, these local firms have invested in $5.7 million worth of inventory, equipment, and real estate in order to service institution-related business. This represents the fiscal 1976 value of these assets and not expenditures made in 1976, although a portion of these assets may have been acquired in that year. Expenditures were not necessarily made with local firms. A portion of business and personal incomes generated by institutional activities are deposited with local banks. This results in an expansion of the local credit base. We estimate that eventually the regional credit base is augmented -15- TABLE 3 Eight Baltimore Arts Institutions: Percentage Audience From Outside the Region % Audience From Out-of -Region % of Out-of-Region Audience Who Came Specifically to Attend Institution Baltimore Opera Walters Art Gallery Baltimore Symphony Morris A. Mechanic Theatre Baltimore City Ballet Baltimore Museum of Art Center Stage Arena Players 5% 2 3 6 5 14 2 NR 76 24 31 58 45 34 36 NR NR = None reported during survey period -16- by some $3,106,000 as a direct consequence of fiscal 1976 institution-related deposits. The bulk of this effect occurs through the deposits of the institutions themselves. Negative Effects on Business Volume To the extent that the institutions operate enterprises or provide services in competition with local businesses, their receipts from these activities should be recognized as a substitution for other private business earnings in the community. In some instances, however, it may be reasonable to think that the subsidiary activities of arts organizations are net additions to total business volume in the region, perhaps competing with activities outside the area but not reducing sales within the region. After examining the auxiliary enter- prises operated by the eight institutions in our Baltimore sample, we decided not to count any of the $2 80,820 in income from these subsidiary enterprises as a net loss to other private sector vendors. The bulk of this income was derived from gallery and gift shop sales and from concessioned restaurant facilities; profits from concessioned restaurant sales go to private business anyway. In the case of gallery sales, we assumed that sales represent items that were largely unobtainable elsewhere, and that, in any case, museums stimulate other private sector purchases through a heightened interest in the purchase of art. No data is available on which to make an evaluation or assumption of the transfers from other recreational, entertainment, or educational areas that may be represented by all or a portion of the ticket and related expenditures associated with attendance at arts events. Summary of Business Effects On the basis of these estimates, we present a general summary of the effects of the eight examined institutions on the Baltimore region business sector: institution-related activi- ties in 1976 generated about $29.6 million of direct and indirect business volume in the region; they accounted for about $5.7 million of business real property, equipment, and inventories; and they generated about $3 million of additional local bank credit in the region. While these figures are not large compared to many firms in the private sector, they indicate that signifi- cant reductions in the budgets of these institutions would have perceptible effects on jobs, incomes, and business volume in the region. Impacts on Local Government Tax-exempt arts institutions have an effect on the fiscal status of local governments. We outline here fiscal 1976 tax payments to local government attributable to the eight insti- tutions in our sample, and we assess their cost to local govern- ment. Costs are assessed in terms of foregone property taxes, -17- unreimbursed municipal services, and the operating costs of public schools attributable to the institutions, their per- sonnel, and their children. These items clearly do not exhaust all effects on local government. They reflect only selected impacts which may be traced directly to the institutions and their employees. Although all eight institutions operate under tax-exempt status, they are nonetheless responsible for $151,767 in tax payments to the six local governments in the SMSA. The sources of these revenues were property taxes, locally retained sales taxes, local income taxes, and population-based state aid to localities (see Table 4). The figure of $151,767 includes only tax payments related to direct , not secondary, expenditures. Also, it excludes a variety of user fees paid by employees. TABLE 4 Direct Tax Payments to Local Government by Eight Baltimore Arts Institutions Real estate taxes paid to jurisdictions in the Baltimore SMSA by the arts institutions, their employees, and business property devoted to servicing the institutions (equation Gl.l) $99,537 Locally retained sales on institution- related business volume* (equation G1.2) 5,062 Local income tax revenues attributable to institutional and other business employees (equation G1.3) 27,558 State aid to local public schools attributable to children of institution-related families (equation G1.4) 19,610 TOTAL $151,767 The institutions also provided municipal-type services for themselves, including security services and trash collection, with an annual value of about $33,172. On the cost side of the ledger, local governments provide services for the employees and households of the eight institu- tions valued at more than $678,612. Of this, only $30,429 *In many areas, sales taxes are imposed by state government but collected by local government for payment to the state. We count here only that portion of sales tax collections actually re- tained by the six local jurisdictions in the Baltimore metropolitan region. -18 represents the cost of providing public school education for the children of arts employees. Another cost to local government is represented by the value of governmental property necessary to provide services to the institutions and their employee households. The current value of local government property so committed is estimated at $274,138. This may not exhaust total costs to government since insti- tutional programs may benefit from donated government services such as increased police protection and free facilities or equipment. Finally, we estimate that the value of foregone taxes on tax-exempt property owned or occupied by the eight Baltimore arts institutions is no more than $100,000 and is more likely near $60,000. This range reflects the two alternative assumptions cited in Table 5. None of the examined institutions pays property taxes. Either they own tax exempt property or they rent their facilities. Certain owners from whom they rent do pay property taxes while others are tax exempt. Three of the institutions occupy land and/or buildings owned by the City of Baltimore. Foregone property taxes consist, then, of insti- tution owned or rented tax exempt property together with pro- perty owned by the City of Baltimore. For the purposes of this case study, we will assume that city owned property and buildings would have remained in public use in the absence of the insti- tutions, that is, that $59,765 more nearly approximates the real value of the subsidy provided by the city through property tax exemptions. It should also be noted that the alternative estimates in Table 5 reflect only foregone tax revenues on property used by the arts institutions themselves and do not attempt to reflect any spillover effects that these institutions may have on the value of surrounding (taxable) properties and neighborhood cohesion. These spillovers may be both positive and negative. For example, theatres stand empty much of the time, inviting loitering and vandalism, and some institutions create neighborhood parking problems which impose uncompensated costs on local residents and businesses. Attempts to estimate positive neighborhood effects must be matched by equal attempts to measure the negative effects. -19- I TABLE 5 Alternative Estimates of Foregone Property Taxes on _ Real Property Owned or Occupied by the Eight Baltimore I Arts Insitutions, 1976 ■ j Taxable Value* Foregone Property Te 1. All currently exempt I property (land and j buildings) would revert to tax yielding uses. $ 1,562,300 $ 93,738 , I 2. All city-owned property ■ (land and buildings) would remain in exempt 1 uses, but other property [ would revert to taxable uses. $ 996,080 $ 59,754 i I Source: Baltimore City assessment records, 1976-77. I * Total taxable value, which in Baltimore equals 50% of ■ market value of land and improvements (buildings) . The foregone tax yield on this base is the Baltimore City property j tax rate (6%) times the total assessed value. All eight institutions are located in Baltimore City; however, had some been located in other local jurisdictions, the foregone tax • yield from exempt properties would have had to have been I calculated for each property at the tax rate levied by the jurisdiction in which it is assessed. -20- Impacts on Individuals The economic impact of arts institutions on private individuals is largely through jobs and employment opportuni- ties. We estimate that 1175 full-time jobs in the Baltimore area are produced by the activities of the eight arts organ- izations in our sample; 404 of these are directly with the institutions, and 771 are created as a consequence of institu- tionally related business and government expenditures. Taken together the eight institutions are roughly equivalent in employment effects to, say, the Coca-Cola Bottling Company, Coppin State College, Fidelity and Deposit Company of Maryland, or the Howard Research and Development Corporation, each of which employs between 400 and 500 persons in the metropolitan region. The total employment impact of the eight arts organ- izations (1175) is approximately equal to the direct employment totals of local firms such as Maryland Cup Corporation, Maryland General Hospital, Reads, Eastern Stainless Steel, First National Bank of Maryland, IBM, and the Maryland Casualty Company. The jobs created, either directly or indirectly, by the eight institutions and their combined business transactions serve to generate $9.7 million of personal income in the region; $4 00,000 of this is spent for durable goods. The Arts and Economic Development In recent years, advocates of the arts have stressed the importance of spinoff economic effects that are not easily quantified. In particular, it has been claimed that the avail- ability of artistic and cultural activities can be a decisive factor in both industrial relocation decisions and in the recruitment and retention of executives.* If arts and cultural activities have an ancillary role in economic development deci- sions, their influence would represent an important additional consideration in the development and evaluation of public policy toward the arts. We sought to evaluate local and national exper- ience with respect to the impact of artistic and cultural ameni- ties on industrial development and executive recruitment. In doing so, however, we do not mean to imply that public policy toward the arts ought primarily to aim at maximum economic returns to the community. *E.g., The Report of the Governor's Task Force on the Arts and Humanities, The Arts; A Priority for Investment (Commonwealth of Massachusetts, 1973); The Greater Philadel- phia Cultural Alliance, An Introduction to the Economics of Philadelphia's Cultural Organizations (Philadelphia, 1975); Mayor's Committee on Cultural Policy, Report (New York, 1974); and the Washington Center for Metropolitan Studies, The Arts in Metropolitan Washington; Some Preliminary Data on Economics, Financing and Organization (Washington, D.C., 1975) -21- Industrial Location No hard data is available on the impact of artistic and cultural amenities on industrial development and executive recruitment in the Baltimore region or nationally. For this reason, we sought the judgments of a variety of knowledgeable individuals through unstructured interviews. We initially contacted local officials to assess their experience. Be- cause of the unanimity of their views, we wondered if the Baltimore experience as seen by these local and state officials was typical, and so we contacted others nationally. The twenty individuals interviewed included researchers and consultants in plant location matters (3); State of Maryland and local governmental officials in Baltimore City and the five surrounding counties responsible for facilitating industrial development in the state and region (7) ; officials of national economic development associations (2) ; represen- tatives of chambers of commerce outside the Baltimore region who are active in economic development (2) ; and national consultants in executive recruitment (6). We were struck by the unanimity of the views of these knowledgeable individuals. We think it fair to conclude from these interviews that the availability of artistic and cultural activities can in certain cases be a contributing, although rarely a decisive, factor in plant and executive location decisions. Those interviewed distinguished the "public relations" use of the arts from the role that the arts may actually play in corporate decision making. The presence of varied and high quality artistic and cultural amenities appears to be used by those in economic development roles as an important indicator of the general level of a community's civility and culture. The presence of these amenities is used to suggest that a community is progressive, resourceful, concerned about itself, and ener- getic. Reference to the arts is used, then, as an important indicator of a generally favorable quality of life. However, there was universal agreement among respon- dents that artistic and cultural amenities by themselves are not a determining factor in industrial location decisions. The majority of business location decisions involve firms in production, assembly, manufacturing, and warehouse distribu- tion. These firms vary in their special needs but commonly they look to ample supplies of water and electric power, convenient site location, availability of railroad sidings, adequacy of rail and road networks, and the like. In making relocation decisions, firms appear to make nested choices, first selecting suitable regions or metropolitan areas and then evaluating individual sites with respect to such matters -22- as property values, tax rates, the characteristics and avail- ability of the local labor force, wage rates, the availability of utilities, the size of the site, road access, transpor- tation network, the availability of financing, proximity to raw materials and markets, and the availability of vocational schools. In most cases, only when "all things are equal" with respect to the business climate will firms give weight to quality of life considerations in their decisions. Quality of life issues appear to be more important to firms that employ highly trained, salaried, and mobile person- nel, typically with advanced degrees and to firms where top management will have to relocate. Corporate and regional headquarters, research and development firms, and government facilities are not as dependent on traditional site location considerations and, since they must recruit and retain skilled and mobile personnel, place more emphasis on quality of life issues because of the greater need for concern over employee satisfaction. Similar considerations also hold for single- owner firms. Those interviewed indicated that there are many quality of life factors perhaps more important than quality artistic and cultural amenities. Artistic and cultural amenities are but one element of the total community fabric that includes factors such as recreational opportunities, schools, neighborhoods, the cost of living, climate, efficiency and performance of local government, the environment both man-made and natural, the quality of health and educational facilities, and positive social conditions. Cultural and recreational opportunities are generally viewed as one area of concern, with firms interested in the total mix of educational and recreational opportunities available to an employee and his or her family. Those interviewed generally agreed that quality education facilities were particularly important, with research and development firms emphasizing proximity to institutions of higher learning. Thus, one community's advantage with re- spect to cultural resources might be balanced out by another's advantage in other kinds of recreational opportunities or generally more favorable social conditions. However, those interviewed did point out that location decisions can hinge on "executive preference," in which case almost anything frojKi recreation to artistic amenities to climate could prove decisive. At the same time, no one was aware of any instances in which location decisions hinged on the presence of specific cultural activities or more general cultural considerations. Executive Recruitment In our interviews with executive recruitment consultants and major firms in the Baltimore metropolitan area, respon- ds- dents were in agreement that an increasing number of executives emphasize quality of life considerations as much as salary and career advancement in deciding whether to relocate in a new position. Salary and career opportunities still predominate, but over the last two decades there has been a change in executive willingness to take a position simply because it represented a promotion and increase in salary. Apparently, it is becoming more common for executives to ask whether their families would also benefit from a promotion or reloca- tion. Relocation may represent a major trauma for a spouse or children. An increase in salary may be largely eaten up by taxes. An executive may have to sacrifice his present life-style, for example, the ability to get in a round of golf before dinner. Those interviewed went on to note that quality of life and life-style issues are very much matters of personal pre- ference. While few want to live in a place with no cultural ambience, this does not mean that executives who are inter- ested in artistic and cultural amenities require them to be "world class" or to be located in the home community. Access to artistic and cultural amenities may be via a more major city, or through touring events in the home community. Gener- ally, executives were loath to relocate to cities with reputa- tions for decay, crime, and a high cost of living. Of special importance were such issues as "whether it's a hassle to commute to work," education, neighborhoods, housing, recrea- tional opportunities, the kind of people with whom the family would be socializing. In other words, executive status would not automatically suggest a special interest in the arts, and arts advocates should not equate "quality of life" with quality of artistic and cultural resources. CONCLUDING POLICY OBSERVATIONS Table 6 summarizes the more prominent economic effects of the eight arts institutions on the Baltimore metropolitan area. (Relevant equations, calculations, and data sources are listed in Appendix A. ) Again, note that direct effects refer to expenditures made in fiscal 1976 by the institutions and their audiences, employees, and guest artists, while secondary effects may not be completely realized within one fiscal year. Also, business investment in plant and equipment refers only to the current (fiscal 1976) values of property that may have been purchased in other years and from non-local sources. Finally, we repeat our caveats from Section I. In par- ticular, while we have noted that significant reductions in the budgets of arts institutions may be of interest to policy makers because of the perceptible effects on jobs, incomes, and business volume, one cannot conclude that support for the arts, given particular economic goals such as the creation of jobs, is more desirable than other uses of public dollars. -24- TABLE 6 Summary of Economic Effects , 1976 Fiscal Year 1976 Total direct expenditures of the 8 institu- tions for goods and services $ 5,344,754 Of which purchased locally 2,405,026 Employee household disposable income 6,701,479 Of which spent locally 4,422,976 Total audience spending (other than ticket price) 4,515,993 Of which local audiences spent 2,624,601 Of which out-of -region audiences spent 1,891,392 Spending by guest artists 68,247 Secondary business volume generated by suppliers and their employees 18,499,454 Current value of backup inventory, equipment, and property 5,746,743 Institutions-related tax payments to local government 151,767 Value of local government services to institu- tions-related employees and their households 678,612 Foregone property taxes on tax-exempt property 59,765 Total local government contributions to the 8 arts institutions 1,578,545 Number of full-time jobs in Baltimore SMSA attributable to institutions-related activity 1,175 Personal incomes generated by institutions- related business /volume 9,676,284 -25 - In evaluating and contrasting the contribution of individual institutions to the aggregate impact noted in Table 6, we are persuaded that institutional type, for exam- ple theatre or museum, is less useful for identifying economic impact than structural distinctions, such as: the proportion of non-salary expenditures made to local suppliers (an insti- tution's ability to spend locally is largely determined by the size and diversity of the local economy, see Appendix B) ; the number and composition of arts employees (guest artists, resident troupe, permanent employees) ; the proportion of employee expenditures remaining in the community; and local and visiting audience expenditures attributable to institu- tions. The interaction of these factors is idiosyncratic. For example, in the case of Baltimore, if an arts employee resides in Washington, D.C., his earnings and resultant secondary spending would primarily benefit Washington, not Baltimore. If this were so, a visiting artist resident in Baltimore for a part of a season might have a greater local spending impact than the arts employee. Similarly, in the assessment of audience expenditures attributable to the arts, it is not suffi- cient to know total attendance, since audience spending varies substantially according to the residence of patrons (local versus out-of-region) and varies significantly by type of insti- tution. Also, an institution that relies heavily on contracts to guest artists who spend only short periods in the community may export a significant proportion of their wage bill. An analogous situation will arise for institutions dealing with outside suppliers. Table 7 gives an indication of high, low and average values of various data associated with the eight institutions examined in this report. It is also important to note that a significant propor- tion of the aggregate local impact of the examined institu- tions is due to the fact that, taken together, they received $2,320,278, or 25% of their total fiscal 1976 budgets, from government. As indicated by Table 8, the bulk of this ($1,578,545) came from local (city and county) governments. The largest portion of the support from local government consisted of $1,012,445 provided by the City of Baltimore to the Baltimore Museum of Art. Additional sums ranging from $12,000 to $266,000 were received from local governments by the other institutions. 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VC r- ix) N CTi in X) — ' CTi >H rH CTi CM m CT. — o CM M • •co- II II ll C U U Q Q D CO CU CO fd X! U P 3 CM CQ O O O CU rH XI (d p 3 a CQ X •H T3 3 CU Cm CM a 1 i ■H O E P Cm O co rH P O U P Cm P P 3 CU E < CM -H CM CU CU CM H CO u 1 >H o M M CM -78- APPENDIX B Multiplier and Secondary Spending Effects The "multiplier effect" describes the process by which a dollar of primary or direct expenditure in the community is expected successively to generate some multiple of its original impact on the local economic base. For example, a dollar paid to a resident employee of an arts institution will be spent partly on local goods and services and partly on products or services from suppliers outside the community. The portion spent locally goes to local businesses who, in turn, spend some share locally and the remainder with outside suppliers, and so on until "leakage" to outside vendors completely exhausts the initial spending effect. The final impact of the initial expenditure will be some multiple varying directly in size with the fraction respent locally and varying inversely with the amount of "leakage" to outside suppliers from the local spending cycle. A typical multiplier value is calculated as 1 where mpc is the "marginal propensity 1-mpc to consume (that is, the fraction of income spent) locally" and 1-mpc is the rate of "leakage" into outside purchases. The larger and more diversified the local economic base, the more self-supporting the community is likely to be and the larger will be the proportion of local direct expenditures retained and respent locally, that is the larger will be the anticipated multiplier effects. Because we do not have direct survey evidence on the amount of total business spending generated locally by local suppliers in the Baltimore region, we have interpolated an approximate multiplier value from data for cities of varying size in the U.S. -79- TABLE 9 Multiplier Values for Baltimore Arts Study Assumed Multipliers m P 1.818 • mi 2.857 P .475 X .000065 Model B-2 B-3 1-2 1-1 Range of Multiplier Values Used in Other Studies* 1.15 - 2.50 2.0 - 4.0 .25 - .66 .00007 - .00009 .031 1-3 Similarly, the larger the local market area and the more diversified and integrated its economic base, the easier it can absorb additional local demand from arts institutions ' expenditures with smaller additional requirements for labor and capital. This means that nip, the marginal employment requirements of an additional dollar's worth of local institutions-related spending and m^ , the marginal addition to payrolls and profits from an additional dollar's worth of institutions-related spending, will also vary by market size and can be interpolated from national data on other cities. Other studies have characterized these respending coefficients as "multipliers" and used them to estimate the total of direct and indirect effects by multiplying total institution expenditures by the multiplier. Equations B-2 and B-3 of this model are intended to estimate indirect effects only. Therefore, as used in calculations the coefficients m-[ and m p are reduced by 1. *See Caffrey and Isaacs, Estimating the Impact of a College or University on the Local Economy , pp. 44-45; and S.J. Weiss Employment to and E.C. Gooding, Estimation of Differential Multipliers in a Small Regional Economy the Federal Reserve Bank of Boston, No. (Research Report 37, Boston, 1966) -80- APPENDIX C The Employee Survey Included in this appendix is a sample confidential survey for distribution to employees and guest artists. The questionnaire is included for illustrative purposes only Researchers may choose to add or omit questions depending on the economic effects they intend to identify and the extent to which they will utilize data on the general local population on the assumption that institutional employees and their households are not dissimilar. We recommend conducting an employee survey whenever possible. There may be important respects in which institutional employees are likely to differ from the general population. As in the case of survey questions 4 and 9, researchers will have to include jurisdictional categories and names in keeping with local and state names and types, for example, county, parish, township. In addition, institutional auditor's reports are for the previous fiscal year, while the employees surveyed are those employed at the time of the survey. Researchers must make the assumption that the characteristics of current employees are not dissimilar to those of the previous year. However, if the number of employees at the time of the study is different than the number covered by the auditor's report being used, then researchers will have to weight results accordingly, using the last fiscal year's number of employees. Further, a non-professional might begin designing the survey instrument by listing all data on employees and their households that will be required by the equations to be used. One might also seek the advice of experienced researchers, perhaps taking advantage of local college or university resources. The questionnaire solicits personal information; response rates may be increased by providing envelopes in which respondents can return questionnaires. -81- SURVEY OF STAFF The Johns Hopkins University Center for Metropolitan Planning and Research is assessing the impact of arts and cultural institutions on the economy of the Baltimore Metropolitan Area. This study is intended to serve as a national model of use to other metropolitan areas in evaluating the impact of their arts and cultural institutions. PLEASE DO NOT IDENTIFY YOURSELF ON THIS QUESTIONNAIRE. BE ASSURED THAT ALL RESPONSES WILL BE KEPT IN STRICTEST CONFIDENCE. We appreciate your cooperation. PLEASE RETURN COMPLETED QUESTIONNAIRE TO THE GENERAL MANAGER'S OFFICE IN THE ENVELOPE PROVIDED. If you are resident full or part-time staff with this institution, please answer questions 1 through 10. If you are a guest artist with this institution, please begin with question 11. 1. Are you employed at this institution full time or part time? full time part time 2. How many persons are in your household, including yourself? 3. How many of the children in your household attend public elementary or secondary schools? 4. Where is your residence? (CHECK ONE) a) City b) County c) Other State County d) Out-of-State 5. In what type of housing do you now reside? rental housing home you own or are buying If you own your home or are buying, approximately what was your last annual property tax bill? $ What is the total annual salary income before taxes and payroll deductions of ALL PERSONS (including yourself) who live in your household? $ -82- 8. What is the total annual non-salary income (rents, interest, dividends, etc.) of ALL PERSONS (including yourself) who live in your household? $ 9. What percentage (0%, 10%, 20% 100%) of your Total Household income, after taxes, do you estimate is spent within: a) City b) County c) Other State County d) Out-of-State 10. For All Members of Your Household , please estimate the aggregate monthly average balance in State banks, credit unions, and savings and loans: checking accounts $ savings accounts $ THE FOLLOWING QUESTIONS ARE FOR GUEST OR NON-RESIDENT ARTISTS ONLY 11. If you a guest artist, how many days will you stay in the metropolitan area on this visit ? 12. Approximately how much will you, your family and those in your entourage, spend while in the metropolitan area? 13. Approximately what proportion of this money will be spent in the city as opposed to the suburbs? -83- APPENDIX D The Audience Survey There are great problems associated with the use of self-administered audience surveys in developing meaning- ful data on audience expenditures. Distributed and collected at the arts organizations, these survey instruments ask the respondent to report total expenditures associated with attendance at the arts event apart from ticket or admission costs. A major problem is the variability of audiences with program content and location of event. The exhibits at museums may vary appealing to a somewhat different audience each time. Conversely, heavily subscribed performing arts organizations may be attended by the same audience of subscribers regardless of the program. In all cases, a difference in the time, day of the week, and location of the events may effect audience composition. Aside from the general problem of assuring "representative" audiences when sampling only a few program events, there are specific problems associated with the identification of ancillary expenditures. If the respondent will incur expenses after the performance or museum visit, he or she may not know how much they will spend, and may not have even decided yet to incur expenses. Respondents may be able to accurately cite only the expenses they incurred up to the time they were asked to complete the survey. When individuals incur expenses, they typically are due to costs incurred not just by themselves, but by someone else, such as their spouse, children, relatives, or friends. Thus, responses can only be meaningfully interpreted as average expenditures by parties or groups of various sizes. This would seem to require respondents to identify party size or otherwise to indicate the number of persons covered by the expenditures reported. If the respondent did not pay the group expense — if, for example, a spouse or friend did — then he or she may not know how much was spent and may not be willing to find out. Our procedure calculated total ancillary audience expenditures from data on total expenditures by party, stratified by party size. There are difficulties associated with the design and implementation of self -administered audience surveys. This report is not the proper vehicle by which to explore these issues. We raise them now in the belief that our procedures are the most sophisticated to date with respect to the use of -84- self-administered audience surveys to identify audience expenditures. Neophytes would do well to secure the services of survey research professionals. They might consider utilizing the talent associated with local institu- tions of higher learning or local planning departments. We believe that further research needs to be done on alternative strategies for estimating audience expenditures, perhaps in- cluding interviews and questionnaires distributed at the surveyed events to be completed and returned by mail after respondents return home. -85- APPENDIX E Total Full-Time Employees and Full-Time Equiva lents In several equations, we suggest that researchers aggregate part-time employees into full-time equivalents, and/or treat part-time employees separately from total full-time employees. These models require data on the total number of individual jobs, not the total number of individ- uals who may fill those jobs, when individuals are replaced during the year. A large turnover in various positions will cause further complication. You will find, especially when employing multi- jurisdictional analysis (see Appendix F) , that employee residence is central to the task of distinguishing governmen- tal impacts. In the circumstances in question, you will have to use the payroll records of those who had worked at a par- ticular position during the year in question to determine that X% of those employed in that position resided in one jurisdic- tion or another. This information can then be used to apportion high turnover payroll slots among the local units of govern- ment. Part-time employees will have to be aggregated into full-time equivalents and then apportioned. Part-time employees are of two types, those who work for the entire year or season but only part-time and those who work full-time but only for part of the full institutional year or season, for example, actors who may be part of a repertory company but appear in only one play. In the latter case, researchers should make sure that individ- uals are employees and not guest artists on contract. Guest artists are treated separately by equation B-1.3. Researchers will have to use judgment in aggregating part-time employees into full-time equivalents. Individuals who work part-time for the entire year can be aggregated together by the proportion of full-time hours they work dur- ing the year. For example, 5 individuals may work 15 hours a week and the institution may consider 4 hours a week to be full time. Therefore, the number of full-time equivalents is 5(15/40). (This example presupposes a 52-week base full- time year. ) Individuals who work full-time but for only part of the full institutional year can be similarly aggregated. For example, 5 individuals may work for 4 weeks for an insti- tution that considers 48 weeks to be full-time. Therefore, the number of full-time equivalents is 5(4/48). -86- We do not believe that volunteers and Comprehensive Education and Training Act (CETA) personnel should be included as employees. The model focuses on individuals receiving compensation from the institution and on those who are in positions that would not have existed were it not for the examined institution. Volunteers do not meet the former condition and CETA workers do not meet the latter CETA positions are distributed among communities for allocation as the community sees fit. Presumably, all positions would have been utilized by the community even in the absence of the examined institutions. This should not be taken as suggesting that volunteers and CETA workers do not have an economic impact. They do, especially in cases where programs and services would not have been available had there been no volunteers or CETA workers. -87- APPENDIX F Adaptations of the Model for Multi-Institutions and Multi-Jursidictions In some instances, it may be of interest to a regional arts organization or some other agency to analyze the economic impact of a collection of arts and cultural organizations on a community. In this case, the data described in the Manual for a single-institution analysis must, of course, be gathered for all organizations in the sample and the total impacts calculated from the specified equations by adding up the individual impacts of each of the component institutions. Since accounting procedures are even less standardized among tax-exempt organizations than among ordinary corporate organizations, definitions of expenditures, classification of revenues and contributions, classification of employees, and other data items required by the equations may vary from one arts institution to another. The researcher should inquire about the precise definitions used by each institution at the time the primary data are collected and treat uniformly such items as: sales and acquisitions for museum collections; cross-purchase of goods or services between institutions (such as an opera company's employment of the local symphony for its performances) ; and the capitalization of certain accounts such as contributions to a building program. The important principles are to avoid double-counting of expenditures in the records of more than one institution and to standardize as much as possible the accounting for major categories of capital and operating expenditures. The attached schema displays the changes in the 30 equations of the model required to account for multiple institutions by using the subscript .i to denote a particular n institution and summation signs (E) to indicate where i=l impacts must be totalled over n institutions. -88- Similar adaptations must be made in the equations where one is concerned with identifying differential impacts of arts institutions across multiple jurisditions . This situation arises most frequently in metropolitan areas where employees, audiences, and suppliers are distributed throughout several political jurisdictions. Where multiple jurisdictions are of interest, it is necessary to identify the relevant items on the employee and audience surveys by jurisdiction . For example, real estate taxes paid by employees must be attributed to individual property tax rates in each jurisdiction. Similarly, the allocation of sales tax revenues, school aid, purchases from local suppliers, and the like must be distinguished by location. In some cases, however, there may be no reason to believe that impacts vary by jurisdiction (as, for example, the local respending fraction) so that a single parameter can be used in each institutional equation. In the attached schema, equations that may be distinguised by jurisdiction are indicated with the sub- script j_ and the total area impacts are indicated by sura- m ming over m jurisdictions (I). It should be noted i=l that disaggregating economic impacts among individual jurisdictions yields information of little value in some cases. For example, since localities within a metropolitan area are economically integrated, though politically distinct, attempting to trace secondary business expenditures to particular jurisdictions does not make as much sense as identifying an aggregate regional impact. This occurs because, while it is possible (though unwieldy) to identify direct expenditures by jurisdictions, one can have relatively little confidence that the secondary im- pacts of these expenditures will remain in the locality, and more precise information on suppliers 1 secondary expenditure patterns is difficult to obtain. However, disaggregation of public sector (government) impacts is meaningful and may have utility in circumstances where the regional distribution of support for the arts is a policy interest. Since each disaggregation (by jurisdiction, by institution) adds substantially to the tasks of data collection and analysis, the researcher should consider whether the extra detail in the resulting information will be worth these additional costs. -89- Equations Adjusted for Multiple Institutions Shown below are only those equations that must be modified to reflect calculations over more than one institution Equations not listed below remain the same as those described in the text for a sinqle institution. n 'I~ Et= E Z, (TE- - W. - Transf. - T .) 1 1 ei 1 xi 1=1 n E = E f . (W + .5 Y ric ) e i=i X en i nS i V " i=i n E = E a. (TA. ) 1 = 1 n E = E v- (TVD. ) v ■ ■ 1 i 1=1 n CB= E { (1-t) (TD.+ (TD J (Emps. ) } +(l-d){ DD H + (DD ) (Emos.- ) i=i + cbv(E)}-} e 1 e n NBV=E IB i i=i n RET e = E Emps^hjJ (pt) (TAR/R) i=i n MOC= E (EHH i /Pop) (B) i=i n PSOC= E (C./TC)SB i=l X n FTX= E AV. (ar) (pt) i=l 1 P SSVS= E P. + S. + L. + T, . . l l l l 1=1 n J = E Emps- + x(E. + OC. ) i=l X n PY = E W. + p(E. + OC. ) ,1^1 l 1=1 -90- •* U. S. GOVERNMENT PRINTING OFFICE : 1978 O - 259-594 Equations Adjusted for Multiple Jurisdictions Shown below are only those eauations that must be modified to reflect calculations over more than one jurisdiction Equations not listed below remain the same as those described in the test for a single jurisdiction. m E T = E Z (TE . - W - Transf . - T ) I j=1 1 ej D Xj m E = E f (W + . 5Y . ) e . , en. ns]' D=l 3 m E = E g(GD ) g j=l ^ m E = E a(TA.) a • -, J 3=1 -m E = E v(TVD.) v j-i ] m RP = E (E . /TBV . ) (AV . /ar . ) j= l 3 1 3 J m RET = E Emps . (h. ) (pt . ) (TRA./R. ) j=l 3 3 ~ 3 J 3 m RET, = E pt (E ./RP . ) (AV.) b j=i J 3 3 3 m ST = E st.(STR.)(E /TBV.) j=l 3 3 j : m YT = E (TYT./HH.) (i) (Emps •) m SA = E PS . + OR . j = l 3 3 m MOC = E (EHH./Pop.) (B.) j=l 3 3 3 m PSOC = E (C-/TC . ) (SB. ) j=l ^ 3 3 m GP = E (GP_ )(MOC./B ) + (GP ) (PSOC -/SB.) j=l m j ^ j Sj 3 j m FXT = E AV. (ar .) (pt.) j=l 3 : 3 m SSVS = E P^+S.+L 4- T . j = l D 3 j ^ -91-