Frequently Asked Questions - Arts and Economic Prosperity IV

Any time money changes hands, there is a measurable economic impact. Social service organizations, libraries, and all entities that spend money have an economic impact. What makes the economic impact of arts and culture organizations unique is that, unlike most other industries, they induce large amounts of event-related spending by their audiences. For example, when patrons attend a performing arts event, they may purchase dinner at a restaurant, eat dessert after the show, and return home and pay the babysitter. All of these expenditures have a positive and measurable impact on the economy

Yes, this study makes a strong argument to legislators, but you may need to provide them with some extra help. It will be up to the user of this report to educate the public about economic impact studies in general and the results of this study in particular. The user may need to explain:

  1. the study methodology used;
  2. that economists created an input-output model for each community and region in the study; and
  3. the difference between input-output analysis and a multiplier.

The good news is that as the number of economic impact studies completed by arts organizations and other special interest areas increases, so does the sophistication of community leaders whose influence these studies are meant to affect. Today, most decision-makers want to know what methodology is being used and how and where data was gathered. You can be confident that the input-output analysis used in this study is a highly regarded model in the field of economics (the basis of two Nobel Prizes in economics). However, as in any professional field, there is disagreement about procedures, jargon, and the best way to determine results. Ask 12 artists to define art and you will get 12 answers; expect the same of economists. You may meet an economist who believes that these studies should be done differently (for example, a cost-benefit analysis of the arts).

Because of the variety of communities studied and the rigor with which the Arts & Economic Prosperity IV study was conducted, nonprofit arts and culture organizations located in communities that were not part of the study can estimate their local economic impact.

Estimates can be derived by using the Arts & Economic Prosperity IV Calculator.

To get even more precise numbers for your community, Americans for the Arts also offers a customized Arts & Economic Prosperity IV study service to individual organizations, facilities, performances, or events; arts districts; cities, counties, or multi-county regions; and even entire states.  To learn more about this unique and powerful tool, visit our Customized Economic Impact Study Service page.

In 2010, Americans for the Arts published a call for participants for communities interested in participating in the Arts & Economic Prosperity IV study. Of the more than 200 participants that expressed interest, 182 agreed to participate and complete four participation criteria.

To learn more about our study partners and download a complete list of study regions, visit the Local Findings page.

Each of the 182 study regions identified the comprehensive universe of eligible nonprofit arts and culture organizations located in their regions. Eligibility was determined using the Urban Institute’s National Taxonomy of Exempt Entities (NTEE) coding system as guideline. Communities were encouraged to include other types of eligible organizations if they play a substantial role in the cultural life of the community or if their primary purpose is to promote participation in, appreciation for, and understanding of the visual, performing, folk, and media arts. These include government-owned or -operated cultural facilities and institutions, municipal arts agencies and councils, private community arts organizations, unincorporated arts groups, living collections (such as zoos and botanical gardens), university presenters, and arts programs that are embedded under the umbrella of a non-arts organization or facility. For-profit businesses were strictly excluded from this study. In short, if it displays the characteristics of a nonprofit arts and culture organization, it was included.

An input-output analysis model was customized for each of the participating communities and regions to determine the local economic impact of their nonprofit arts and culture organizations and arts audiences. Americans for the Arts, which conducted the research, worked with a highly regarded economist from the Georgia Institute of Technology to design and customize the input-output models used in this study.

To learn more about the methodology of this study, download our Detailed Study Methodology Guide (PDF, 252KB).

In addition to detailed expenditure data provided by the participating eligible organizations, extensive wage, labor, tax, and commerce data were collected from local, state, and federal governments for use in the input-output model.

Researchers make the assumption that any admission fees paid by attendees are typically collected as revenue by the organization that is presenting the event. The organizations then spend those dollars. Thus, the ticket fees are captured in the operating budgets of the eligible nonprofit arts and cultuzre organizations that participate in the organizational data collection effort. Therefore, the admissions paid by audiences are excluded from the audience spending analysis in order to avoid "double-counting" those dollars in the overall analysis.

When many people hear about an economic impact study, they expect the result to be quantified in what is often called a multiplier or an economic activity multiplier. The economic activity multiplier is an estimate of the number of times a dollar changes hands within the community (e.g., a theater pays its actor, the actor spends money at the grocery store, and the grocery store pays the cashier, and so on). It is quantified as one number by which expenditures are multiplied. The convenience of the multiplier is that it is one simple number. Users rarely note, however, that the multipliers are developed by making gross estimates of the industries within the local economy and do not allow for differences in the characteristics of those industries. Using an economic activity multiplier usually results in an overestimation of the economic impact and therefore lacks reliability.

No, grant dollars should not be double-counted in the analysis. The Organizational Expenditure Survey instructed the responding organizations to exclude any dollars that were awarded as grants or contracts to other nonprofit arts and culture organizations. Similarly, researchers removed from the economic impact analysis expenditures that were identified in Cultural Data Project profiles as grantmaking dollars.

Like all other industries, the nonprofit arts and culture experienced significant economic headwinds during 2010. Between 2005 and 2010, unemployment rose from 5.1 percent to 9.7 percent. The Consumer Confidence Index fell from 101 to 54. Home foreclosures tripled to 2.9 million. Nationally, nonprofit arts and culture organizations demonstrated resiliency throughout The Great Recession. Some major institutions were forced to close their doors, but many new organizations were founded. As a result, pre-recession gains in aggregate organizational spending were lost in the recession, and as a result the industry experienced a modest decrease in aggregate spending by organizations. The most significant impact of the Great Recession was with regard to event-related spending by arts audiences. As consumer spending declined, arts audiences stayed closer to home and spent less. The average attendance to arts events declined modestly, as did tourism, leisure travel, and attendance to professional sports events.

There are three key reasons that the Arts & Economic Prosperity series focuses solely on the nonprofit arts and culture sector. 

(1) The findings dispel the myth that the nonprofit arts and culture sector is an economic "black hole" and provide proof that when people, corporations, foundations, and governments support the nonprofit arts, they are also supporting economic and community development;

(2) Because nonprofit arts associations are often the recipient of public funding, the availability of valid and accurate economic impact data about the sector is critical; and

(3) The information necessary to complete an economic impact study is more easily obtained from the nonprofit sector than from the for-profit sector since nonprofit sector data is treated as public information and available through IRS Form 990 filings.

The Arts & Economic Prosperity IV study’s four economic impact findings (full-time equivalent jobs, resident household income, and local and state government revenues) are calculated by the input-output models that were customized by the project economists for the unique economies of each of the 182 participating study regions. The "inputs" are the financial information collected from the eligible nonprofit arts and culture organizations in each study region as well as the information collected from the audience-intercept surveys in each study region. The "outputs" are the four economic impact findings that are generated by the industry. The input-output models are based on a table of 533 finely detailed industries showing local sales and purchases. The local and state economy of each study region is researched so the table can be customized for each. The basic purchase patterns for local industries are derived from a similar table for the U.S. economy for 2007 (the latest detailed data available from the U.S. Department of Commerce). The table is first reduced to reflect the unique size and industry mix of the local economy, based on data from County Business Patterns and the Regional Economic Information System of the U.S. Department of Commerce. It is then adjusted so that only transactions with local businesses are recorded in the inter-industry part of the table. This technique compares supply and demand and estimates the additional imports or exports required to make total supply equal total demand. The resulting table shows the detailed sales and purchase patterns of the local industries. The 533-industry table is then aggregated to reflect the general activities of 32 industries plus local households, creating a total of 33 industries. To trace changes in the economy, each column is converted to show the direct requirements per dollar of gross output for each sector. This direct-requirements table represents the "recipe" for producing the output of each industry.