DOCUMENT RESUME

ED 298 070 SO 019 538

AUTHOR Cwi, David; Lyall, KatherineTITLE Economic Impacts of Arts and Cultural Institutions: A

Model for Assessment and a Case Study in Baltimore.Research Division Report #6.

INSTITUTION Johns Hopkins Univ., Baltimore, Md. Center forMetropolitan Planning and Research.; NationalEndowment for the Arts, Washington, DC. ResearchDiv.

PUB DATE Nov 77NOTE 110p.

PUB TYPE Reports - Descriptive (141)

EDRS PRICE MF01/PC05 Plus Postage.DESCRIPTORS *Art Activities; Case Studies; Community; *Community

Benefits; *Cultural Activities; *Economic Factors;Equations (Mathematics); *Models; ResearchProjects

IDENTIFIERS Assessment Instruments; *Economic Impact; EconomicInfluences; *Maryland (Baltimore)

ABSTRACTThis research project attempts to determine the

economic effects of arts activities and cultural institutions on alocal community (Baltimore, Maryland). This document contains aneconomic impact model that uses 30 equations to determine direct andsecondary effects on businesses, government, and individuals and acase study of the model involving eight Baltimore arts-relatedinstitutions. Section 1 describes the model's structure andstrengths, and section 2 provides an overview of the Baltimoreeconomy and arts community. Section 3 summarizes the results of thequantitative calculations for Baltimore and discusses the role of thearts in this city's economic development and executive recruitment,while section 4 provides tables of Baltimore arts-related economicdata for 1976. Section 5 describes a detailed user's manual thatexplains the model and its applications. Appendices include: (1) aguide to model and data sources; (2) a description of multiplier andsecondary effects; (3) the employee survey; (4) a discussion aboutaudience surveys; (5) methods of identifying full-time and full-timeequivalent employees; and (6) equation changes required when datarepresents multi-institutions or multi-jurisdiction. Tables andequations are included. (JHP)

***********************************************************************

* Reproductions supplied by EDRS are the best that can be made *

* from the original document. ************************************************************************

Research Division Report #6

Economic Impacts of Artsand Cultural Institutions:A Model for Assessment anda Case Study in Baltimore

coN.cocoo(NICZiUJ

National Endowmentfor the Arts

November 1977

U S DEPARTMENT OF EDUCATIONOffice or Educational Research and Improvement

EDUCATIONAL RESOURCES INFORMATIONCENTER IERICI

t. This ()Moment has been reproduced asreceived from the person or organizationoriginating it

r Minor Changes Kaye been made to improvereprOduCtIon Quality

Points of view or oOmions stated in this docitment do not necessarily represent officialOE RI position or policy

A Report by David Cwt and Katherine Lyall, The Center for Metropolitan Planning and Research, The Johns Hopkins University, October 1977

PREFACE

In February 1976, the Research Division released a programsolicitation requesting proposals for a study of the economicimpacts of arts activities and cultural institutions on theircommunities. The decision to undertake this project wasbased on recognition of the growing need for information thatwould explain the relationship between arts and culturalactivities and the eccllomic environment of the communitiesin which these activities take place.

The research community showed keen interest in the projectby 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 MetropolitanPlanning and Research, The Johns Hopkins University, has led tothe development of a general purpose model that may be used forthe analysis of the economic effects of arts and cultural in-stitutions in many communities. The model is made up of 30equations which may be modified as special community character-istics require. One of the features of the model is that theequations treat the individual effects separately, so thatmodifications can be made with clear understanding of theirimpacts.

This report includes both the model and a case study appli-cation of the model to eight institutions in Baltimore. The ArtsEndowment recognizes that other methods for the evaluation ofeconomic effects are possible and may be valid. The experienceof selecting the proposal from The Johns Hopkins University frommany others submitted, confirms the possibility that othersatisfactory approaches may be developed for this purpose.However, we believe that the model rzesented in this report canbe adapted to a variety of settings; will take account of a widerange of local governments, as well as various social, insti-tutional and economic conditions; and may be coAsidered suitablefor general application.

Research DivisionBational Endowment for the Artsbctober 1977

INTRODUCTION

The economic impact model uses 30 equations to determinea variety of direct and secondary effects on business,government, and individuals. It was developed to meetseveral objectives: (1) utilize data generally availablefrom the internal records of arts institutions and fromlocal, 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 economiceffects with as much accuracy as available data allows; and(4) identify negative as well as positive effects.

Section I briefly describes the general structure ofthe 30 equations comprising the model, reviews the ways inwhich this report differs from other economic impact studies,and cites important caveats regarding the use and abuse ofeconomic impact studies. Section II provides an overview ofthe Baltimore economy and its arts community. Section IIIsummarizes results of the quantitative calculations forBaltimore and discusses the role of the arts in economicdevelopment and executive recruitment. Section IV providesconcluding policy observations. Finally, Section V presentsa detailed User Manual explainiL. the model and its application.The several appendices are important to an understanding ofthe assumptions and methods of the Ba.timore case study andfor the application of the model in other locations.

In testing the model, we have had the indispensableassistance of Thomas Freudenheim, Director, and Ron Goff,Assistant Director, the Baltimore Museum of Art; PeterLawrence, Managing Director, the Morris A. Mechanic Theatre;Ackneil Muldrow, Treasurer, and Camilla Sherrard, Chair ofthe Board, tLe Arena Players Theatre; Joseph Patterson,Business Manager, and Mark Gallagher, Center Stage Theatre;Richard Randall, Director, Edward McCracken, AdministrativeOfficer, and Mary Cooney, Fiscal Secretary, the Walters ArtGallery; Robert Collinge, Director, and Josh Miller of theBaltimore Opera Company; Joseph Leavitt, General Manager,and Winifred Walker, Fiscal Officer, the Baltimore SymphonyOrchestra; and Joseph Cerrone, Director, and Lynn Summerell,Associate Director, the Maryland Ballet. These individualsprovided needed data from institutional internal records aswell as information on their institutions' internal accountingpractices which saved us from many errors. Their cooperationwas also valuable in permitting us to survey their audiencesand employees for other information vital to the computationof the model.

Teresa Moore assisted with the programming and retrievalof the computerized survey data. Catherine Ingraham collecteddata and made many of the computations. Louie Fringer typedthe manuscript. Sally Feingold managed the audience surveyfield work.

David CwiKatharine Lyall

ii 4

TABLE OF CONTENTS

STRUCTURE OF THE MODEL, ITS USE AND ABUSE

THE BALTIMORE ECONOMY AND ITS ARTS COMMUNITY:AN OVERVIEW

Page

1

9

SUMMARY OF INSTITUTION-RELATED ECONOMIC EFFECTSON THE BALTIMORF METROPOLITAN AREA 13

Direct Impact of the Eight Arts Institutionson the Business Sector of the Baltimore SMSA 13

Spending by the Eight Institutions 13

Employee Residence and Spending Patterns 13

Audience Residence an Expenditures 14

Spending by Out-of-Region Audiences 14

Spending by Guest Artists 15

Secondary and Negative Impacts on the BusinessSector 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 UnderlyingConsiderations 30

Direct Impacts on the Local Economy 33

iii 5

CONTENTS (continued)

Page

Secondary Impacts 40

Impacts on Government 49

Costs to Local Government 58

Impacts on Individuals 65

Appendices

APPENDIX A: Guide to Model and Data Sources 68

APPENDIX B: Multipliers and SecondarySpending Effects 79

APPENDIX C: The Employee Survey 81

APPENDIX D: The Audience Survey 84

APPENDIX E: Total Full-Time Employees andFull-Time Equivalents 86

APPENDIX F: Adaptations of the Model forMulti-Institutions and Multi-Jurisdictions

iv 6

88

INDEX TO TABLES AND FIGURES

T-1 A Model to Estimate the Economic Impact of the Arts

T-2 List of Equations

F-1 The Baltimore Metropolitan Area

T-3 Eight Baltimore Arts Institutions: PercentageAudience from Outside the Region

T-4 Direct Tax Payments to Local Government by EightBaltimore Arts Institutions

T-5 Alternative Estimates of Foregone Property Taxes onReal Estate Property Owned or Occupied by the EightBaltimore Arts Institutions, 1976

T-6 Summary of Economic Effects, 1976

T-7 Summary Data for EightBaltimore SMSA, Fiscal

T-8 Government Revenues ofBaltimore SMSA, 1976

Arts Organizations inYear 1976

Eight Arts Institutions,

Page

5

6

10

16

18

20

25

27

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 institutionsis not to create jobs, generate business for local entrepre-neurs, or boost sales of durable goods. These functions canbe better performed by a variety of other institutions inthe public and private sectors. Nonetheless, arts institutions,intentionally or not, generate a number of economic effectson the local community.

The model we used to identify and estimate these effectsconsists of 30 linear equations* which we categorized intothree groups: The letters B, G, and I designate thesegroups of equations which identify, respectively, effects onlocal business volume and expenditures, effects on governmentincome and expenditures, and effects on personal income,jobs, and expenditures. Tables 1 and 2 schematically presentthe relationships among these equations.

Within these groups certain equations can be solvedonly by first solving a series of other equations whichprovide needed values. Thus some equations are followed bya sub-set (or even sub-sub-set) which are indicated withdecimal points. For instance, the equation G1 requires,among others, the solution of G-1.1 and this equation requires,in turn, G -l.i.l and G-1.1.2. While the numeration of theseequations may cause the layman to assume that they aredifficult to solve, in fact the mathematics are quite simple.

Each set of equations is aimed at describing someparticular economic effect. For example, in the businesssector--the "B" equations--arts institutions may d'_rectlyaffect local business volume by purchasing goods and servicesfrom 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 equationsestimate the total secondary business volume that eventuallyresults from institution-related direct expenditures, forexample, the expansion of the local credit base eventuallyresulting from institution-related direct expenditures.

The model then, also estimates economic effects involving

local government: the "G" equations. To begin with, businessesannually 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 LocalEconomy (Washington, D.C.: American Council on Education, 1971).

businesses have had to invest in plant, equipment, andinventory in part because of direct expenditures relatedto arts institutions, a portion of local business propertytax revenues is attributable to the institutions under studyand can be estimated by certain equations. In addition, theinstitutions themselves, as well as their employees, guestartists, and audiences, may directly pay a local sales taxand their employees may pay local income or real estatetaxes. These direct tax paylis.ants can also be estimated byour equations.

Local government may also receive revenues from state orfederal sources. As is typically the case when localitiesreceive state aid for education, these revenues may be providedon a per capita basis so that some equations estimate state andfederal aid attributable to the examined institutions. Con-versely, arts institutions and their employees require govern-mental services, and public funds which must be spent toprovide these services. An estimate can be made for a givenfiscal year of the local governmental operating costs requiredto service the institutions and their employees. Further,government may forego property tax and other revenues due toan institution's tax-exempt status. The equations in the modelestimate these foregone tax revenues.

The third category, the effect on individuals, is the "I"series. Institution-related direct expenditures, togetherwith institution-related local governmental expenditures, re-present a demand for local goods and services. To meet thisdemand, local businesses not only invest in property and inven-tory, but also add personnel or pay overtime, thereby increasingpayrolls. The model provides equations which estimate thesesecondary effects on individuals.

The utility of this study and model lies less in itsprecision than in its clarity and scope. We made a concertedeffort to go beyond past studies and acquire needed datathrough the use of institutional internal accounts, audienceand employee surveys, and locally available data. As a generalrule, when we were required by our methods or the lack of datato make an assumption, we opted for the most reasonable or con-servative, that is, we adopted the assumption which attributedthe highest negative economic effect or least positive effectto the examined arts institutions.

Consequently, this study differs from previous efforts inseveral respects. Not only has no other study been as inclu-sive, but, to the best of our knowledge, prior economic impactstudies of arts and cultural institutions have not:

examined employee and guest artist spending as wellas audience and institutional expenditures;

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identified the toal of institution-related spendingmade with local firms and not simply assumed that allspending was local;

identified factors affecting an institution's economicimpact on a community and established that institutionscan have different impacts;

tried to account for the negative effects on localgovernment and business of a community's arts andcultural activities to arrive at a picture of netcost, if any;

examined critically the common premise that the artsare important to industrial development and executiverecruitment.

In particular, this model's strengths are as follows:

it can be adapted to a variety of settings and takeaccount of local governmental, social, institutionaland economic conditions;

it utilizes data generally available from A.n insti-tution's internal records or from local, state, orfederal documents;

it focuses not only on the institution but also itsemployees, guest artists and audience;

it can be used and understood by individuals who haveno training in economics and the social sciences;

it can be used to assess the effects of one institutionor many;

it uses as inputs a variety of policy-relevant datarespecting an institution and its community;

it identifies negative as well as positive effects:

We are aware that some readers may draw unwarranted conclusionsfrom this study. Therefore, we wish to caution the reader onfour points.

(1) It cannot be inferred from this or any other cur-rently available "economic impact" study that supportfor the arts, as an economic development strategy, isto be preferred over other alternative uses of publicor private dollars;

(2) It cannot be inferred that the economic effectsidentified would not have occurred had the examinedinstitutions not existed. For example, arts institutions

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vie for leisure-time dollars that might have been spentin the community even if they were not spent on the arts.Conversely, much of the interest in artistic and culturalactivities is sui generis. In the case of Baltimore, someof the audience might have travelled to Washington or othercities to satisfy their desire for the arts. In short, ifspecific institutions had not existed, we simply do not knowwhether others would have, or, in any case, the extent towhich the economic effects noted would not have occurred.

(3) It cannot be inferred that the eight institutionsexamined in this study exhaust the effect of the arts onthe Baltimore economy. The model utilized is intendedto assess the economic effects of institutions. However,while the eight institutions studied include the region'slargest arts institutions, these organizations constituteno more than 10 percent of the total arts employment in theBaltimore metropolitan area.*

Further, it can be assumed that arts institutions andindividual artists and craftsmen residing outside theBaltimore metropolitan area purchase arts-related goodsand services from firms in the Baltimore region. Theseexpenditures have not been accounted for. Finally, forthose interested in artistic and cultural activities, theavailability of the arts plays a role in determining theattractiveness of a community as a place in which to workand live. While it is easy to overstate the role of thearts in decisions by individuals to remain, invest, orrelocate to a community, no attempt has been made toassess net dollar benefits to the community due to thepreferences of individuals for the arts.

(4) It cannot be inferred that economic effects are orought to be important determinants of public policy towardthe arts. We conclude this report with policy observationswhich include a caution against the inappropriate use of"return on investment" criteria in the evaluation ofalternative public policies toward the arts.

*For example, census data for 1970 show a total of5805 Writers, Artists, and Entertainers, in the BaltimoreSMSA. Total full-time equivalent employment of the eightarts institutions was 404 in 1976, or about 7% of the reported1970 total for the region. These represent actors, architects,authors, dancers, designers, musicians and composers, paintersand sculptors, photographers, radio and TV announcers, anda miscellaneous category. They exclude individuals employedin art galleries, and other arts-related positions.

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01

TABLE 1

A Model to Estimate the Economic Impact of the Arts

Business Sector Impacts Government Sector Impacts

B-1 E =Ei + Ee + Eg + Ea + Ev G-1 GR = RETX + ST + YT + SA + OR

B-1.1 ^i = L1(TEi - W - Transf-Tx) G-1.1 RETX = RETi RETe + RETb

B-1.2 Ee = (f) (Wen '5 Yns) G-1.1.1 RETe = Emps(H)(pt)(TRA/R)

B-1.3 Eg = g(GD)

B-1.4 Ea = a(TA)

B-1.5 Ev = v(TVD)

B-2 BP = (mp - 1) (E)

B-3 By = (.45) (E) (mi - 1)

B-4 .=-RP + Inv

B-4.1 Rp = (E/TBV)(AV/ar)

B-4.2 Inv = it (E + BP + BV)

B-5 CB = (1-t)[TDi + TDe (Emps)]+

(1-d)(DDi + DDe (Emps)+

cbv(E +BP +BV))

B-6 NBV = IB

G-1.1.2 RETb = (RP) (ar) (pt)

G-1.2 ST = st(STR)(E/TBV)

G-1.3 YT = (TYT/H,:) (Emps)

G-1.4 SA = PS + OR

G-1.4.1 PS = N(C)(SE)

G-2 OC = MOC + PSOC

G-2.1 MOC = B(EHH/POP)

G-2.2 PSOC = (SB)(C/TC)

G-3 GP = (GPm)(MOC/B) + (GPa)(PSOC/SB)

G-4 FTX = AV(ar)(pt)

G-5 SSVS = P. + Si + L. + T1

For multi-institution and multi-jurisdictional analyses, appropriate subscripts must

be added. See Appendix G.

Impacts on Individuals

I-I J = Emps + x(E +OC)

1-2 PY = W + p(E+0C)

1-3 DG = k(PY)

Table 2

List of Equations

Economic Impacts on Local Business

Direct Impacts

B-1 Total institution-related local expenditures (E)B-1.1 Local Institutional Expenditures for Goods and

Services (Ei)B-1.2 t Direct Expenditures in the Local Community by

Institutional Employees (E t0B-1.3 Local Expenditures by Guest Artists (E r)B-1.4 Local Expenditures by Local Audience afid Patrons (Ea)B-1.5 Local Ancillary Expenditures by Non-Local Audience

and Other Users (Ev)

Induced Impacts

B-2 Purchases by Local Businesses from Local Sourcesin Support of Institution-Related Expendituresin the Local Economy (Bo)

B-3 Local Business Volume Stipulated by institution-Related Income Spent by Local BusinessEmployees (BIT)

B-4 Value of Local Business Property Committed toInstitution-Related Business (BI)

B-4.1 Value of Local Business Real Property Committed toSupport Institution-Related Business (RP)

B-4.2 Value of Business Inventory Committed to SupportInstitution-Related Direct and Secondary BusinessVolume (Inv)

-5 Expansion of the Local Credit Base Attributable toInstitution-Related Deposits (CE)

B-6 Local Business Volume Unrealized Due to Institution-Related Enterprises (NBV)

Economic Impacts on Local Government

G-1 Total Institution-Related Local Tax Revenues (GR)G-1.1 Local Real Estate Taxes Paid by the Institution,

Its Employees, and Local Businesses Serving Both(RETX)

G-1.1.1 Local Real Estate Taxes Paid by InstitutionalEmployees (RETe)

G-1.1.2 Real Estate Taxes Paid by Local Businesses onReal Property Committed to Support Institution-Related Business (RETb)

G-1.2 Local Sales Tax Revenues Resulting From Institution-Related Direct Expenditures (ST)

G-1.3 Local Income Tax Revenues Paid by InstitutionalEmployees (YT)

G-1.4 State Per Capita Aid to Local Government Attributableto Institutional Employees (SA)

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Table 2 (Continued)

G-2 Operating Cost of Government-Provided Municipaland Public School Services Attributable to theInstitution and its Employees (0C)

G-2.1 Local Governmental Operating Costs (ExcludingSchools)

G-2.2 Public School Operating Costs Attributable to Insti-tutional Employees (PSOC)

G-3 Value of Local Governmental Property Committed toSupport Services to Employees (GP)

G-4 Foregone Real Estate Taxes Due to the Institution'sTax-Exempt Status (FTX)

G-5 Value of Local Governmental Services Self-Providedby the Institution (SSVS)

Economic Impacts on Individuals

I-I

1-2

1-3

Number of Local Jobs Resulting from Institution-Related Direct Effects on the Local BusinessSector and Government (J)

Total Local Personal Income Due to Institution-Related Direct Effects on the Local BusinessSector and Government (PY)

Durable Goods Purchases Attributable to Institution-Related Increases in Total Personal Income (DG)

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15

THE BALTIMORE ECONOMY AND ITS ARTS COMMUNITY: AN OVERVIEW

A quick overview of both the economy and the arts communityof the Baltimore metropolitan area will put into perspective theimpact of the eight arts institutions examined in this study.

As indicated by Figure 1, the Baltimore metropolitan areaconsists 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 apopulation of roughly 2.2 million persons, ranks thirteenthamong SMSA's. (As defined by governmental agencies for thecollection and aggregation of data, Baltimore City and the fivesurrounding counties constitute a Standard Metropolitan Sta-tistical Area, or SMSA.)

Major employers in the Baltimore SMSA are concentrated inthree broad sectors which together constitute a remarkably well-balanced economic base: the Port of Baltimore and relatedtransportation activities; diversified manufacturing; and business,institutional, and governmental services.

As with other major east coast cities, Baltimore traces itseconomic origin to its suitability as a port. Currently, theport is ranked fourth nationally in terms of combined importand export tonnage and is the second leading container port onthe east coast. A recent study has estimated that 26,000 jobsare directly related to port activities, while transportationand transshipment expenditures associated with the port activitypour 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 farthe single most important individual manufacturing employer inthe Baltimore SMSA is the vast Bethlehem Steel facility atSparrows Point, claimed to be the largest tidewater steel manu-facturing complex in the free world. Some 25,000 to 30,000 peoplework at Sparrows Point both in the steel mill and in the company'sshipbuilding operation. The size of the Bethlehem Steel workforce accounts for as much as one-sixth of the total manufacturingemployment in the Jaltimcre area; roughly half of these employeeslive in the city proper.

Other particularly large manufacturing firms include theGeneral Motors' Chevrolet assembly plant (5,000 employees),Westinghouse (13,000 employees), and Western Electric (8,000employees). In 1950 the garment industry employed as many as20,000 people in the Baltimore SMSA. Today there are only about12,000 jobs in this sector, and many of these seem threatened bythe nationwide decline of this industry.

*University of Maryland, The Economic Impact of the Portof Baltimore on Maryland (April, 1975).

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as

Maturation and expansion of the metropolitan economyhas produced a surge of jobs in the "services" sectors,accompanied by a very substantial rise in government andinstitutional employment. The latter resulted in 70,000 newjobs between 1964 and 1970, or about one-half of the totalregional employment growth in that period. The growth offederal and state government and medical and educationalinstitutions has been particularly significant. Currently,there are some 70 firms in the Baltimore metropolitan areawith 1,000 or more employees, and there are many times thatnumber of smaller firms. All together these firms, largeand 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, andarchitecturally exciting city." The city has been an innovatorand specialist in "urban homesteading" and other strategies toencourage the re-use and rehabilitation of old buildings andhomes. Also, it has mounted one of the country's most ambitiousrenewal 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 urbanwaterfronts; Coldspring, a new town-in-town designed by MoisheSafdi; and recent plans for a major renewal of the downtown retaildistrict. In November of 1976, the Department of Housing andUrban 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 thatit has increasingly become the locus for the region's poor andothers with high service needs. The efforts highlighted abovereflect a twenty year strategy to create a culturally exciting,physically attractive, and economically viable city in whichthe SMSA's middle class will want to work, shop, and live.

The metropolitan area as a whole is rich in artisticand cultural resources. The region's amateur and professionalarts activity is extensive. For example, in fiscal 1976,the Maryland State Arts Council made grants to some sixtyorganizations in the Baltimore SMSA. Within the SMSA aresome fifteen institutions of higher learning, including sixcommunity colleges. There are several non-professionaltheatre 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, theBaltimore and Ohio Transportation Museum, the MarylandAcademy of Sciences, the Baltimore City Zoo, and numeroushistoric sites. In addition, the region is fortunate tohave the Peabody Institute (a conservatory of music) and theMaryland Institute of Art.

18

The eight institutions examined by this study includethe core of Baltimore's fully professional arts resources inrepertory theatre, opera, symphor :y, dance, and the visualarts. They are: Baltimore Opera; Walters Arts Gallery;Baltimore Symphony; Morris A. Mechanic Theatre; BaltimoreCity Ballet; Baltimore Museum of Art; Center Stage; andArena Players. Together, these eight institutions receivedmore than $2.3 million in federal, state, and local supportin fiscal year 1976.

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SUMMARY OF INSTITUTION-RELATED ECONOMIC EFFECTS ON

THE BALTIMORE METROPOLITAN AREA

Direct Impact of the Eight Arts Institutions on theBusiness Sector of the Baltimore SMSA

This section summarizes and discusses the major findingsresulting from an application of the model to eight artsinstitutions in the Baltimore metropolitan area. While theidentified effects are not large compared to many industriesin the metropolitan area, they indicate that significantreductions in the budgets of these institutions would haveperceptible effects on jobs, incomes, and regional businessvolume.

Throughout this report, terms such as "local," "theBaltimore metropolitan area," and "the Baltimore region" areused interchangeably to identify the Baltimore StandardMetropolitan Statistical Area (SMSA), which includes BaltimoreCity and Baltimore, Anne Arundel, Carroll, Harford, and Howardcounties.

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 governmentalunits that comprise the Baltimore SMSA. Appendix F is devotedto 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, whilereporting them on a total SMSA basis. All figures are forfiscal 1976 unless otherwise noted.

Spending by the 8 Institutions

In fiscal 1976, the eight institutions spent $5.3 millionfor goods and services, of which 47%, $2.4 million, representspurchases from suppliers and individuals in the Baltimore region.Another $4 million was spent for wages and salaries. Spendingby employees, audiences, and guest artists is eaumerated below.

Employee Residence and Spending Patterns

One striking feature is the extent to which the employeesof the eight institutions live in the city. At least 80% ofthe inc::Itutions' professional and administrative staff memberslive in Baltimore City, with the remainder concentratedprimarily 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)

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of children of employees attend public schools in the region.(We are unable to determine from our survey informationwhether this is because employee families have fewer childrenof school age than the population at large, or whether artsemployees use the private school system more extensively.)Employees reported that of $6.7 million of disposable familyincome (net income after deduction of taxes and socialsecurity contributions), two-thirds ($4.4 million) was spentin the metropolitan area. This figure represents one methodof handling family income in circumstances, such as theBaltimore case, where the arts institution provides the bulkof household income for most employee households. For adiscussion of alternative eases, see Section V.

Audience Residence and Expenditures

Total local paid attendance at all eight institutionsduring the 1976 season was approximately 718,000, with about6% of the patrons coming from outside the metropolitanregion. The percentage of out-of-region audience determinedfrom our audience survey varied substantially among theeight institutions, ranging from 2% for the Walters ArtGallery and Center Stage Theatre to 14% for the BaltimoreMuseum of Art.

Local audiences spent, in addition to the ticket price,sums ranging from $3.85 to $15.65 per party per visit foritems such as meals, transportation, parking and babysitters.The amount varied depending on the institution and the typeof performance. As might be expected, attendance at themuseums entailed the smallest auxiliary expenditures, whileattendance at the Symphony and the Mechanic Theatre involvedthe highest average supplementary expenditures. (For a dis-cussion of the technical problems associated with determiningauxiliary spending patterns, see Section V. Because manypersons attend performances and cultural activities incouples or groups, we formulated our survey questionnaire toelicit 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 theBaltimore region came specifically to use the eight artsinstitutions. These visitors contributed roughly half asmuch as resident audiences to local area spending despitethe fact that they comprise only 2% to 14% of total atten-dance depending on the institution. Out-of-region patronsexert a disproportionate economic influence compared tolocal audiences, both because they spend more per visit andbecause a larger share of these visitors (7.5% to 63% dependingon the institution) spend money at all.

-14-21_

Average per diem expenditures reported by out-of regionparties ranged by institution from $11.80 to $48.60, yieldinga total expenditure of $1,891,392 attributable to the drawingpower of these institutions in attracting out-of-town visitors.It is important to remember that this calculation reflectsexpenditures only for those respondents who indicated thatthey came to Baltimore specifically to visit the arts institu-tion under study. This percentage ranged from 24% of out

respondents at the Walters to 76% of out-of-regionrespondents at the Opera (Table 3). It should be noted thatthese percentages reflect the presence nearby of the Washingtonmetropolitan area. Audience and patrons from Washington, D.C.,were counted in our survey among the out respondentsbecause 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 modestcontribution to local spending. The eight examined institu-tions reported a total of 1,913 guest-artist days spend inthe 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 toinclude members of family or entourages in the total estimate.

Secondary and Negative ImpactsOn the Business Sector

These direct expenditures by the institutions and theirstaffs, audiences, guest artists, and out-of-region visitorsdo not capture the full effect of such activities on theeconomic base of the region. Such direct expenditures generatesecond-order effects, as local businesses make purchases oftheir own to support the institutions' local demand for goodsand services. Eventually, Baltimore metropolitan regionbusinesses purchase an estimated $9.1 million in local businessvolume. In addition, these local firms have invested in $5.7million worth of inventory, equipment, and real estate in orderto service institution-related business. This represents thefiscal 1976 value of these assets and not expenditures made in1976, although a portion of these assets may have been acquiredin that year. Expenditures were not necessarily made withlocal firms.

A portion of business and personal incomes generated byinstitutional activities are deposited with local banks. Thisresults in an expansion of the local credit base. We estimatethat eventually the regional credit base is augmented

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TABLE 3

Eight Baltimore Arts Institutions: Percentage

Audience From Outside the Region

% Audience FromOut-of-Region

% of Out-of-Region AudienceWho Came Specifically toAttend Institution

Baltimore Opera 5% 76%

Walters Art Gallery 2 24

Baltimore Symphony 3 31

Morris A. Mechanic Theatre 6 58

Baltimore City Ballet 5 45

Baltimore Museum of Art 14 34

Center Stage 2 36

Arena Players NR NR

NR = None reported during survey period.

-16 -

by some $3,106,000 as a direct consequence of fiscal 1976institution-related deposits. The bulk of this effectoccurs through the deposits of the institutions themselves.

Negative Effects on Business Volume

To the extent that the institutions operate enterprises orprovide services in competition with local businesses, theirreceipts from these activities should be recognized as asubstitution for other private business earnings in the community.In some instances, however, it may be reasonable to thinkthat the subsidiary activities of arts organizations arenet additions to total business volume in the region, perhapscompeting with activities outside the area but not reducingsales 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 $280,820 in income from thesesubsidiary enterprises as a net loss to other private sectorvendors. The bulk of this income was derived from galleryand gift shop sales and from concessioned restaurant facilities;profits from concessioned restaurant sales go to private businessanyway. In the case of gallery sales, we assumed that salesrepresent items that were largely unobtainable elsewhere, andthat, in any case, museums stimulate other private sectorpurchases through a heightened interest in the purchase of art.No data is available on which to make an evaluation or assumptionof the transfers from other recreational, entertainment, oreducational areas that may be represented by all or a portionof the ticket and related expenditures associated with attendanceat arts events.

Summary of Business Effects

On the basis of these estimates, we present a generalsummary of the effects of the eight examined institutions on theBaltimore region business sector: institution-related activi-ties in 1976 generated about $29.6 million of direct and indirectbusiness volume in the region; they accounted for about $5.7 millionof business real property, equipment, and inventories; andthey generated about $3 million of additional local bank creditin the region. While these figures are not large compared tomany firms in the private sector, they indicate that signifi-cant reductions in the budgets of these institution^ wouldhave perceptible effects on jobs, incomes, and business volumein the region.

Impacts on Local Government

Tax-exempt arts institutions have an effect on the fiscalstatus of local governments. We outline here fiscal 1976 taxpayments to local government attributable to the eight insti-tutions in our sample, and we assess their cost to local govLrn-ment. Costs are assessed in terms of foregone property taxes,

-17-2

unreimbursed municipal services, and the operating costs ofpublic schools attributable to the institutions, their per-sonnel, and their children. These items clearly do not exhaustall effects on local government. They reflect only selectedimpacts which may be traced directly to the institutions andtheir employees.

Although all eight institutions operate under tax-exemptstatus, they are nonetheless responsible for $151,767 in taxpayments to the six local governments in the SMSA. The sourcesof these revenues were property taxes, locally retained salestaxes, local income taxes, and population-based state aidto localities (see Table 4). The figure of $151,767 includesonly 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 byEight Baltimore Arts Institutions

Real estate taxes paid to jurisdictions in theBaltimore SMSA by the arts institutions, theiremployees, and business property devoted toservicing the institutions (equation G1.1)

Locally retained sales on institution-related business volume* (equation G1.2)

Local income tax revenues attributable toinstitutional anc other business employees(equation G1.3)

State aid to local public schools attributableto children of institution-related families(equation G1.4)

TOTAL

$99,537

5,062

27,558

19,610

$151,767

The institutions also provided municipal-type servicesfor themselves, including security services and trash collection,with an annual value of about $33,172.

On the cost side of the ledger, local governments provideservices 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 governmentbut collected by local government for payment to the state. Wecount here only that portion of sales tax collections actually re-tained by the six local jurisdictions in the Baltimore metropolitanregion.

-18-25

represents the cost of providing public school education forthe children of arts employees.

Another cost to local government is represented by thevalue of governmental property necessary to provide servicesto the institutions and their employee households. The currentvalue 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 servicessuch as increased police protection and free facilities orequipment.

Finally, we estimate that the value of foregone taxes ontax-exempt property owned or occupied by the eight Baltimorearms institutions is no more than $100,000 and is more likelynear $60,000. This range reflects the two alternative assumptionscited in Table 5. None of the examined institutions paysproperty taxes. Either they own tax exempt property or theyrent their facilities. Certain owners from whom they rent dopay property taxes vhile others are tax exempt. Three of theinstitutions occupy land and/or buildings owned by the City ofBaltimore. 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 thiscase study, we will assume that city owned property and buildingswould have remained in public use in the absence of the insti-tutions, that is, that $59,765 more nearly approximates thereal value of the subsidy provided by the city through propertytax exemptions.

Tt should also be noted that the alternative estimatesin Table 5 reflect only foregone tax revenues on propertyused by the arts institutions themselves and do not attemptto reflect any spillover effects that these institutions mayhave on the value of surrounding (taxable) properties andneighborhood cohesion. These spillovers may be both positiveand negative. For example, theatres stand empty much of thetime, inviting loitering and vandalism, and some institutionscreate neighborhood parking problems which impose uncompensatedcosts on local residents and businesses. Attempts to estimatepositive neighborhood effects must be matched by equal attemptsto measure the negative effects.

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TABLE 5

Alternative Estimates of Foregone Property Taxes onReal Property Owned or Occupied by the Eight Baltimore

Arts Insitutions, 1976

Taxable Value* Foregone Property Tax

1. All currently exemptproperty (lane andbuildings) would revertto tax yielding uses. $ 1,562,300

2. All city-owned property(land and buildings)would remain in exemptuses, but other propertywould revert to taxableuses. $ 996,080

$ 93,738

$ 59,754

Source: Baltimore City assessment records, 1976-77.

* Total taxable value, which in Baltimore equals 50% ofmarket value of land and improvements (buildings). Theforegone tax yield on this base is the Baltimore City propertytax rate (6%) times the total assessed value. All eightinstitutions are located in Baltimore City; however, had somebeen located in other local jurisdictions, the foregone taxyield from exempt properties would have had to have beencalculated for each property at the tax rate levied by thejurisdiction in which it is assessed.

-20- 2 7

Impacts on Individuals

The economic impact of arts institutions on privateindividuals is largely through jobs and employment opportuni-ties. We estimate that 1175 full-time jobs in the Baltimorearea are produced by the activities of the eight arts organ-izations in our sample; 404 of these are direcey with theinstitutions, and 771 are created as a consequence of institu-tionally related business and government expenditures. Takentogether the eight institutions are roughly equivalent inemployment 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 ofwhich employs between 400 and 500 persons in the metropolitanregion. The total employment impact of the eight arts organ-izations (1175) is approximately equal to the direct employmenttotals of local firms such as Maryland Cup Corporation, MarylandGeneral Hospital, Reads, Eastern Stainless Steel, First NationalBank of Maryland, IBM, and the Maryland Casualty Company.

The jobs created, either directly or indirectly, by theeight institutions and their combined business transactionsserve to generate $9.7 million of personal income in the region;$400,000 of this is spent for durable goods.

The Arts and Economic Development

In recent years, advocates of the arts have stressed theimportance of spinoff economic effects that are not easilyquantified. In particular, it has been claimed that the avail-ability of artistic and cultural activities can be a decisivefactor in both industria? relocation decisions and in therecruitment and retention of executives.* If arts and culturalactivities have an ancillary role in economic development deci-sions, their influence would represent an important additionalconsideration in the development and evaluation of public policytoward 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 policytoward the arts ought primarily to aim at maximum economicreturns to the community.

*E.g., The Report of the Governor's Task Force on theArts and Humanities, The Arts: A Priority for Investment(Commonwealth of Massachusetts, 1973); The Greater Philadel-phia Cultural Alliance, An Introduction to the Economicsof Philadelphia's Cultural Organizations (Philadelphia,1975); Mayor's Committee on Cultural Policy, Report (NewYork, 1974); and the Washington Center for MetropolitanStudies, The Arts in Metropolitan Washington: Some PreliminaryData on Economics, Financing and Organization (Washington, D.C.,

1975)

-21-C)r-)

Industrial Location

No hard data is available on the impact of artistic andcultural amenities on industrial development and executiverecruitment in the Baltimore region or nationally. For thisreason, we sought the judgments of a variety of knowledgeableindividuals through unstructured interviews. We initiallycontacted local officials to assess their experience. Be-cause of the unanimity of their views, we wondered if theBaltimore experience as seen by these local and state officialswas typical, and so we contacted others nationally.

The twenty individuals interviewed included researchersand consultants in plant location matters (3); State ofMaryland and local governmental officials in Baltimore Cityand the five surrounding counties responsible for facilitatingindustrial development in the state and region (7); officialsof national economic development associations (2); represen-tatives of chambers of commerce outside the Baltimore regionwho are active in economic development (2); and nationalconsultants 4.n executive recruitment (6).

We were struck by the unanimity of the views of theseknowledgeable individuals. We think it fair to concludefrom these interviews that the availability of artistic andcultural activities can in certain cases be a contributing,although rarely a decisive, factor in plant and executivelocation decisions. Those interviewed distinguished the "publicrelations" use of the arts from the role that the arts mayactually play in corporate decision making.

The presence of varied and high quality artistic andcultural amenities appears to be used by those in economicdevelopment roles as an important indicator of the generallevel of a community's civility and culture. The presence ofthese amenities is used to suggest that a community isprogressive, resourceful, concerned about itself, and ener-getic. Reference to the arts is used, then, as an importantindicator of a generally favorable quality of life.

However, there was universal agreement among respon-dents that artistic and cultural amenities by themselves arenot a determining factor in industrial location decisions.

The majority of business location decisions involve firmsin production, assembly, manufacturing, and warehouse distribu-tion. These firms vary in their special needs but commonlythey 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 makingrelocation decisions, firms appear to make nested choices,first selecting suitable regions or metropolitan areas andthen 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 availabilityof utilities, the size of the site, road access, transpor-tation network, the availability of financing, proximity toraw materials and markets, and the availability of vocationalschools. In most cases, only when "all things are equal" withrespect to the business climate will firms give weight toquality of life considerations in their decisions.

Quality of life issues appear to be more important tofirms that employ highly trained, salaried, and mobile person-nel, typically with advanced degrees and to firms where topmanagement will have to relocate. Corporate and regionalheadquarters, research and development firms, and governmentfacilities are not as dependent on traditional site locationconsiderations and, since they must recruit and retain skilledand mobile personnel, place more emphasis on quality of lifeissues because of the greater need for concern over employeesatisfaction. Similar considerations also hold for single-owner firms.

Those interviewed indicated that there are many qualityof life factors perhaps more important than quality artistic andcultural amenities. Artistic and cultural amenities are butone element of the total community fabric that includes factorssuch as recreational opportunities, schools, neighborhoods,the cost of living, climate, efficiency and performance oflocal government, the environment both man-made and natural,the quality of health and educational facilities, and positivesocial conditions. Cultural and recreational opportunitiesare generally viewed as one area of concern, with firmsinterested in the total mix of educational and recreationalopportunities available to an employee and his or her family.Those interviewed generally agreed that quality educationfacilities were particularly important, with research anddevelopment firms emphasizing proximity to institutions ofhigher learning. Thus, one community's advantage with re-spect to cultural resources might be balanced out by another'sadvantage in other kinds of recreational opportunities orgenerally more favorable social conditions.

However, chose interviewed did point out that locationdecisions can hinge on "executive preference," in which casealmost anything from recreation to artistic amenities toclimate could prove decisive. At the same time, no one wasaware of any instances in which location decisions hingedon the presence of specific cultural activities or more generalcultural considerations.

Executive Recruitment

In our interviews with executive recruitment consultantsand major firms in the Baltimore metropolitan area, respon-

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dents were in agreement that an increasing number of executivesemphasize quality of life considerations as much as salary andcareer advancement in deciding whether to relocate in a newposition. Salary and career opportunities still predominate,but over the last two decades there has been a change inexecutive willingness to take a position simply because itrepresented a promotion and increase in salary. Apparently,it is becoming more common for executives to ask whethertheir families would also benefit from a promotion or reloca-tion. Relocation may represent a major trauma for a spouseor children. An increase in salary may be largely eaten upby taxes. T.n executive may have to sacrifice his presentlife-style, for example, the ability to get in a round ofgolf before dinner.

Those interviewed went on to note that quality of lifeand life-style issues are very much matters of personal pre-ference. While few want to live in a place with no culturalambience, this does not mean that executives who are inter-ested in artistic and cultural amenities require them to be"world c?.ass" or to be located in the home community. Accessto artistic and cultural amenities may be via a more majorcity, 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 specialimportance were such issues as "whether it's a hassle tocommute to work," education, neighborhoods, housing, recrea-tional opportunities, the kind of people with whom the familywould be socializing. In other words, executive status wouldnot automatically suggest a special interest in the arts, andarts advocates should not equate "quality of life" with qualityof artistic and cultural resources.

CONCLUDING POLICY OBSERVATIONS

Table 6 summarizes the more prominent economic effectsof the eight arts institutions on the Baltimore metropolitanarea. (Relevant equations, calculations, and data sourcesare listed in Appendix A.) Again, note that direct effectsrefer to expenditures made in fiscal 1976 by the institutionsand their audiences, employees, and guest artists, whilesecondary effects may not be completely realized within onefiscal year. Also, business investment in plant and equipmentrefers only to the current (fiscal 1976) values of property thatmay have been purchased in other years and from non-localsources. Finally, we repeat our caveats from Section I. In par-ticular, while we have noted that significant reductions in thebudgets of arts institutions may be of interest to policymakers because of the perceptible effects on jobs, incomes,and business volume, one cannot conclude that support for thearts, given particular economic goals such as the creation ofjobs, is more desirable than other uses of public dollars.

-24-

31

TABLE 6

Summary cf Economic Effects, 1976

Total direct expenditures of the 8 institu-tions for goods and services

fit Of which purchased locally

Employee household disposable income

Of which spent locally

Total audience spending (other than ticketprice)

Of which local audiences spentOf which out-of-region audiences spent

Spending by guest artists

Secondary business volume generated by suppliersand their employees

Current value of backup inventory, equipment,and property

Institutions-related tax payments to localgovernment

Value of local government services to institu-tions-related employees and their households

Foregone property taxes on tax-exempt property

Total local government contributions to the 8arts institutions

Number of full-time jobs in Baltimore SMSAattributable to institutions-related activity

Personal incomes generated by institutions-related businessovolume

-25 -

Fiscal Year 1976

$ 5,344,754

2,405,026

6,701,479

4,422,976

4,515,993

2,624,6011,891,392

68,247

18,499,454

5,746,743

151,767

678,612

59,765

1,578,545

1,175

9,676,284

In evaluating and contrasting the contribution ofindividual institutions to the aggregate impact noted inTable 6, we are persuaded that institutional type, for exam-ple theatre or museum, is less useful for identifying economicimpact than structural distinctions, such as: the proportionof non-salary expenditures made to local suppliers (an insti-tution's ability to spend locally is largely determined bythe 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 ofemployee expenditures remaining in the community; and localand visiting audience expenditures attributable to institu-tions.

The interaction of these factors is idiosyncratic. Forexample, in the case of Baltimore, if an arts employee residesin Washington, D.C., his earnings and resultant secondaryspending would primarily benefit Washington, not Baltimore.If this were so, a visiting artist resident in Baltimore fora part of a season might have a greater local spending impactthan the arts employee. Similarly, in the assessment ofaudience expenditures attributable to the arts, it is not suffi-cient to know total attendance, since audience spending variessubstantially according to the residence of patrons (localversus out-of-region) and varies significantly by type of insti-tataon. Also, an institution that relies heavily on contractsto guest artists who spend only short periods in the communitymay export a significant proportion of their wage bill. Ananalogous situation will arise for institutions dealing withoutside suppliers. Table 7 gives an indication of high, lowand average values of various data associated with the eightinstitutions 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, fromgovernment. 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 governmentconsisted of $1,012,445 provided by the City of Baltimore tothe Baltimore Museum of Art. Additional sums ranging from$12,000 to $266,000 were received from local governments bythe other institutions. It is important to note that thecity and counties contributed to other cultural activitiesand organizations not included in our study sample.

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TABLE 7

Summary Data for Eight Arts Organizations in Baltimore SMSA, Fiscal Year i976

Total Direct ExpendituresLabor (wages & salaries)Goods & ServicesTaxes

Average Percentage Non-LaborExpenditures of InstitutionsMade in SMSA

Total Local Paid Attendance,1976 Season

Total Out-of-Region patrons*

Average Expenditures per LocalParty Other Than Ticket Price**

Average Expenditures per Out-of-Region Party Other Than Ticket

Total Government Revenues Receivedby Eight Institutions, 1976

FederalStateLocal (city & county)

Total Number of GuestArtist Days

Total OverEight Institutions

$ 9,418,3044,041,2225,344,754

32,328

47%

718,000 patrons43,000 patrons

$6.60

$30.32

$ 2,320,278$ 368,121$ 373,612$ 1,578,545

1,913 days

High & Low Values forEight Institutions

$80,000 - $2,710,000$24,000 - $3,117,000S 0 - $2,271,000$ 8,128 - $ 24,000

25% 8%

7,500 - 201,000 patrons1,200 - 28,000 patrons

$ 3.85 - $15.65

$11.80 $48.60

$2,500 - $1,112,958$ 0 $ 150,000$ 0 - $ 197,000$ 0 $1,012,000

0 - 870 days

*Includes only individuals indicating that they came to Baltimore specifically to use the institution.

**Averaged over all eight institutions and all party sizes.

`)!:.tit,3 ti

TABLE 8

Government Revenues of Eight Arts Institutions

Baltimore SMSA, 1976

Baltimore Museumof Art

Morris A. MechanicTheatre

Arena Players

Center StageTheatre

Walters ArtGallery

Baltimore Opera

BaltimoreSymphony

BaltimoreBallet

TOTAL

Fe.eral* State Local**

$56,401 $44,112 $1,012,445

2,500

7,500 - 12,000

75,000 72,000 66,000

- 10,000 157,500

76,000

150,000

3,220

$368,121

31,000

197,000

17,000

44,000

266,000

24,600

$373,612 $1,578,545

SOURCE: Institutional estimates, Auditors Reports, 1976.

*Excludes CETA monies.

**Local includes contributions from Baltimore City and eachof the five surrounding metropolitan counties. In 1976,$120,000 was contributed by Baltimore County and $5,000by Anne Arundel County to one or more of the eight artsorganizations located in Baltimore City. 1977 was thefirst operating season of the Mechanic, and all figuresare Mechanic estimates.

36

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Consideration of economic effects has a role in thedevelopment of cultural policy. However, community plannersand arts advocates will want to consider the broader communityeffects c,f artistic and cultural activities and not rely solelyon narrowly circumscribed "return on investment" criteria inthe development of public policy toward the arts. The followingexamples illustrate the inappropriate use of economic impactanalysis: 1. Inasmuch as the economic impact of individualarts institutions varies with the factors noted earlier, narroweconomic consic,3rations could lead to differential fundingamong individual arts insitutions, based in part on arbitrarilyapplied economic goals. 2. In addition, it is clear thatstrategies pursued solely to increase the long run economicimpact of particular arts programs might lead directly to adecrease in the quality of arts activities. One way to increasethe local economic impact of arts activities would be to useonly local talent and to buy only from local suppliers. However,even where practical, this sort of parochialism would runcounter to the important objective of enabling local residentsto experience a variety and quality of art forms generatedoutside their local communities. Also, it is worth noting thatthe disadvantages of such a strategy would be unevenly distri-buted, falling more heavily on smaller, less heterogeneouscommunities. 3. Similarly, maximum economic effects wouldsuggest emphasizing programs which attract visiting audiences,who spend more in the community per attendance than localpatrons, and it would suggest audience-building strategiesaimed solely at people of means. Yet many communities havethought it important to provide cultural experiences for othersegments of the population, such as the elderly and schoolchildren, unlikely to contribute much in the way of ancillaryexpenditures.

While economic considerations can be important to the develop-ment of cultural policy, these examples highlight the potentialconsequences of placing inappropriate emphasis on "return oninvestment" criteria.

P16

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USER MANUAL

Earlier in this report (Tables 1 and 2), we presentedthe tnirty equations comprising the model used in this study.Now we will describe each equation in some detail, indicatingnecessary data sources and, where possible, alternative stra-tegies for solving particular equations. The mathematicsare not complex. A number of equations -- B-1, B-4, G-1,G-1.1, G-1.4, and G-2 -- simply add up the estimates producedby other equations. Certain general equations require thesolution of a sub-set of other equations. In these cases, wefirst describe the general equation along with the economiceffect it yields when solved. Then we take up in order eachfactor of this general equation, describing in turn the equa-tion used to determine that factor. Thus, B-1 leads us to aseries of equations on which it depends, B-1.1 through B-1.5.We proceed in a similar manner with regard to sub-sub-sets.In addition to our description here, the user may also wishto look at Appendix A where we present the data sources,equations, and calculations of the Baltimore study. As weproceed, the reader is urged to refer to Table 1, which sum-marizes the relationships among equations.

Assumptions and Other Underlying Considerations

Each of the thirty equations comprising the economic impactmodel used in the Baltimore study generates an estimate of aseparate economic impact on businesses, government, or indivi-duals. All of the impacts are estimated in dollar terms exceptthe employment component, equation I-1, which produces anestimate of the number of jobs generated by institution-relatedactivities.

In interpreting the resultant estimates, the user maywish to add together some of the separate dollar estimates asfollows:

Total estimated audience expenditures(other than ticket price) for localand out-of-region audience B-1.4 B-1.5

Total estimated local expendituresfor staff and guest artists B-1.2 + B-1.3

Net direct and secondary institution-related business volume (B-1 + B-2 + B-3)

B-6

Net public sector costs to localgovernment (Subtract G-5 only ifit can be assumed that governmentwould have incurred the expense)

-30- 38

(G-2 + G-3 + G-4)(G -5 + G-1)

We should also point out that the value of business in-vestment, B-4, is a measure of asset value at a given point intime, not a flow of expenditures over a period of time. Forthis reason, it should not be added to the outputs of the otherB equations, which represent flows over the fiscal year 1976.Similarly, in aggregating local government impacts the userwill want to consider carefully whether it is desirable tofocus narrowly on the net balance of governmental revenues togovernmental budget expenditures--which is all that is allowedusing the model--as opposed to returns to government and "thecommunity" more broadly conceived.

The model goes be',nd previous efforts in the wealth ofdata it requires, incluaing the use of employee and audiencesurveys. When our methods or thr' lack of data required usto make assumptions, we opted for the most conservative, i.e.,adopted the assumption which attributed the highest negativeeconomic effect or least positive effect to the examinedinstitution.

For example, in computing out-of-region audience expen-ditures, we assumed that those out-of-town visitors who usedthe institution, but were visiting the metropolitan areaprimarily for other reasons, might have incurred some or allof the daily expenditures they reported in any case. Therefore,our calculations utilize only the daily expenditures of indivi-duals who reported that the primary purpose of their visit wasto use the examined institution.

Various equations rely on estimates of household incomeand other facts about employee households. Focusing on thehousehold rather than the individual employee is appropriatein those circumstances when it is not unreasonable to supposethat institutional employee households would not have beenin the community except for the presence of the institution.Practicality suggests that in the absence of data to thecontrary, this assumption be made whenever the majority ofemployee households derive the majority of their income fromthe institution. When this is not the case, employee incomemust be substituted for household income in equations B-1.2 andG-1.3. However, equations B-5, G-1.1.1, G-1.4, G-1.4.1, G-2,G-2.1, G-2.2, and G-3 were intended to be used on a householdbasis only. These equations identify economic effects thatare difficult to meaningfully attribute solely to an employeeas opposed to his total household. For example, the abilityto own a home or save may be a function of the collectiveearning ability of the household. This is reflected in esti-mated property taxes and expansion of the local credit base.

u

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In calculating the value o! foregone property taxes oninstitutions-owned/occupied prctJertv, we reviewed the impactof alternative assumptions (see Table 5) concerning thepossible uses of currently tax-exempt property, but did notattempt to evaluate positive or negative effects, if any,that currently exempt properties may have on surroundingproperty values.

It should be noted that several equations represent con-cessions to practicality. For example, in calculating thevalues of local business property committed to supportinstitution-related business, we assumed that a percentageincrease in demand prompts a similar percentage increase ininvestment in real property. This assumption is necessarybecause there is no way to determine which firm or institu-tion may be the marginal user that prompts the need for increasedinvestment in real property. Other concessions to practicalityare noted in the discussion below.

There are several points to consider with regard to thesources of data. The user must make a determination at the verystart of the work as to the definition of the "local" area ofinterest. In the Baltimore study, the local community of inter-est was defined to be the Baltimore standard metropolitanstatistical area (SMSA), composed of Baltimore City and thefive surrounding counties. While some of the calculationsrequired data that varied by jurisdiction, for example, localproperty tax rates--the final estimates yielded by theequations identify area-wide SMSA impacts. For details ofadaptations of the equations required for multi-jurisdictionalanalysis, see Appendix F.

The user will note that the arts impact model in theBaltimore study required data on audience expenditures, aswell as a wealth of data about the institution and its employeehouseholds. Audience and confidential employee surveys wereused. In some cases, it may be possible to use informationon the community's general population where it is not possibleto conduct an adequate survey of institutional staff. Variousalternatives are explored in the description of specific equa-tions and in appendices devoted to audience and staff surveys.

What this means is that approaches to solving certainequations will vary depending on locally available data.When equations utilize census or other commonly availabledata, references are provided. However, the model requiresa great deal of local data, usually collected by local orstate tax divisions, planning departments, budget officers,assessment bureaus, and the like. Because many of theequations are interconnected, researchers should carefullydetermine whether required data are available, bearing in mindthe alternatives described in the manual, before committingthemselves to assessihg institutional impact through the useof the model.

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Direct Impacts on the Local Economy

We begin our description with those equations relatingto direct impact on the local economy. These include ex-penditures made in a given fiscal year by the institution,as well as its employees, guest artists, and audiences.

Ei =Ee =Ec- =Ea =Ev =

Equation B-1

E

Institution-Related Local Expenditures

E = Li + Ee + Eg + Ea + Ev

Local expenditures by institution (B-1.1)Local expenditures by employees (B-1.2)Local expenditures by guest artists (B-1.3)Local expenditures by local audience and patrons (B-1.4)

Local expenditures by non-local audiences and other

users (B -1.5)

Equation B-1 sums the five separatJ direct expenditureeffects identified by equations B-1.1 through B-1.5. Thisis the total dollar value in a given fiscal year of goods andservices purchased by the institution itself, by employeehouseholds, by guest artists, by local audiences and otherusers, and by non-local visitors.

Equation B-1.1

E.

Local Instituticnai Expenditures for Goods and Services

Ei = z(TEi W Transf. - Tx)

z = Percentage of expenditures for goods and servicesmade to local firms

TEi = Total expenditures for the fiscal year under considerationW = Gross compensation, including FICA, federal withholding,

state withholding, unemployment compensation, andcontributions to pension plans

Transf. = Transfer of funds from one internal account to anotherthat might appear as an expenditure and thus distortactual total expenditure

= Taxes and fees to government other than those appearingin W above: sales taxes, real estate taxes, or otherpayments and fees to government at all levels.

Tx

Institutions purchase goods and services from both local andnon-local firms. B-1.1 is used to identify expenditures for goodsand services made directly by the institution with local businesses,the first factor in determining institution-related local expen-ditures.

Subtract from an institution's total expenditures allpayroll expenditures and payments to government, leaving onlyexpenditures for goods and services. Then, determine totalexpenditures with local firms. This can be done in two ways.Draw a random sample of institutional purchase orders ineach major expenditure category, noting total dollar expendituresmade in that category with local firms as compared to thosemade with outside suppliers. This yields a proportion, z, spentlocally for each major expenditure category. Total dollarsspent in each category are multiplied by each z, and theresulting local expenditures totalled to determine Ei.

If the number of vendors with which the institutiondeals is relatively small, there is a more direct procedure.Simply examine the auditor's report by category of expenditure,excluding wage-related expenditures and payments to government.Typically, for each major category there is a handful ofvendors with whom an institution does the bulk of its business.Simply identify the vendors that are local and add up the totalspent with these local firms. Some arts organizations havesophisticated and computerized accounting procedures and areable to identify each vendor, its address, and the total ex-penditures with that vendor. These institutions will find itquite easy to employ this more direct procedure. An extremelyhigh percentage of institutional expenditures are often madewith a relatively small number of firms. The fiscal officerresponsible for disbursements should then be able to get agood estimate of total dollars spent locally.

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Equation B-1.2

Ee

Direct Expenditures in the Local Community ByInstitutional Employees

Ee = (f) (Wen 4' '5Yns)

Ee= Direct expenditures in the local commurity by institutional

employee householdsf = Percentage of employee household income spent locallyWen = Total net institutional salariesvns

= employee household non-salary income: income from rents,dividends, interest, and other sources

B-1.2, identifies the second factor important to determininginstitution related local expenditures. It is used to identifytotal expenditures in the community attributable to employeesin circumstances, unlike the Baltimore case, where institutionalsalaries constitute less than one-half total employee householdincome. In circumstances such as the Baltimore case, wherehousehold income is primarily from institutional sources,substitute total household income (Y) for (Wen -5Yns)* Notethe discussion of these questions at the beginning of this

User Manual. In particular, only use (Y), total employeehousehold income, when the majority of employee householdsderive the majority of their income from the institution.

To solve equation B-1.2, first identify Wen'

total netinstitutional salaries, and add 1/2 of total employee house-

hold salary income. Then multiply by f, the percentageemployees spend locally. The salary income of other familymembers is not considered because there is no reason to believethat this income is dependent on the existence of the institu-

tion. However, non-salary income is due to the enterprise ofindividuals who may be in the community only because a family

member is an institutional employee. Therefore, B-1.2 arbi-trarily attributes 1/2 of all ron-salary employee householdincome to the institution.

To identify the percentage spent locally, employees canbe asked, through a confidential survey (see Appendix C), toreport this figure as well as total non-salary family income,

if needed.

In solving B-I.2, it will be important to distinguishfull-time from part-time employees. Net wages to part-timeemployees will be included in total net institutional salaries,

Wen. However, it may be argued that the non-salary incomeof part-time employees should not be considered inasmuch asit is unlikely that the household whose enterprise resultedin this income resides in the community only because of afamily member's part-time job at the institution.

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Equation B-1.3

Eg

Local Expenditures by Guest Artists

Eg = g(GD)

Eg

= Local expenditures by guest artistsg = Average daily expenditures by guest artistsGD = Total guest artist days in the community

Guest artists and their entourage have hotel and restau-rant bills and make other local expenditures. B-1.3 is usedto identify the total amount they spend, the third factor usedin determining institution-related expenditures.

"Guest artist" refers to individuals who are not permanentresidents of the community cr considered, for payroll purposes,as employees. Typically, they are in the community for a shortperiod of time in order to take part in a specific program.Guest artists can include lecturers, conductors, soloists,and so forth. It is not necessary for the guest artist to bepaid by the institution in order for their local expendituresto be counted.

The value 1, average daily expenditures by guest artists,is determined by dividing the total dollars guest artists re-port that they spend in the community by total days they reportstaying in the community. Presumably the guest artists avail-able to the researcher will be those appearing at the institu-tion during the period in which the researcher is gatheringdata for the economic impact model. These guest artists com-prise a sample of the entire year's guest artists. They can beasked to complete a confidential survey citing the length oftheir sta_ in the community and the amount spent. (It is conve-nient to simply add a separate set of questions for guest art-ists to the employee survey; see Appendix C.) Responses col-lected may be assumed to be typical of average daily expendi-tures by all guest artists.

GD is determined by multiplying the total number of guestartists by their total days in the community. (This informa-tion is available from institutional internal records.) B-1.3is then solved by multiplying average daily local expendituresby the total number of guest artist days in the community.

Some institutions may not care to ask a guest artist totell them how much he or she typically spends while in thelocal community. In this case, some estimate should be madebased on institutional knowledge of guest artist accommodationsand so forth. When a per diem is paid, the institution maysuppose that the guest artist spends all of the per diem locally,but not more; or the institution may have information on thebasis of which to make other assumptions.

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A combined approach is probably best if an institutionplans to sample a limited number of guest artists, for example,those appearing during the data-gathering period, or if theinstitution expects only a limited number of replies byguest artists.

Institutions preferring to rely on their own best estimateof guest artist expenditures should take into account alllikely expenditures. This is especially true when an institutionutilizes a guest artist for a period of several weeks, fJrexample, if the artist is part of a resident troupe. In this

case, it is typical for the arts organization to facilitate therental of an apartment, or the arts organization may rentapartments on a yearly basis which are sublet to such artists.In any case, it is the artist who is paying the rent out of

his/her fee.

45-37-

Equation B-1.4

Ea

Local Expenditures by Local Audience and PatronsExcluding Admission

Ea = a(TA)

Ea = Local expenditures by local audience and patronsa = Average expenditure per attendance (excluding admission)TA = Total attendance

B-1.4 Ellows us to determine the fourth factor ininstiLution-related expenditures, the money spent locally bylocal audiences aside from admissions. Multiply a, the averageexpenditure per attendance (excluding admission) by the totalattendance.

Average expenditure per attendance by local audience andpatrons must be derived from an audience survey. As discussedin Appendix D, a particularly thorny problem arises in designinga survey instrument which can accurately elicit audience ex-penditures on a per person basis. Individuals commonly attendarts performances in parties of two or more and there is con-siderable danger that researchers may misjudge total audienceexpenditures if average individual responses are utilized tomake per person expenditure estimates.

An alternative is to ask respondents to report the numberof persons in their party and the total expenditures of theentire party so that values for a can be constructed for partiesof one, two, three, and so forth, and the total attendance sizefigures, TA, weighted by party size as well. The sample datafor Baltimore indicate that the distribution of audience byparty size varies significantly by type of cultural institution,so that a stratified approach becomes more important wherea multi-institution analysis is being performed.

-38-4 u

Equation B-1.5

E

Local Expenditures by Non-T.Or'Al A"aicIlr'cl Ana Other Users

Ev = v(TVD)

Ev = Local ancillary expenditures by non-local audience andother users

v = Average daily per party expenditures by non-local audienceand other users (excluding admission)

TVD = Total annual visitor-days by non-local audience and otherusers

This equation provides the last factor in describing di-rect inst4tution-related expenditures. B-1.5 is used to deter-mine the z.....ount spent in the community by visitors and othernon-local individuals in association with their attendanceor use of local artistic and cultural institutions.

Multiply the average per party ancillary expenditures bytotal non-local audience visitor-days.

The values v and TVD can only be determined by conductingan audience survey in which non-local individuals a:-e asked toreport: total party expenditures in the local comranity; whetherthey and their party are in the community specifically to usethe institution; and total days in the community (see Appendix D).

This survey will distinguish between two types of localexpenditures by non-local audiences: one, the local expendi-tures of those who are visiting the community primarily becauseof their interest in a particular institution's programs; andthe other, the expenditures of those who might have come to thecommunity had the institution not existed, but who happen to usethe institution while in the community. A decision to visit alocale may include a decision to visit a particular institution;this does not, however, tell us that a person would not havechosen to come to a community in the absence of the institution.So, while it may be informative to identify the percentage ofnon-local users who had decided prior to visiting a communityto visit also a particular institution, this does not mean thatthe money they spent during their stay or in association withtheir use of the institution would not have been spent inthe community had the institution not existed.

Therefore, in the interest of being conservative, our pro-cedure attributes to the institution only the expenditures madeby those whose principal reason for being in the community istheir use of the institution. However, information on the totalpercentage of non-local users is important because it suggeststhat the institution is part of what makes the community attrac-tive as a place to visit and, further, that the institution ishelping to favorably advertise the community to others. Ulti-mately, these factors can translate into economic terms.

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4"

Secondary Impacts

Equation B-1 estimates economic effects directly relatedto the institution as represented by the expenditures in a givenfiscal year made by the institution, its employees, guestartists, and others. In turn, these direct economic effects inlocal business generate second-order effects as local businessesmake purchases of their own and pay salaries in order to supportinstitution-related demands for goods and services. The nextseven equations identify particular secondary effects. Severalutilize economic coefficients or multipliers. These are dis-cussed in Appendix B.

Equation B-2

BP

Purchases by Local Businesses From Local Sources in Support ofInstitution-Related Expenditures in the Local Economy

BP = (mp - 1) (E)

BP = Purchases by local businesses from local sources in supportof institution-related expenditures in the local economy

mp = Repurchase coefficient for the local business sectorE = Institution-related direct expenditure in the local

community (See B-1)

E, which is determined by equation B-1, represents institu-tion-related direct impacts on the local economy: expendituresby employees, guest artists, out-of-town and local audiences,and the institution itself. In order to meet the demand forgoods and services represented by E, local businesses make addi-tional purchases of their own. The total of these secondary pur-chases made by local businesses from local suppliers is ofinterest.

You will be using a standard economic technique known asmultiplier analysis in which initial volume of spending (E) ismultiplied by a respending co-efficient (mp), yielding BP, thetotal eventually spent by local firms as a consequenceof E. Values for mo reflect one's knowledge of the size anddiversification of the local market area. The larger and morediversified the local economic base, the less will localbusinesses have to turn to outside suppliers to meet theirneeds. Thus, firms in large metropolitan areas are more likelyto be able to meet their needs by turning to local suppliers,while businesses in small towns may have to turn more frequentlyto suppliers located elsewhere.

BP is an estimate of secondary purchases by local firms.In equation B-2, 1 is subtracted from m in order not tocount direct expenditure, E, as part ofPBP. Appendix B citestypical values for mp, and briefly explains the techniqueof multiplier analysis and development.

48-40-

Equation B-3

BV

Local Business Volume Stimulated by Institution-Related IncomeSpent by Local Business Employees

BV = (.45) (E) (mi -1)

BV = Local business volume stimulated by institution-relatedincome spent by local business employees

mi = Respending coefficient for individualsE = Institution-related direct expenditures in the local

community (see B-1)

The previous equation, B-2, ider'..ifiec total secondaryinstitution-related purchases made by local firms from localsources. The employees of firms directly benefitting frominstitution-related business volume receive a portion ofit as wages, and these wage earners in turn buy goods andservices from local businesses. It is estimated for allcommunities that 45% of E, institution-related local expendi-tures, is received as income by the employees of local firms.Equation B-3 estimates the additional local business volumeattributable to these employees.

Multiply E (from equation B-1) by 45% to estimateinstitution-related direct expenditures received as incomeby the employees of local businesses. Multiply also by mi,the respending coefficient, which estimates the proportionthat is eventually respent locally for goods and services.Values for mi are based on national data (see Appendix B).As noted in the discussion of equation B-2, mi is reducedby 1 in order not to count direct expenditures, E, as part ofBV.

-41-

Equation B-4

BI

Value of Local Business Property Committed toInstitution-Related Business

BI = RP + Inv

BI = Value of local business property committed to institution-related business

RP = Business real property committed to support institution-related business (see B-4.1)

Inv = Business inventory committed to support institution-relatedbusiness (see B-4.2)

Firms invest in real property and inventory to support thedemand for goods and services. Institution-related directexpenditures constitute such a demand; and the equationsB-4.1 and B-4.2 estimate, respectively, the values of localbusiness real property (RP) and inventory (Inv), committed tosupport institution-related business. 3 -4, then, sums up thevalues identified by equation B-4.1 and B-4.2.

B-4 estimates the current value of real property andinventory and not current expenditures made in the examinedfiscal year, although a portion of these assets may have beenacquired in that year. Expenditures were not necessarilymade with local firms.

Equation B-4.1

RP

Value of Local Business Real Property Committed to SupportInstitution-Related Business

RP = (E/TBV)(AV/ar)

RP = Value of local business real property committed tosupport institution-related business

E = Institution-related direct expenditures in the localeconomy (see B-1)

TBV = Total local business volume (total local retail sales +total local wholesale sales the value added to rwmaterials by local manufacturers)

AV = Total assessed valuation of business real propertyar = The ratio of assessed valuation to full market value

B-4.1, which provides one of two factors needed for B-4,assumes that the proportion of total local business realproperty committed to servicing institution-related directexpenditures is identical with E/TBV, or institution-relatedexpenditures as a percentage of total local business volume.

This procedures assumes that a percentage increase indemand prompts a similar percentage increase in investment inreal property, a necessary assumption since there is no way todetermine which firm or institution may be the marginal userthat prompts the need for increased investment in real property.Consequently, the only available procedure is to average thevalue of real property over all firms in proportion to theirdemand.

To determine TBV, data are available from the CensusBureau as well as from the local planning department ordepartment of economic development. Consult the Bureau of theCensus publications, Retail Trade Area Statistics, WholesaleTrade Area Statistics, and the Census of Manufacturers.At this writing, the latest data available from thesedocuments are for 1967. Thus a projection must be made by thefollowing procedure. Due to the expansion of the economy andinflation, TBV is much higher now than in 1967. Assume thatthe increase in TBV is in direct proportion to the increase from1967 in local sales tax receipts. If there is no local salestax, assume that increases in state sales tax reflect increasesin local business volume. In areas where there is only a statesales tax, the state agency may have identified total tax reve-nues contribu:...d by the local community. In any case, thispercentage increase in sales tax receipts can be applied to TBV1967 to yield an estimated current TBV. Be sure to adjust forany increases in the sales tax rate in the years since 1967 thatmight distort the calculated percentage increase.

-43-

AV is not total local assessed valuation; it refers tobusiness property only. Further, in many communities, theassessed valuation (the value of property for tax purposes)is less than full market value; and the local tax office mayonly report assessed valuation. Full market value can bedetermined by dividing AV by ar, the percentage of full mar-ket value used in determining assessed valuation. When AVis 100% of market value, ar is 1.

-44-

Equation B-4.2

Inv

Value of Business Inventory Committed to SupportInstitution-Related Direct and Secondary Business Volume

Inv = it (E + BP + By)

Inv = Value of business inventory committed to supportinstitution-related direct and secondary businessvolume

ir = Local inventory-to-business volume ratioE = Institution-related direct expenditures in the local

community (see B-1)BP = Purchases by local business from local sources in

support of institution-related expenditures in thelocal economy (see B-2)

BV = Local business volume stimulated by institution-relatedincome spent by local business employees (see B-3)

To solve B-4.2, the second factor needed for B-4, thelocal inventory-to-business volume ratio is multiplied by thesum of E + BP + BV, the sum of direct and indirect institution-related expenditures in the community.

There is a direct relationship between gross sales and thevalue of inventory. The value ir is the local inventory-to-business volume ratio, calculated as the ratio of the value ofend-of-year inventory to gross sales; ir, then, is the value ofinventory as a percentage of gross business receipts. Data fromwhich this Y'Afin ran hP ("Aliml"A col- a national sample aresupplied by the IRS from corporate tax returns (see Statisticsof Income, 1972, to be updated in the near future). If thelocal planning department, assessments bureau, or economicdevelopment agency has independent data, communities that taxinventory will have local estimates of inventories which can beused to calculate a local ir figure. Other CO""""7""°c T°411have to use the national inventory-to-business volume ratio of.112. This figure is derived from IRS, Statistics of Income,1972, Table 5.2, p. 172. ap and am. were included in modelB-4.2 on the assumption that ir, the inventory-to-businessratio, remains constant over the full adjustment period.

5 3-45-

Equation B-5

CB

Expansion of the Local Credit Base Attributable toInstitution-Related Deposits

CB = (1-t)(TDi+(TDe)(Emps)] + (1-d)[DDi+DDe(Emps)+cbv(E+BP+BV)]

CB = Expansion of the local credit base attributable toinstitution-related deposits

t = Local time deposit reserve requirementTDi = Average daily balance in institution time (savings)

accountsTDe = Average daily balance in employee household time

(savings) accountsEmps = Total full-time and full-time equivalent employeesd = Local demand deposit reserve requirementDDi = Average daily balance in institution demand (checking)

accountsDDe = Average daily balance in eployee household demand

(checking) accountscbv = National cash-to-business volume ratioE = Institution-related direct expenditures in the local

community (see B-1)BP = Purchases by local business from local sources in

support of institution-related expenditures in thelocal economy (see B-2)

BV = Local business volume stimulated by institution-relatedincome spent by local business employees (see B-3)

Equation B-5 estimates total additions to the communitycredit base attributable to institution-related time (savings)and demand (checking) accounts, that is, institutional accounts,the accounts of employee households, and the accounts of busi-nesses and employees affected directly or indirectly by theinstitution and its employee households.

In B-5, t and d refer, respectively, to the local time anddemand deposit reserve requirements, so that 1-t or 1-d indicatethe percentage of deposits in time demand accounts that may beused by financial institutions for loans. 121 and TDg are,respectively, institutional and employee household time (savings)accounts. DD. and DD are, in similar fashion, average dailybalances in demand (checking) accounts by the institution and itsemployer: households, TD may be determined from institutionalaccounts by averaging end and middle of the month checking accountbalances as indicetpd by institutional checking account state-ments, thereby taking a sample of 24 days. Employees can be askedto report average daily household Lime and demand accountbalances.

The accounts of part-time employees should be counted inproportion to their full-time status. Therefore, Ems refersto total full-time employees and total part-time employeesaggregated into full-time equivalents.

-46-5 4

The value cbv is the national cash-to-business volume ra-tio, reflecting cash held in reserve by businesses as a percent-age of total business volume. For example, in the Baltimorestudy, a value of .028 was assigned to cbv. This value was cal-culated as an average of 1965 and 1972 ratios determined fromU.S. Statistics of Income, Internal Revenue Service, U.S. Cor-porate Tax Returns, 1965, 1972, Table 5.2, p. 1972. We aver-aged ratios for two years to mitigate the cyclical effects ofthe most recent (1972) data which reflect the recession condi-tions of that period.

The issues previously raised in discussion of the impact ofemployee households (see B-1.2) apply, with obvious differences,to B-5. Household savings and checking accounts may includecontributions from a working spouse or other family member.Therefore, B-5 may overstate institutional impact in that itcombines effects that are associated with employee householdswith effects more specifically attributable to individual insti-tutional employees.

B-5 does not reflect expansion of the local credit base fromsecondary employment stimulated by institution-related direct andsecondary expenditures (see 1-2).

-47-53

Equation B-6

NBV

Local Business Volume Unrealized Due toInstitution-Related Enterprises

NBV = IB

NBV = Local business volume unrealized due to institution-related enterprises

IB = Income from institution administered businesses

The equation B-6 requires an examination of institutionaloperations and auditor's reports to identify income fromenterprises administered by the institution or an affiliatedbody, for example, income from sources such as gift shops,restaurants, and sales and rental galleries. Do not includeincome derived from concessions.

B-6 is an attempt to recognize institutional enterprisesthat may have unforeseen negative or positive effects thatneed to be taken into account in assessing the local economicimpact of the institution. Calculating the business volumeof subsidiary institutional enterprises is a first step inidentifying whether these benefit, harm, or have no impacton other businesses or sectors of the economy, either community-wide or in the area immediately adjacent to the institution.The assumptions made about the impact of subsidiary enterprisemust be a matter of informed judgment on the part of the localresearcher.

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5 6

Impacts on Government

All economic enterprises, including artistic and culturalinstitutions, represent a cost and benefit to local government.We note again that the equations cited in this manual providea narrow perspective on the costs and benefits to local govern-ment, focusing primarily on the effects that can be most readi-ly quantified. The next eight equations focus solely on taxincome and governmental expenditure and do not identify thebroader impact of investment in artistic and cultural institu-tions.

Equation G-1

GR

Total Institution-Related Local Tax Revenues

GR = RETX + ST + YT + SA + OR

GR = Total institution-related local tax revenuesRETX = Real estate taxes paid by the institution, its employee

households, and local businesses serving both (see G-1.1)ST = Local sales tax revenues resulting from institution-

related direct expenditures (see G-1.2)YT = Local income tax revenues paid by institutional employee

households (see G-1.3)SA = State aid to local government attributable to institutional

employee households (see G-1.4)OR = Other local revenues attributable to the institution and

its employee households (see discussion of G-1.4)

G-1 sums the institution-related local tax revenuesidentified by the equations G-1.1 through G-1.4. In thissub-set, two equations depend in turn on still others:G-1.1 requires G-1.1.1 and G-1.1.2 while G-1.4 requires G-1.4.1.

-49-

Equation G-1.1

RETX

Local Real Estate Taxes Paid by the Institution,Its Employees, and Local Businesses

Serving Both

RETX = RETi + RETe + RETb

RETX = Local real estate taxes paid by the institution,its employee households, and local businesses servingboth

RETi = Local real estate taxes paid by the institutionRETe = Local real estate taxes paid by institution employee

households (see G-1.1.1)RETb = Local real estate taxes paid by local businesses

serving the institution and its employee households(see G-1.1.2)

G-1.1 is the first of four equations needed to describetotaliinstitution-related local tax revenues (G-1). Itsums the real estate taxes paid to local government by theinstitution, its employees, and local businesses serving both.

RETt represents real estate taxes paid by the institutionitself. Since most artistic and cultural institutions arenon-profit, tax-exempt institutions, they will pay no real estatetaxes, and the value of RETi will usually be zero. Some mayown property which is not used for non-profit purposes, in whichcase they will pay property tax. Total real estate taxes paidto local government will include RETi as well as RETe and RETb,the values for which are derived by solving equations G-1.1.1and G-1.1.2.

-50-

Equation G-1.1.1

RETe

Local Real Estate Taxes Paid by Institutional Employees

RETe = Emps(h)(pt)(TRA/R)

RETe = Local real estate taxes paid by institutional employee

householdsEmps = Total number of employeesh = Percentage of employees owning homes locallypt = Local residential property tax rateTRA = Value of local residential housingR = Total number of assessed residences

G-1.1.1 takes the average assessed value of a localresidence and multiplies this average by the local residentialproperty tax rate and the number of employee households owninglocal homes in order to estimate total local property tax paidby institutional employee households. This procedure is employedin lieu of all employees reporting their total local property taxpayments through a confidential employee survey. All that isrequired of employees is that they report whether they own a homelocally.

Dividing TRA by R yields the average value of local resi-dential housing. TRA can be found in the local department ofassessment or taxation reports. R should be available from thesame sources. If not, consult the 1970 Census of Populationand Housing report for your local community.

It is important to note that TRA and R must be consistent.R must include all residential units whose tax revenues areincluded in TRA, for example, the revenues produced by apartmentbuildings as well as private homes if individual apartments areincluded in R. The value, h is the percentage of employeesowning local homes. To derive h, employees can be asked througha confidential survey whether tney own a home (see Appendix C).

Property tax contributions of part-time employee householdsshould only be counted in proportion to hours worked at the insti-tution. This can be accomplished by differentiating full-timefrom part--ime employees in the employee survey and aggregatingpart-time employees into full-time equivalents. Knowing the per-centage of part-time employees who own a home and the number offull-time equivalent personnel residing locally, G-1.1.1 can beapplied to part-time employees separately to determine theirlocal property tax contribution.

Equation G-1.1.1 assumes that employees who own homeslocally own only one. Employees also could be asked to reporthow many homes they own, which would yield an average number oflocal homes owned by employee households. This would constitutea new term in G-1.1.1.

31-

There are at least two issues which must be raisedin connection with G-1.1.1. First, the equation ignoresemployee households that rent, and it thereby omits theirproperty tax contributions. The local planning agencyor bureau of taxation might have data on the average yearlycontribution to the property tax paid by renters; this canbe multiplied by 1-h to yield total property tax paid byemployee households that rent rather than own. Second, itis not clear that the property tax revenues identified byG-1.1.1 would not have been generated had the institutionnot existed. The household might have owned the home evenif a gamily member had not been employed by the institution;or, if the employee household had not bought the house,someone else might have. All that can be claimed by anyinstitution is that its employees contribute to the communitythrough property taxes.

As noted in our discussion of B-1.2 and B-5, somemay argue that this overestimates RETp. Our remarks in theseearlier discussions apply here also. Additionally, we againcall the user's attention to the discussion of employeehouseholds at the beginning of Section V. User Manual.

-52-by

Equation G-1.1.2

RETb

Real Estate Taxes Paid by Local Businesses on Real Pro ertCommitted to Support Institution-Related Business

RETb = (RP)(ar)(pt)

RETb = Real estate taxes paid by local businesses on realproperty committed to support institution-relatedbusiness

RP = Value of local business real property committed tosupport institution-related business

ar = The ratio of assessed valuation to full market valuept = Business and property tax rate

Equation G-1.1.2 is a variant of equation B-4.1, whichidentified RP, local business real property committed tosupport institution-related direct expenditures. G-1.1.2multiplies RP by the local assessment ratio and propertytax rate to yield real estate taxes paid by local businesseson real property committed to institution-related businesses.Thus, much of the discussion of B-4.1 applies to G-1.1.2.

If the local community taxes inventory apart from busi-ness real property, G-1.1.2 can be used to identify taxespaid on business inventory, Inv, committed to support institu-tion-related business by substituting Inv for RP (see B-4.2)together with the correct assessment ratio and tax rate.G-1.1.2 does not estimate the real estate taxes paid by em-ployees in jobs created indirectly by institution-relateddirect and indirect effects on business identified by theB-series models (see Model I-1).

-53-6i

Equation G-1.2

ST

Local Sales Tax Revenues Resulting from Institution-RelatedDirect Expenditures

ST = st(STR)(E/TBV)

ST = Local sales tax revenues resulting from institution-related direct expenditures

st = The percentage of locally generated sales tax revenuesretained locally

STR = Sales tax revenues generated locallyE = Institution-related direct expenditures in the local

community (see B-1)TBV = Total local business volume (total local retail sales

and total local wholesale sales and the value addedto raw materials by local manufacturers)

Equation G-1.2 yields the second factor needed to estimatetotal local tax revenues. In it, E/TBV identifies institution-related direct expenditures in any one fiscal year as a percent-age of a community's total business volume for that year (seeB-4.1). G-1.2 assumes that if institution-related direct expen-ditures are X% of local business volume in a given year, theycan be expected to result j_n a similar percentage of that year'stotal sales tax receipts. STR represents total sales tax reve-nues generated locally. This information should be availablefrom the state or local retail sales tax division.

In some states the sales tax is a state tax with a certainpercentage returned to the local community. In this case, thelocal community receives percentage st of all sales tax reve-nues generated locally; therefore, st of (STR)(E/TBV) is locallyretained sales tax receipts. If the sales tax in a communityis strictly a local tax, st = 1 and can be dropped from theequation.

G-1.2 underestimates total eventual sales taxes attributableto the institution, since it does not take into account secondaryexpenditure effects BP or BV (see B-2 and B-3).

-54-

Equation G-1.3

YT

Local Income Tax Revenues Paid by Institutional Employee Households

YT = (TYT/HH)(Emps)

YT = Local income tax revenues paid by institutional employeehouseholds

TYT = Total income tax revenues retained by the local jurisdic-tion

HH = Total local householdsEmps = Total number of employees

Income tax revenues for local governments generally arisein one of two ways: either they are a direct earnings or incometax levied by local government; or they are a "piggyback" tax inwhich a surcharge on the state income tax is collected by thestate and rebated to each local government. In some instances,the calculation of local revenues from an earnings tax can becomplicated by the fact that commuters may pay the tax at a dif-ferent rate than residents of the local jurisdiction. In thiscase, G-1.3 should be split into two parts, using differentaverage tax yields per household (TYT/HH) for residents andcommuters.

Income tax contributions by part-time employees should becounted only in proportion to their full-time status. Aggregatepart-time employees into their full-time equivalents and treatthem separately. Notice that G-1.3 assumes that each institu-tional employee comprises a household.

In the case of a "piggyback" tax, the local fiscal officerwill have information on locally rebated revenues collected bythe state; this can be used directly in calculating the averageyield per local household.

As discussed at the beginning of this manual, it may be moreappropriate in certain cases to utilize employee rather thanhousehold income. In this circumstance it may be possible toutilize institutional records to total employee local income taxwithholdings. However, this introduces the possibility of errorsince some individuals deliberately have their employers over-withhold by claiming fewer deductions than they are entitled to.

When used on a household basis, G-1.3 takes the average taxyield per household times the number of employee households.Alternatively, employees can be asked to report total householdincome tax paid to local government on the confidential employeesurvey. If per household data are not available, G-1.3 may besolved by identifying the total number of individuals in employeehouseholds and multiplying this number by per capita local incometax revenues. G-1.3 gives the third factor in tctal local taxrevenues related to the institutions (G-1).

0

IMMO 111=114

Equation G-1.4

SA

State Per Capita Aid to Local Government Attributable toInstitutional Employees

SA = PS + OR

SA = State per capita aid to local government attributableto institutional employee households

PS = State public school per pupil aid attributable toinstitutional employee households

OR = Other state revenues attributable to the institution andits employee households (per capita)

G-1.4, the fourth equation needed for G-1, estimates totalstate aid attributable to institutional employee households asthe sum of state per pupil school aid, PS, and other per capitastate revenues. PS is estimated by equation G-1.4.1, (seediscussion of employee households at the beginning of manual).

G-1.4 deliberately focuses on state aid that is providedsolely on a per capita basis, as in the case of PS, which is ona per pupil basis. Researchers will have to contact the localcommunity's budget officer to review state programs providinglocal funds on a per capita basis, either for the total popula-tion or by eligibility group. State aid attributable to employ-ee households will require identifying the number of eligiblepersons in employee households in each program area for whichthe state provides per capita aid. Researchers will have tojudge whether the revenue source is significant enough to warrantthe additional questions on the confidential employee survey thatwill be required. If aid comes on a per total population basis,then researchers will, at a minimum, need to identify the totalnumber of persons in employee households. Part-time employeesshould be aggregated into full-time equivalents, attributingstate per capita aid to them in proportion to their full-timestatus at the instifntion.

64-56-

Equation G-1.4.1

PS

State Public School Per Pupil Aid Attributable toInstitutional Employee Households

PS = (N) (C) (SE)

PS = State Public School Per Pupil Aid Attributable toInstitutional Employee Households

N = The number of employee households with children inpublic elementary and secondary schools

C = The average number of children employee households sendto public elementary and secondary schools

SE = State per pupil educational grant to the local community

It is not uncommon for states to provide school aid to localcommunities on a per pupil basis. Equation G-1.4.1 estimates PS,total of per pupil state aid attributable to employee households.(See employee household discussion in introduction to manual.)

To estimate N, researchers will have to identify the numberof employee households with children in public elementary andsecondary schools and the average number of children each ofthese households sends to public school, thereby allowing anestimate of the total number of employee children in publicschools. This figure, multiplied by SE, the per pupil stategrant, yields PS. To identify the number of employee householdswith children in public school will require an estimate of thepercentage of all employee households with children in publicschool. This means an additional question on the confidentialemployee survey. Employees will also have to be asked to reportthe number of children they send to public elementary andsecondary schools.

-57-

Costs to Local Government

In the preceding G equations, we have provided strategiesand structured suggestions for identifying institution-relatedcontributions to local government. Our concern has been limitedto tax or other revenues attributable to the institution. Froman equally narrow perspective, researchers can examine the costto local government imposed by the institution and its employeehouseholds. Selected costs are estimated by equations G-2through G-5.

Even viewed narrowly, governmental involvement with the artsimposes costs that are not accounted for by the equations below.An attempt should be made to identify these costs, be they donatedservices, special contributions, or whatever. Perhaps most impor-tantly, resources devoted to the arts become unavailable to govern-ment for use in pursuing other public goals. This is often aprimary reason for governmental concern with accountability for allpublic programs, including arts programs.

It might be helpful for the user to review the discussion ofemployee households at the beginning of this manual, particularlywith regard to equations G-2, G-2.1, G-2.2, and G-3.

Model G-2

OC

Operating Cost of Government-Provided Municipal and PublicSchool Services Attributable to the Institution

and Its Employee Households

OC = MOC + PSOC

OC = Operating cost of government-provided municipal andpublic school services attributable to the institutionand its employee households

MOC = Local governmental operating costs (excluding schools)attributable to institutional employee households

PSOC = Public school operating costs attributable to institutionalemployee households

G-2 is a summing function, adding local governmental oper-ating costs (excluding schools) attributable to the institution(MOC) and local public school operating costs attributable to theinstitution (PSOC). Equations G-2.1 and G-2.2 identify these twovalues.

-58-

Equation G-2.1

MOC

Local Governmental Operating Costs (Excluding Schools) Attributableto Institutional Employee Households

MOC = B(EHH/POP)

MOC = Local governmental operating costs (excluding schools)attributable to institutional employee households

B = Local operating budget excluding public school costsand non-locally generated revenues

EHH = Total number of persons in local residing employeehouseholds

POP = Total local population

Local government incurs a variety of costs in providing ser-vices to institutions and their employee households. These costsinclude both capital investment in facilities required to provideservices and operating costs associated with the delivery of ser-vices.

Equation G-2.1 apportions to the institution and its employ-ee households their share of local governmental operating eynendi-tures in such areas as police and fire protection, library ser-vices, sanitation, and, in general, all areas except public edu-cation, which is handled separately by equation G-2.2. (EquationG-3 apportions all corresponding capital costs.) G-2.1 representsa pragmatic approach to resolving several difficulties. Neighbor-hoods vary in their cost to local government, for example, inareas such as police and fire protection. Fmployee households maybe locaLed in a variety of neighborhoods. How should the alloca-tion of costs to local government be weighted? Social servicecosts provide a particularly striking example. These costs oftenrepresent a major portion of a local government's operating bud-get. If it turns out that employee households do not requiresocial services, then it would seem important not to attributesocial service costs to employee households.

If the factors which prompt a household to impose a dispro-portionate cost on local government were known, appropriate ques-tions could be included in the confidential employee survey, andthe allocation of costs per employee household could be weightedaccordingly. This procedure would present tremendous theoreticaland practical difficulties. A pragmatic approach requires theper capita allocation of all non-school operating costs over theentire local population, recognizing that this may overstate thecosts incurred in servicing the institution and its employeehouseholds.

G-2.1 focuses solely on employee households. It assumesthat, if employee households make up X% of the total population,then they impose the same percentage of total non-school govern-mental costs. EHH/POP represents employee households as a per-centage of the total population. EHH can be determined by

-59-

n

including an appropriate question on the employee survey. POPis available from the local planning department, and B will beprovided by the local office of the budget. It is important tomake certain that the figure used for B excludes contributionsto the school budget frcm other than local sources, since thesehave been counted in equation G-1.4, and we are only concernedwith costs to local government.

-60- 68

Equation G-3

GP

Value of Local Governmental Property Committed to SupportServices to Employee Households

GP = (GPm) (MOC /B) + (GPs) (PSOC /SB)

GP = Value of local governmental property committed tosupport services to employee households

GPm = Value to all non-school-related governmental propertyGPs = Value of all school-related governmental propertyMOC = Local governmental operating costs (excluding schools)

attributable to institutional employee households (seeG-2.1)

B = Local operating budget excluding public school costsand non-locally generated revenues

PSOC = Public school operating costs attributable to institu-tional employee households

SB = Local public school operating budget excluding revenuesfrom non-local sources

Equations G-2.1 and G-2.2 provide an estimate of publicschool and other governmental operating costs attributable toinstitutional employee households. Equation G-3 estimatedlocal government capital costs attributable to the institution.

PSOC/SB represents school costs attributable to employeehouseholds as a percentage of the total school budget. G-3attributes the same percentage of the value of school facilities,(GPs)(PSOC/SB), to employee households. Tne same procedure isused to apportion the value of all other governmental property(GPm)(MOC/B). GPm and GPs should be available from the localor state department of assessments.

Whether G-3 provides a current dollar value or providesreplacement estimate of the total land and facilities requiredto serve employee households depends, in part, on how localitiesdetermine values for GPm and GPs. If these values representthe cost today of replacing facilities, rather than the actualoriginal cost of these facilities, expressed in current dollarsor otherwise, then GPm and GPs may be much larger than the orig-inal costs of acquisition and construction. See the discussionof G-2.1 for other issues that apply here. Also, in the dis,n14-sion of B-4.1 we pointed out that there was no way of determinirgthe marginal users, that is, the enterprise whose deman" couldonly be met by additional investment in business real property.Therefore business investment in real property was apportionedover all users. The situation in G-3 is analogous.

Equation G-4

FTX

Fore tone Real Estate Taxes Due to the Institution'sTax-Exempt Status

FTX = AV (ar) (pt)

FTX = Foregone real estate taxes due to the institution'stax-exempt status

AV = Assessed value of institutional tax-exempt propertyar = Assessment ratio of local jurisdictionpt = Local property tax rate

Local governments derive a significant proportion oftheir income from local property taxes. When an arts organizationrents property, it may he assumed that the owner of the propertypays property tax. However, tax-exempt arts and cultural insti-tutions that own and use property for tax-ex pt purposes are notsubject to the property tax. Therefore, when a tax-exempt insti-tution buys a piece of property, that property is, in effect,taken off the tax rolls and represents lost or foregone localproperty tax revenue.

The identification of total foregone real estate taxes pre-sents a variety of problems. Institutions do not simply buyproperty: they may build a concert hall, museum, or so forth.This may constitute a mixed blessing when viewed from the stand-point of foregone taxes. Even if the facility could be taxed,the land might have generated more in property tax revenues hadit been put to some other use.

Conversely, even though non-profit arts organizations do notpay property tax, the erection or rehabilitation of buildings forartistic and cultural purposes can have a positive effect of sur-rounding areas, upgrading property values and thereby increasingtotal property tax revenues.

Equation G-4 identifies foregone propercy taxes in light ofthose theoretical and technical difficult4es. AV, the assessedvalue of exempt property owned or occupied by the institution,may be obtained from the local tax assessment office, as arethe assessment ratio (ar), and the local property tax rate (pt).

The examined institution may make voluntary contributionsin li:su of paying the property tax and/or may pay property taxon property they own which is not devoted to non-profit purposes.These payments are counted directly in another equation, G-1.1

71.-63-

Equation G-5

SSVS

Value of Local Governmental Services Self-Providedby the Institution

SSVS = Pi + Si + Li + Ti

SSVS = Value of local governmental services self-providedby the institution

Pi = Total annual cost of institution-provided police andsecurity services

Si = Total annual cost of institution-provided streetmaintenance

Li = Total annual cost of institution-provided lighting(including lighting of parking facilities)

Ti = Total annual cost of trash removal by private company(does not include janitorial and building maintenancecosts)

In some cases, an examined institution may pay for servicesthat local government would otherwise have provided. When thishappens, the institution is saving local tax dollars by providingfor itself rather than utilizing government services at taxpayerexpense.

With respect to some specialized services, there are diffi-culties in estimating what it would have cost government to pro-vide them had not the institution provided for itself. The audi-tor's report of the institution will identify what it cost theinstitution to purchase these services, and the researcher willhave to make a judgment as to whether the incurred expense wouldotherwise have been incurred by government. The terms in equationG-5 refer to various typical services provided by government thatmight have been self-provided by an institution.

v./

i 4.

-64-

Impacts on Individuals

Up to this point in the User Manual, we have sought to esti-mate economic effects on the business sector and government. Wenow estimate some economic consequences for individuals. AppendixB discusses the multiplier values referred to in the next threeequations.

Equation I-1

J

Number of Local Jobs Resulting from Institution-RelatedDirect Effects on the Local Business Sector and Government

J = Emps + x(E + OC)

J = Number of local jobs resulting from institution-relateddirect effects on the local business sector andgovernment

Emps = Total number of employeesx = Marginal employment requirement of an additional

dollar's worth of local spendingE = Institution-related direct expenditure in the local

community (see B-1)OC = Operating cost of government-provided municipal and

public school services attributable to the institutionand its employee households (see G-2)

The equation I-1 estimates the total number of local jobsattributable to the institution in terms of total employmentprovided by the institution itself and jobs created indirectlydue to the institution's direct local economic effects. Inorder to meet demand, local business must invest in facilities,as noted by equation B-4.1. But at some point firms must alsohire more people due to increased business volume. Nationalestimates have been made of the marginal employment requirementsof an additional dollar's worth of local spending, x, that is,the number of new jobs required for each additional dollar ofdemand (see Appendix B). The terms to be multiplied by x are thetotal direct local business Ind governmental expenditures attrib-utable to the institutions. The resulting figure, taken togetherwith total jobs directly provided by the institution, yields anestimate of total local jobs attributable to the institution.

Indirect expenditures are excluded from I-1 because the deri-vation of x is based on direct expenditures only. Therefore, thisformulation may significantly underestimate the eventual impact onjous. The inclusion of OC assumes that all local governmentalexpenditures are local and that governmental expenditures have thesame local impact as private sector expenditures.

-65-

Equation 1-3

DG

Durable Goods Purchases Attributable to Institution-RelatedIncreases in Total Personal Income

DG = k(PY)

DG = Durable goods purchases attributable to institution-related increases in total personal income

k = Proportion of personal income devoted to purchases ofdurable goods

PY = Total local personal income due to institution-relateddirect effects on the local business sector and government(Equation 1-2)

Equation 1-3 relies on the national estimate, k, of the pro-portion of an individual's total income used to purchase durablegoods from local sources (see Appendix B). PY was estimated in1-2.

-67--

Equation 1-3

DG

Durable Goods Purchases Attributable to Institution-RelatedIncreases in Total Personal Income

DG = k(PY)

DG = Durable goods purchases attributable to institution-related increases in total personal income

k = Proportion of personal income devoted to purchases ofdurable goods

PY = Total local personal income due to institution-relateddirect effects on the local business sector and government(Equation 1-2)

Equation 1-3 relies on the national estimate, k, of the pro-portion of an individual's total income used to purchase durablegoods from local sources (see Appendix B). PY was estimated in1-2.

-67--

VARIABLE

Guide to Model and Data Sources

DATA SOURCEBALTIMORE STUDY

RESULTS

ManualPageReference

Case SttdyPageReference

B-1 Institution-Related LocalExpenditures

Ei = Local expenditures byinstitutions

Ee = Local expenditures byemployees

Eg = Local expenditures byguest artists

Ea = Local expenditures bylocal audience

Ev = Local expenditures bynon-local audience

B-1.1 Local Expenditures byInstitutions Ei

z = Fraction of non-laborexpenditures

TEi = Total expenditures ofinstitution

We = Gross compensation toemployees

Transf = Internal accountsand transfers

Tx = Taxes and fees togovernment

B-1.2 Local Expendituresby Employees (Ee)

f = Fraction householdincome spent locally

Won = Total net institutionalsalaries

Yns = Household non-salaryincome

B-1.1

B-1.2

B-1.3

B-1.4

B-1.5

InstitutionalRecordsInstitutionalRecordsInstitutionalRecordsInstitutionalRecordsInstitutionalRecords

Staff Survey

Staff Survey

F = Ei + Ee + Eg + Ea + Ev

E = ($2,405,026) + $4,422,976) +($68,247) + ($2,624,601) +($1,891,392)

E = $11,184,6/6

E = z(TEi - We - Transf. - Tx)Ei = .4;($9,418,304 - $4,041,222 -

0 - $32,323)Ei = $2,405,026

33

34 13

Baltimore calculations resultingin Fi = $2,405,026 were diag-grecated over eight institution-z = .47 is a weighted average.

Ee = f(Wen = -5Yns)

Ee = .66($6,701,479 + 0)Fe = $4,422,976Data for the Baltimore study werecalculated using family income (Y)in place of Wen + -5Yns).$6,701,479 is the equivalent valueof wages and non-salary income forthe Baltimore sample.

35 13

VARIABLEBALTIMORE STUDY

DATA SOURCE RESULTS

Manual Case StudyPage PageReference Reference

B-1.3 Local Expenditures by Eg = g(GD) 36 15Guest Artists (Eg)

gi = Average daily expendi- Staff Survey & Eg ,., $35.68 (1,913 days)tures Institutional

GDi = Total guest days in Records Eg = $68,247region

B-1.4 Local Expenditures Ea --, A(TA) 38 14by Local Audiences (Ea)

a = Average ancillary Audience Survey Ea = $6.60/party ($397,667)expenditures

TA = Total paid attendance Institutional Ea = $2,624,601Records

B-1-3 Local Expenditures byNon-Local Audfence (Ev)

v = Average e.aily expendituresTVD = Total annual visitor

days

B-2 Secondary Business VolumeStimulated by Institu-tion Expenditures (BP)

m = Repurcha'e coefficientE = Institution-related local

expenditures

Audience SurveyinstitutionalRecords

Appendix BSee B-1

Ev = V(TVD)

Ev = 30.32/day (62,381 days)Ev = $1,891,92

39 14

BP = mp (E) 40 15

BP = (1.818 -1)(11,184,676)BP = $9,149,065

NOTE: Calculations in the Baltimore study covered six local jurisdictions and eight institutions. Parameters(denoted by small letters in the equations z,f,g,a,v) were computed for the purpose of this table asweighted averages from separate data from each institution that was utilized for the original calculations.

VARIABLEBALTIMORE STUDY

DATA SOURCE RESULTS

B-3 Secondary Business VolumeStimulated by IndividualExpenditures (BV)

M. = Repurchase coefficientE = Institution-related local

expenditures

B-4 Value of Local BusinessProperty Attributable toInstitution Business (BI)

RP = Value local businessreal property attribu-table

Inv = Value local businessinventory attributable

B-4.1 Value Local Business RealProperty Attributable (RP)

E = Institution-related localexpenditures

o TBV = Total local businessvolume

AV = Total assessed value ofbusiness property

ar = Assessment ratio

Appendix BSee B-1

See B-4.1

See B-4.2

BV = (.45)($11,184,676)

BV = (.45)($11,184,676)(2.857 1)

BV = $9,350,389

BI = RP + Inv

BI = 52,309,031 + $3,437,712

BI = $5,746,743

RP = (E /TBV) (AV /ar)

See B-1 RP = ($11,184,676/$26,7j2,272,000)($2,391,693,000/.424)

Census of Business RP = $2,309,0311967Census of Manu-facturing 1967State Retail SalesTax DivisionState Departmentof Assessments andTaxation 1976State Departmentof Assessments andTaxation 1976

ManualPageReference

41

42

43

6

Case StudyPageReference

15

15

VARIABLE

B-4.2 Value of Local BusinessInventory Attributable (Inv)

ir = Inventory-business volumeratio

E = Irstitution-related localexpenditures

BP = Secondary business volumestimulated by institutionexpenditures

BV = Secondary business volumestimulated by individualexpenditures

DATA tiC1BALTIMORE STUDY

RESULTS

Manu-IPageReference

Case StudyPageReference

Statistics ofIncome 1972 IRSSee B-1

See B-2

See B-3

Inv = ir (E + BP + By)

In = .112 (11,184,676 + $9,149,065 +$9,350,389)

Inv - $3,437,712

45

VARIABLE DATA SOURCEBALTIMORE STUDY

RESULTS

B-5 Expansion of Local CreditBase Attributable (CB)

t = Time deposit reserve re-requirement

TDi = Average daily balance ininstitution time accounts

TDe = Average daily balance inemployee time accounts

Emps = Total full time employ-ees

d = Demand deposit reserverequirement

DDi = Average daily balancein institutional demandaccounts

DDe = Average daily balancein employee demand accounts

cbv = Cash-to-business volumeratio

= Institution-relatedlocal expenditures

BP = Secondary business volumestimulated by institu-tion expenditures

BV = Secondary business volumestimulated by individualexpenditures

B-6 Local Business VolumeUnrealized (NBV)

IB = Income from institutionadministered business

Federal ReserveBulletinInstitutionalRecordsStaff Survey

InstitutionalRecordsFederal ReserveBulletinInstitutionalRecords

Staff Survey

Federal ReserveBulletinSee B-1

See B-2

See B-3

CB = (1-t) [TDi + TDe (emps)) +(1-d) . [DDi + DDe (emps) +cbv (E + BP + BV)1

ManualPageReference

46

BC = (1-.03) [$74,750 + $6,129(503)]+ (1-.1625) [$43,498 + $485(503)+ .028 ($11,184,676 + $9,149,065+ 59,350,389))

CB = $-,068,194

NBV = IB

NBV = 0

48

Case StudyPageReference

17

17

VARIABLEBALTIMORE STUDY

DATA SOURCE RESULTS

G-1 Tax Revenues Attributable (GR)RETXi= Institution-related real See G-1.1

revenuesST = Institution-related See G-1.2

sales tax revenuesYT = Employee income tax See G-1.3

revenueSA = State aid attributable

to employee householdsOR = Other revenues attributable

G-1.1 Institution-Related RealEstate Tax Revenues (RETXi)

RETi = Local real estate taxespaid by institution

RETe = Local real estate taxespaid by employee households

RETb = Local real estate taxespaid by business attribu-

L.) table1

G-1.1.1 Local Real Estate TaxesPaid By Employee House-Holds (RETe)

Emps = Total full time employees

h = Percentage of employeesowning homes

pti = Property Tax rate

TRA. = Residential assessments

R3 = Total number of residences

InstitutionalRecordsSee G-1.1.1

See G-1.1.2

InstitutionalRecordsStaff Survey

Maryland Assoc. ofCounties Report1976-77State Department ofAssessments &Taxation 19761970 Census ofPopulation

GR = RETX + ST + YT + SA + CRGR = $99,537 + $5,062 + $27,558 1-

$19,610 + 0GR = $151,767

RETX = RETi + RETe + RErb

RETX = 0 + $60,153 + .$39,384

RETX = $99,537

RETe = Emps(h)(pt)(TRA/R)

RETe = 404(.51)(.38 ;) .

($5,622,416,(00/623,440)RETe = $60,153

ManualPageReference

49

50

51

Case StudyPageReference

18

18

VARIABLE DATA SOURCEBALTIMORE STUDY

RESULTS

ManualPageReference

Case StudyPageReference

G-1.1.2 Local Real Estate TaxesPaid by Business Attribu-table (RETb)

RP = Value of local businessreal property

ar = Assessment ratio

ptj = Property tax rate

G-1.2 Institution-RelatedSales Tax Revenues (ST)

stj = Locally retained salestax rate

STR = Total sales tax revenues

I E = Institution-related-.4.N. local expenditures

TBV = Total local businessvolume

G-1.3 Employee Income TaxRevenues (YT)

TYTj = inTotal come tax revenuesretained

HH = Total local households

i - Percentage of employeespaying income tax

Emps= Total full time employees

88

See B-4.1

State Departmentof Assessments &Taxation 1976Maryland Assoc. ofCounties Report1976-77

Retail Sales TaxDivisionMaryland CountiesAssessors OfficesSee B-1

Census of Business1967Census of Manu-facturing 19o7State Retail SalesTax Office

RETb = (RP) (ar) (pt)

RETb = ($2,309,031)(.434)(.0386)

RETb = $39,384

ST = st (STR)(E/TBV)

ST = ($38,779,000)($11,184,676 1$26,702,272,000)

ST = $5,062Baltimore calculations were disag-gregated over six jurisdictions.$38,779,000 [s +(STR)J is the totalof locally retained sales tax ine.Ich of the six jurisdictions.

YT = (TYT/HH)(i)(Emps)

State Department of YT = ($178,453,000/2,138,000)Assessments & (1.00)(404)Taxation 1976Maryland Statisti- YT = $27,558cal AbstractsStaff Survey

InstitutionalRecords

53

54

55

ts

18

18

VARIABLEBALTIMORE STUDY

DATA SOURCE RESULTS

G-1.4 State Aid Attributable toEmployee Households (SA)

PSi = State aid to public schoolsattributable

OR = Other revenues attributable

G-1.4.1 State Aid to Public SchoolsAttributable (PSi)

N = Number of employees house-holds with children inpublic schools

Cif = Average number of childrenper employees households

SE = Total state aid perstudent

G-2 Operating Cost of Municipaland School Services Attribu-table (OC)

-4 MOC = Municipal operating costs1/1

attributablePSOC = Public school operating

cost attributable

G-2.1 Municipal Operating CostsAttributable (MOC)

B-7

= Operating budget excludingpublic schools

EHH--= Total number of persons17

in employee households

POP) = Total local population

9,

See G-1.4.1

Staff Survey

Staff Survey

Maryland Statisti-cal Abstracts

See G-2.1

SPP G-2.2

SA = PS + OR

SA = $19,610 + 0

SA = $19,610

PS = N(C)(SE)

PS = 53(1)(370)

PS = $19,610

OC = MOC + PSOC

OC = $648,183 + $30,429

MOC = B(EHH/POP)

Maryland Assoc. of MOC = $1,050,165,000(863/2,138,000)Counties Report1976-77Institutional MOC - $648,183Records & StaffSurveyMaryland Assoc. ofCounties Report1976-77

ManualPageReference

56

57

58

59

Case StudyPageReference

9,.

18

18

18

VARIABLE DATA SOURCEBALTIMORE STUDY

RESULTS

G-4 Foregone Real Estate TaxesAttributable (FTX)

AVnx = Assessed value of non-exemptland & buildings occupied/owned by insitutiton

ar = Local assessment ratio

pt = Local property tax rate

G-5 Value of Municipal ServicesSelf-Provided (SSVS)

Pi = Total annual cost of secu-rity services self-provided

Si = Total annual cost of streetmaintenance self-provided

= Total annual cost of streetlighting self-provided

= Total annual cost of trashremoval self-provided

City Department ofAssessments &TaxationCity Department ofAssessments &TaxationCity Department ofAssessments &Taxation

InstitutionalRecordsInstitutionalRecordsInstitutionalRecordsInstitutionalRecords

I-1 Number of Local JobsAttributable (J)

Emps = Total full time employees InstitutionalRecords

x = Marginal employment require- See Appendix Bment

E = Institution-related See B-1local expenditures

OC = Operating cost of municipal &school services attributable

FTX = AVnx(ar)(pt)

FTX = $1,992,160 (.50)(.06)

FTX = $59,765*

SSVS = Pi + Si + Li + Ti

SSVS = $29,331 + 0 + 0 + $3,841

SSVS = $33,172

J = Emps + x(E + OC)

J = 404 + .000065($11,184,676 +$678,183)

J = 1175

* Note: Assumes that all city-owned property will remain i.ax-exempt. See pp. 18 & 20.

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VARIABLE DATA SOURCEBALTIMORE STUDY

RESULTS

G-4 Foregone Real Estate TaxesAttributable (FTX)

AVnx = Assessed value of non-exemptland & buildings occupied/owned by insitutiton

ar = Local assessment ratio

pt = Local property tax rate

G-5 Value of Municipal ServicesSelf-Provided (SSVS)

Pi = Total annual cost of secu-rity services self-provided

Si = Total annual cost of streetmaintenance self-provided

= Total annual cost of streetlighting self-provided

= Total annual cost of trashremoval self-provided

City Department ofAssessments &TaxationCity Department ofAssessments &TaxationCity Department ofAssessments &Taxation

InstitutionalRecordsInstitutionalRecordsInstitutionalRecordsInstitutionalRecords

I-1 Number of Local JobsAttributable (J)

Emps = Total full time employees InstitutionalRecords

x = Marginal employment require- See Appendix Bment

E = Institution-related See B-1local expenditures

OC = Operating cost of municipal &school services attributable

FTX = AVnx(ar)(pt)

FTX = $1,992,160 (.50)(.06)

FTX = $59,765*

SSVS = Pi + Si + Li + Ti

SSVS = $29,331 + 0 + 0 + $3,841

SSVS = $33,172

J = Emps + x(E + OC)

J = 404 + .000065($11,184,676 +$678,183)

J = 1175

* Note: Assumes that all city-owned property will remain i.ax-exempt. See pp. 18 & 20.

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VARIABLE DATA SOURCEBALTIMORE STUDY

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1-2 Personal Income of EmployeesAttributable (PY)

= Gross compensation toemployees

P = Payrolls and profits perdollar of institution-related expenditures

E = Institution-related local See B-1expenditures

OC = Operating cost of municipal See G-2and school services attribu-table

We InstitutionalRecordsSee Appendix B

1-3 Durable Goods PurchasesAttributable (DG)

= Proportion of personalincome spent on durables

PY = Personal income ofemployees attributable

See Appendix B

See 1-2

PY = We + p(E + OC)

PY = $4,041,222 + .475($11,184,676 +$678,183)

PY = $9,676,284

DG = k(PY)

DG = .031 ($9,676,284)

DG = $299,965

66

67

21

21

APPENDIX B

Multiplier and Secondary Spending Effects

The "multiplier effect" describes the process by whicha dollar of primary or direct expenditure in the communityis expected successively to generate some multiple of itsoriginal impact on the local economic base. For example, adollar paid to a resident employee of an arts institutionwill be spent partly on local goods and services and partlyon products or services frt111 suppliers outside the community.The portion spent locally goes to local businesses who, inturn, spend some share locally and the remainder with outsidesuppliers, and so on until "leakage" to outside vendorscompletely exhausts the initial spending effect. The finalimpact of the initial expenditure will be some multiplevarying directly in size with the fraction respent locallyand varying inversely with the amount of "leakage" to outsidesuppliers from the local spending cycle. A typical multiplier

value is calculated as 1 where mpc is the "marginal propensity1-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 andthe larger will be the proportion of local direct expendituresretained and respent locally, that is the larger will bethe anticipated multiplier effects. Because we do not havedirect survey evidence on the amount of total businessspending generated locally by local suppliers in the Baltimoreregion, we have interpolated an approximate multiplier valuefrom data for cities of varying size in the U.S.

Multiplier Values

TABLE 9

Arts Studyfor Baltimore

Range of Multiplier ValuesAssumed Multipliers Model Used in Other Studies*

mP

1.818 B-2 1.15 - 2.50

mi 2.857 B-3 2.0 - 4.0

p .475 1-2 .25 - .66

x .000065 1-1 .00007 - .00009

k .031 1-3 - -

Similarly, the larger the local market area and the morediversified and integrated its economic base, the easier itcan absorb additional local demand frce, arts institutions'expenditures with smaller additional requirements for laborand capital. This means that mp, the margiaal employmentrequirements of an additional dollar's worth of localinstitutions-related spending and mi, the marginal additionto payrolls and profits from an additional dollar's worth ofinstitutions-related spending, will also vary by market sizeand can be interpolated from naticnal data on other cities.

Other studies have characterized these respendingcoefficients as "multipliers" and used them to estimate thetotal of direct and indirect effects by multiplying totalinstitution expenditures by the multiplier. Equations B-2and B-3 of this model are intended to estimate indirect effectsonly. Therefore, as used in calculations the coefficientsmi and m are reduced by 1.

*See Caffrey and Isaacs, Estimating the Impact of a Collegeor University on the Local Economy, pp. 44-45; and S.J. Weissand E.C. Gooding, Estimation of Differential Employm...ntMultipliers in a Small Regional Economy (Research Report tothe Federal Reserve Bank of Boston, No. 37, Boston, 1966).

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APPENDIX C

The Employee Survey

Included in this appendix is a sample confidentialsurvey for distribution to employees and guest artists.The questionnaire is included for illustrative purposes only.Researchers may choose to add or omit questions dependingon the economic effects they intend to identify and theextent to which they will utilize data on the general localpopulation on the assumption that institutional employeesand their households are not dissimilar. We recommendconducting an employee survey whenever possible. There maybe important respects in which institutional employees arelikely to differ from the general population.

As in the case of survey questions 4 and 9, researcherswill have to include jurisdictional categories and names inkeeping with local and state names and types, for example,county, parish, township. In addition, institutionalauditor's reports are for the previous fiscal year, whilethe employees surveyed are those employed at the time ofthe survey. Researchers must make the assumption that thecharacteristics of current employees are not dissimilar tothose of the previous year. However, if the number ofemployees at the time of the study is different than thenumber covered by the auditor's report being used, thenresearchers will have to weight results accordingly, usingthe last fiscal year's number of employees.

Further, a non-professional might begin designingthe survey instrument by listing all data on employees andtheir households that will be required by the equations tobe used. One might also seek the advice of experiencedresearchers, perhaps taking advantage of local collegeor university resources.

The questionnaire solicits personal informatioh;response rates may be increased by providing envelopes inwhich respondents can return questionnaires.

10,

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SURVEY OF STAFF

The Johns Hopkins University Center for Metropolitan Planningand Research is assessing the impact of arts and culturalinstitutions on the economy of the Baltimore MetropolitanArea. This study is intended to serve as a national model ofuse to other metropolitan areas in evaluating the impact oftheir arts and cultural institutions. PLEASE DO NOT IDENTIFYYOURSELF ON THIS QUESTIONNAIRE. BE ASSURED THAT ALL RESPONSESWILL BE KEPT IN STRICTEST CONFIDENCE. We appreciate yourcooperation.

PLEASE RETURN COMPLETED QUESTIONNAIRE TO THE GENERAL MANAGER'SOFFICE 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 beginwith 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, includingyourself?

3. How many of the children in your household attend publicelementary or secondary schools?

4. Where is your residence? (CHECK ONE)

a) Cityb) Countyc) Other State Countyd) Out-of-State

5. In what type of housing do you now reside?

rental housinghome you own or are buying

6. If you own your home or are buying, approximately whatwas your last annual property tax bill? $

7. What is the total annual salary income before taxes andpayroll deductions of ALL PERSONS (including yourself)who live in your household? $

1 ,L

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APPENDIX E

Total Full-Time Employees and Full-Time Equivalents

In several equations, we suggest that researchersaggregate part-time employees into full-time equivalents,and/or treat part-time employees separately from totalfull-time employees. These models require data on the totalnumber of individual jobs, not the total number of individ-uals who may fill those jobs, when individuals are replacedduring the year. A large turnover in various positions willcause further complication.

You will find, especially when employing multi-jurisdictional analysis (see Appendix F), that employeeresidence is central to the task of distinguishing governmen-tal impacts. In the circumstances in question, you will haveto use the payroll records of those who had worked at a par-ticular position during the year in question to determine thatX% of those employed in that position resided in one jurisdic-tion or another. This information can then be used to apportionhigh turnover payroll slots among the local units of govern-ment. Part-time employees will have to be aggregated intofull-time equivalents and then apportioned.

Part-time employees are of two types, those whowork for the entire year or season but only part-time andthose who work full-time but only for part of the fullinstitutional year or season, for example, actors who maybe 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. Guestartists are treated separately by equation B-1.3.

Researchers will have to use judgment in aggregatingpart-time employees into full-time equivalents. Individualswho work part-time for the entire year can be aggregatedtogether by the proportion of full-time hours they work dur-ing the year. For example, 5 individuals may work 15 hours aweek and the institution may consider 40 hours a week to befull time. Therefore, the number of full-time equivalentsis 5(15/40). (This example presupposes a 52-week base full-time year.)

Individuals whc work full-time but for only part of thefull institutional year can be similarly aggregated. Forexample, 5 individuals may work for 4 weeks for an insti-tution that considers 48 weeks to be full-time. Therefore, thenumber of full-time equivalents is 5(4/48).

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APPENDIX E

Total Full-Time Employees and Full-Time Equivalents

In several equations, we suggest that researchersaggregate part-time employees into full-time equivalents,and/or treat part-time employees separately from totalfull-time employees. These models require data on the totalnumber of individual jobs, not the total number of individ-uals who may fill those jobs, when individuals are replacedduring the year. A large turnover in various positions willcause further complication.

You will find, especially when employing multi-jurisdictional analysis (see Appendix F), that employeeresidence is central to the task of distinguishing governmen-tal impacts. In the circumstances in question, you will haveto use the payroll records of those who had worked at a par-ticular position during the year in question to determine thatX% of those employed in that position resided in one jurisdic-tion or another. This information can then be used to apportionhigh turnover payroll slots among the local units of govern-ment. Part-time employees will have to be aggregated intofull-time equivalents and then apportioned.

Part-time employees are of two types, those whowork for the entire year or season but only part-time andthose who work full-time but only for part of the fullinstitutional year or season, for example, actors who maybe 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. Guestartists are treated separately by equation B-1.3.

Researchers will have to use judgment in aggregatingpart-time employees into full-time equivalents. Individualswho work part-time for the entire year can be aggregatedtogether by the proportion of full-time hours they work dur-ing the year. For example, 5 individuals may work 15 hours aweek and the institution may consider 40 hours a week to befull time. Therefore, the number of full-time equivalentsis 5(15/40). (This example presupposes a 52-week base full-time year.)

Individuals whc work full-time but for only part of thefull institutional year can be similarly aggregated. Forexample, 5 individuals may work for 4 weeks for an insti-tution that considers 48 weeks to be full-time. Therefore, thenumber of full-time equivalents is 5(4/48).

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We do not believe that volunteers and ComprehensiveEducation and Training Act (CETA) personnel should beincluded as employees. The model focuses on individualsreceiving compensation front the institution and on thosewho are in positions that would not have existed were itnot for the examined institution. Volunteers do not meetthe former condition and CETA workers do not meet the latter.CETA positions are distributed among communities forallocation as the community sees fit. Presumably, allpositions would have been utilized by the community even inthe absence of the examined institutions. This should notbe taken as suggesting that volunteers and CETA workersdo not have an economic impact. They do, especially incases where programs and services would not have beenavailable had there been no volunteers or CETA workers.

APPENDIX F

Adaptations of the Model for Multi-Institutionsand Multi-Jursidictions

In some instances, it may be of interest to a regionalarts organization or some other agency to analyze the economicimpact of a collection of arts and cultural organizations ona community. In this case, the data described in the Manualfor a single-institution analysis must, of course, be gatheredfor all organizations in the sample and the total impactscalculated from the specified equations by adding up theindividual impacts of each of the component institutions.

Since accounting procedures are even less standardizedamong tax-exempt organizations than among ordinary corporateorganizations, definitions of expenditures, classification ofrevenues and contributions, classification of employees, andother data items required by the equations may vary from onearts institution to another. The researcher should inquireabout the precise definitions used by each institution atthe time the primary data are collected and treat uniformlysuch items as: sales and acquisitions for museum collections;cross-purchase of goods or services between institutions (suchas an opera company's employment of the local symphony forits performances); and the capitalization of certain accountssuch as contributions to a building program. The importantprinciples are to avoid double-counting of expenditures inthe records of more than one institution and to standardizeas much as possible the accounting for major categories ofcapital and operating expenditures.

The attached schema displays the changes in the 30equations of the model required to account for multipleinstitutions by using the subscript i to denote a particular

ninstitution and summation signs (E) to indicate where

i=1impacts must be totalled over n institutions.

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Similar adaptations must be made in the equationswhere one is concerned with identifying differential impactsof arts institutions across multiple jurisditions. Thissituation arises most frequently in metropolitan areaswhere employees, audiences, and suppliers are distributedthroughout several political jurisdictions. Where multiplejurisdictions are of interest, it is necessary to identifythe relevant items on the employee and audience surveysby jurisdiction. F:r example, real estate taxes paidDy employees must be attributed to individual propertytax rates in each jurisdiction. Similarly, the allocationDf sales tax revenues, school aid, purchases from localsuppliers, and the like must be distinguished by location.In some caL,es, however, there may be no reason to believethat impacts vary by jurisdiction (as, for example, thelocal respending fraction) so that a single parameter canbe used in each institutional equation.

In the attached schema, equations that may bedistinguised by jurisdiction are indicated with the sub-script j and the total area impacts are indicated by sum-

mming over m jurisdictions (E). It should be noted

i=1that disaggregating economic impacts among individualjurisdictions yields information of little value in someuses. For example, since localities within a metropolitanarea are economically integrated, though politicallydistinct, attempting to trace secondary business expendituresto particular jurisdictions does not make as much senseas identifying an aggregate regional impact. Thisoccurs because, while it is possible (though unwieldy) toidentify direct expenditures by jurisdictions, one canhave relatively little confidence that the secondary im-pacts of these expenditures will remain in the locality,and more precise information on suppliers' secondaryexpenditure patterns is difficult to obtain,

However, disaggregation of public sector (government)impacts is meaningful and may have utility in circumstanceswhere the regional distribution of support for the arts isa policy interest. Since each disaggregation (by jurisdiction,by institution) adds substantially to the teaks of datacollection and analysis, the researcher should considerwhether the extra detail in the resulting information willbe worth these additional costs.

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Equations Adjusted for Multiple Institutions

Shown below are only those equations that must bemodified to reflect calculations over more than one institution.Equations not listed below remain the same as those describedin the text for a single institution.

nEI 1 1 Wei= E Z.(TE. - .

1- Transf. - T

xi.)

.

1=1n

E = E f. (W F .5 Y )

1=1e . . I en.

1nsi

nE = E g.(GD.)a 1 1' i=i

nEa 1 1= E a.(TA.)i=in

E = E v.1 (TVDi)

1v . =1

nCB= E {(1-t) {TD.+(TD )(Empsi)} +(1-d){ DDi+(DDe)(Emosi)

1=i + cbv(E) }1} en

NBV=E IBii=i

nRETe= E Empsi(hi)(pt)(TAR/R)

i=in

MOC= E (EHHi/Pop)(B)i=i

nPSOC= E (Ci/TC) SB

1=1n

FTX= E AVi (ar) (pt)1=1

It'

SSVS= E Pi Si + L. + T.3. 1 1 -1

1=1n

J = EEmpsi+x(E.+0Ci)1=1 1

nPY = E W. + p(Ei + OCi)

1=1

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* U. S. GOVERNMENT PRINTING OFFICE: 1978 0 -. 259..594

Equations Adjusted for Multiple Jurisdictions

Shown below are only those eauations that must bemodified to reflect calculations over more than one jurisdiction.Equations not listed below remain the same as those describedin the test for a single jurisdiction.

E = E z(rE. We.

- Transf, - Tx

j

)

j=1

E = E f(Wen

+ .5Yns

)

j=1j

Eg = E g(GD.)j=1m

Ea

= E a(TA.)j=1-m

Ev = E v(TVD.)

j=1m

RP = ./TBV.HAV. /ar .)j=1 3

1 J

RETe= E Emps.(h.)(pt.)(TRA./R.)j=1 3 3 3

RETb

= E pt.(F./RP.)(AV.)-1=1

ST = E st. (STR.) (E. /TBV.)j=1 3

3 1

YT = E (TYT./HH.)(i)(Emps.)j=1 1 3

SA = E PS. + OR.j=1 /

HOCj

:E

1 3(EHH./Pop.)(B.)

= 3

PSOC = E (C./TC.)(SB.)j=1

GP =j

E

1

(GPmj

)(MOC./Bj

) + (GPs.

)(PSOC./SB.)

m= 3 3

FXT = E AV.(ar.) (pt3j=1

SSVS + S. + L + T.j=1

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