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YOU GOTTA HAVE ART!

“The arts are an attractive public investment opportunity from almost any angle: the yield from arts investment is high, the risk is low, and the opportunity is sizable.”

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ADVOCACY

You Gotta Have Art:
Profile of a Great Investment for New York State

We think so, and it makes sense from an investor’s point of view.

After a period of dramatic decline in public funding for the arts—at both the state and national levels—many rationales have been advanced to support restored and growing public funding for the arts. We offer an additional perspective that we think is particularly important for New York State at a time of fiscal pressure: a businessperson’s view of the value of using public funds to invest in the arts. We are happy to conclude that the arts are a compelling investment for New York State.


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The arts are an attractive public investment opportunity from almost any angle: the yield from arts investment is high, the risk is low, and the opportunity is sizable. We believe that both strategic investors, who take a longer-term outlook on the fundamentals underlying investments and cash and non-cash returns, as well as more tactical investors, who look primarily at short-term cash-on-cash returns, will be impressed by the arts as a public investment opportunity in New York State.

Let us explain. The arts industry has a dramatic economic impact on the state, calculated at $13.4 billion in 1995. The relatively small investment by the state required to support the arts industry (about $65 million in 1996; previously in the range of $90 million to $100 million) yields very strong (and almost immediate) returns on investment in terms of tax receipts alone. In 1995, New York State collected $480 million in taxes as the arts-generated $13.4 billion was earned and spent —a return on investment of over 700 percent. This level of return should satisfy even the most demanding tactical investor and, it is worth noting, it does not even include the tax receipts to other public tax collectors, such as city, county, and federal governments.

In addition, in exchange for moderate public financial support, New York State’s arts industry returns many other high-value benefits —both to the state and to its residents that hold special appeal to the strategic investor. Some of these benefits are economic in nature, such as enhancing currency flow, contributing to gross state product, creating jobs and new businesses and restoring and developing communities. Other benefits are non-economic in nature, including: enhancing education, encouraging volunteerism, breaking down societal barriers and stereotypes, and contributing to community pride and citizenship.

Perhaps the most important to the strategic investor, the arts give New York State a competitive advantage for the twenty-first century. New York State has built a valuable asset in its arts community over the past half century, rooted strongly in the worldwide arts leadership of New York City. This artistic infrastructure—consisting of the talent of resident artists and the strength of New York’s arts organizations—does not exist at anything close to the same levels of quality and quantity in any other state, and it would require prohibitive amounts of time and money for another state to attempt to duplicate it. Further, New York has many of the other required ingredients to efficiently convert public support for the arts into tangible benefits (including more dollars) for the state and its residents—such as the highest levels of cultural tourism, consistently higher-than-average arts "consumption" by New York State residents, and substantial productive industry interdependencies with the arts. In other words, New York’s arts world is a well-primed economic machine that, more than in any other state, ensures that public funding is not a charity but an investment that yields high returns.

The one catch to all of this is that if public funding ceases or declines below a threshold level, large parts of the industry will grind to a halt, the health of what is left will be seriously compromised, and the investment opportunity will evaporate. This is true because the arts require public investment—from the state and other sources. In the art world, public funds are qualitatively different from private funds. Public dollars are essential for important areas that typically fail to attract private philanthropy or that have limited commercial potential. For example, and perhaps most important, public funding is necessary to secure “idea time” or “research time”—crucial to the creative process for artists and arts organizations and to support the interdependent "ecosystem" of young and mature talent that is vital to continued creativity. Also, public funding is used for behind-the-scenes, unglamorous capital and operating expenses and to support important links within the industry, such as small distributors (for example, not-for-profit publishers and small galleries) that help elevate new talent to levels of artistic and even commercial self-sufficiency. Public funding also is a primary means of conferring artistic legitimacy—through the peer review common to many public funding mechanisms thereby enhancing an arts organization’s ability to raise private funds, to succeed both artistically and commercially, and to generously pay back the public for its support.

The remainder of this executive summary presents some of the most compelling information contained in this document, which shows the arts to be great—high-yield, low-risk, and wide-open—investment for New York State. As you read through the complete document, we believe you will agree that the strength of the arts as an investment opportunity for New York State cannot be denied.


A HIGH-YIELD INVESTMENT

The returns on arts investment to the state, its residents, and its local or county governments are significant—in both economic and non-economic terms.

Extremely strong economic returns

Economic returns on public arts investment include growing tax receipts (which, on their own, account for extremely positive returns on investments) and improvements in the economic vitality of the state.

In 1995, the state invested some $65 million in the arts, New York City invested $91 million, and all public sources combined invested about $197 million in the arts in New York State. The tax receipts from the total economic impact of the arts in 1995 totaled $480 million for New York State, $221 million for New York City, and about $761 million for all state, city, and county governments combined for returns on investment of approximately 700 percent, 240 percent, and 380 percent, respectively.

These astounding returns on investment are seen more clearly through the perspective of market research conducted on two arts festivals in New York State in 1996. The Clothesline Festival in Rochester, a festival with a total budget of only $25,000, generated total festival-related spending by attendees of $778,000, including state and county tax revenue of about $45,000. The Saratoga Performing Arts Center’s summer season, with a total budget of about $11 million (including $38,000 in state funding), led to total related spending of $14.2 million; the state collected $244,000 in tax revenue on this spending (a return on investment of about 640 percent).

In addition to tax receipts, the state receives other economic returns on its investment in the arts:

  1. The arts enhance the gross state product, contributing about 3 percent (roughly equivalent to the contribution of the construction industry).
  2. The arts industry creates jobs in New York: over 183,000 people in New York define their primary professional occupation as that of "artist" (accounting for over 2 percent of the state’s labor force).
  3. Because most artists and aspiring artists cannot support themselves solely from income derived from practicing their art, they frequently work multiple jobs and, with over 95 percent having some college education, they typically constitute a desirable labor pool for non-arts jobs.
  4. The arts industry supplies talent and ideas that directly support other industries important to the state, including advertising, architecture, design, fashion, media, publishing, technology, and tourism.
  5. The arts also create new business opportunities for service businesses (for example, garages, restaurants, and shops) by attracting substantial numbers of visitors to arts centers.
At the local, community level, the arts provide equally strong economic returns. An active arts center in a community leads to neighborhood improvements, real estate appreciation, new business opportunities, and community pride and responsibility.


Powerful non-economic returns

Many other non-economic (or not measurably economic) returns accrue to the state and its residents from public investment in the arts. Because the economic returns on public investment are so overwhelmingly positive, these non-economic returns can be thought of as “free benefits” to the state.

The major non-economic returns from public funding to the arts include the following:

  1. Art enhances education, both as an academic discipline and as a means of enhancing learning (developing creativity, fostering student engagement, and encouraging the development of positive self-image and the ability to get along with others).
  2. Arts organizations almost universally reach out to their community especially to help children and the disadvantaged.
  3. Arts encourage volunteerism and other forms of “giving back to the community.”
  4. The arts can change attitudes and help to break down social barriers, stereotypes, and prejudices.
  5. The arts play an important role in building community pride and responsibility and in reflecting, preserving, and advancing our culture.

A LOW-RISK INVESTMENT

The arts are a low-risk investment for New York State because the state’s investments are highly diversified, because the state contributes only a fraction of the total funds at risk in any given investment situation, and because the state’s investments can be made incrementally.

Public funding of the arts is a highly diversified investment, because the state’ money is distributed to thousands of organizations through thousands of small grants. For example, in 1996, New York State invested $29 million in the arts through almost 2,800 grants made by the New York State council on the Arts (NYSCA) to some 1,400 organizations. As every investor knows, diversification lowers risk.

Because arts organizations substantially leverage public funding, the state typically bears only a minor part of the risk of any arts investment. On average, for every $1 in public grants received, arts organizations raise $9 from other sources (private or commercial). Therefore, on average, the state assumes only one-tenth of the financial risk.

Finally, the arts are a low-risk investment for New York State because the arts lend themselves well to incremental investment. Many public investments cannot be evaluated for success prior to full-scale execution or completion. Arts organization and events, on the other hand, lend themselves to testing and validation through peer review, critical review, and audience appeal, which enable investors to increase, decrease, or “turn-off” their investments over time. Further, capital investments in the arts may be launched not only with a low cash investment by the state but also (most often) with the added advantage of a strong data base on which to make financial projections.


A WIDE-OPEN INVESTMENT OPPORTUNITY

A good investment requires sufficient and compelling opportunity. We believe that New York State has more than sufficient and compelling opportunity to make wise investments in the arts.


More than sufficient opportunity

Since 1990, total public funding for the arts from all sources in New York State has declined 25 percent (without adjusting for inflation). The two major vehicles for public funding in the state are NYSCA and the National Endowment for the Arts (NEA). New York State’s funding through NYSCA declined over 50 percent between 1990 and 1993; it has since only modestly reversed that trend. Federal arts funding to the state through the NEA is dropping drastically; it fell from $33 million in 1993 to $10 million in 1996, and further cuts are expected. Moreover, private philanthropy has been shifting away from the arts in the 1990s: in all categories—private donations, corporate donations, large foundation grants—overall contributions are up slightly, but the share going to the arts is down.

Investors worry about the point at which returns on investments become to low or transaction costs become too high for an investment to continue to make sense. At today’s level of support for the arts in New York State, we are very far away from that point. We believe that New York State (including New York City and even Manhattan) is substantially “unsaturated” in terms of both supply of and demand for the arts.

We believe that there is a large untapped audience for the arts in New York State. For one thing, we see evidence that access to the arts is limited by physical capacity constraints (e.g., limited gallery or performance spaces). To cite one example, in 1995 and 1996, some 17 major, world-class museum exhibitions could not be shown in New York City, simply because there was no suitable exhibition space available. In addition, many arts organizations are beginning to recognize new opportunities for broadening their audiences by reaching out to younger, less urban, and more culturally diverse audiences. The Brooklyn Museum, for example, enjoyed skyrocketing attendance with exhibits targeted at Hispanic and African-American audiences.

We also expect that as the arts supply grows so will the "demand" for the arts. We know that Americans have a healthy appetite for the arts and entertainment and that they are increasingly willing to spend money on the arts. Since 1970, overall spending on theater, opera, and nonprofit cultural offerings in the United States has grown steadily at a compound annual growth rate of almost 12 percent, nearly double the growth rate of the consumer price index.


A compelling opportunity

Not only is New York State’s arts investment opportunity compelling in its own right (very high returns, low risk), but it is even more compelling when compared to that of other states. New York has at least three distinct competitive advantages with regard to the arts.

First, New York State has an indisputable leadership position in the arts world in terms of quality and quantity of artists and arts organizations. This leadership is centered in New York City, but artistic wealth is spread throughout the state. Overall, New York State holds an almost unbeatable edge in the number, variety, history, and preeminence of its arts organizations and individual artists. For example, New York State is home to over one-third of the country’s for-profit theaters, over one-quarter of the country’s professional chamber music ensembles, over one-fifth of the country’s dance companies, and almost one-fifth of the country’s literary magazines and presses. The list goes on and on: New York is either the clear leader or one of the leading states when it comes to the number and importance of its museums, art galleries, auction houses, orchestras, operas, jazz ensembles, etc. New York State is also home to a large percentage of the country’s artists and to a substantial core—some would say, the vast majority—of the most prominent: over 12 percent of all artists in the United States currently reside in New York State, including many of the most preeminent. For example, nearly all of the recent Pulitzer Prize winners in poetry and fiction resided in New York for some time prior to receipt of the prize.

Second, New York State has what it takes to maximize the value (economic and social) that can be extracted from the arts. For one thing, New York State residents certainly take advantage of the large number of high-quality artists and arts organization in the state—as indicated by their higher attendance rates at arts events (in nearly all categories) than national averages. Not only do these resident arts consumers provide a steady stream of "fuel" to drive the engines of New York State’s arts organizations, which then provide economic and social value to the state, but New York State also has large numbers of visitors —and the highest percentage of cultural tourists in the country (19 percent of all visits to New York involve partaking in an arts event)—who put the engine in passing gear and significantly boost the economic impact of the arts in the state.

Third, New York State already has the arts “infrastructure” that should help this state thrive in a time of economic uncertainty. We believe that the arts are an important pillar upon which New York State’s future can be built. With New York ’s economy undergoing several major shifts—for example, with manufacturing jobs and back-office functions leaving the state—New York needs employment opportunities for human talent that cannot be replaced by technology or offshore labor. Arts organizations and artists can provide these jobs, serves as a source of talent and ideas for other businesses, and upgrade the quality of life in the state, thereby helping to retain and grow the state’s population.

Increased public funding for the arts will obviously benefit the arts, but it will also provide abundant rewards—both economic and non-economic—for the state, its local governments, and its resident population. We believe that the arts are a “win-win” investment for New York State, providing high returns at low, manageable risk and with more than sufficient and attractive opportunity. The arts are a great investment for New York State.


Excerpt from “You Gotta Have Art, Profile of a Great Investment for New York State,” June 1997; a project undertaken by McKinsey & Company at the request of the New York State Arts & Cultural Coalition (NYSACC) and the City of New York Department of Cultural Affairs. This work was carried out with the Alliance for the Arts and with the support of Alliance Capital Managment L.P. and Reba White Williams. Prepared and published by NYSACC, a program of Alliance of New York State Arts Organizations.

NEW YORK FOLKLORE SOCIETY ♦ 129 Jay Street ♦ Schenectady, NY 12305 ♦ 518.346.7008 ♦ Fax 518.346.6617 ♦ nyfs@nyfolklore.org