Recognizing The Economic Value Of The Arts In Atlanta

December 18, 2017

By Tom Cunningham, Senior Vice President and Chief Economist, Metro Atlanta Chamber

Last month the Atlanta Regional Commission produced a Forum on the Arts and Economic Prosperity. The event focused on the most recent in a series of reports produced by the American for the Arts organization that attempts to document the economic contribution of the nonprofit arts sector to 341 communities throughout the U.S.  

The report documented an economic impact in Atlanta of almost $720 million and over 23,000 jobs for FY 2015 – the most recent data available. These are large numbers, and they received, appropriately, a lot of attention. However, the report was done in an explicitly careful way that, by design, substantially understates the true economic impact of the arts in the Atlanta economy. This note should be thought of as an addendum to that work.

For the purposes and credibility of their study, being careful and deliberately understating the true economic value of the arts community is a good idea, but for a broader discussion of the value of policies related to arts promotion, it is a good idea to have a better understanding of what the study intentionally left out.

Before discussing the study, it is worth mentioning that it does not consider for-profit arts enterprises in the metro. That is not what the study is about. However, Atlanta stands out among U.S. metros as an area with a large and rapidly growing for-profit segment of the arts industry: film. Georgia generates billions of dollars in direct spending for film production. That activity is based out of Atlanta, and it is growing extremely rapidly, as it absorbs production activity from around the world. Another major for-profit arts segment is music. Atlanta is a focal point for several major genres of music. The development of this talent locally and many of the local performances are not necessarily very profitable, but all of the activity falls outside of the “nonprofit” sector and, collectively, the overall “not nonprofit” music scene has a major presence both economically and socially. It is also worth noting that most audience members do not attend performances based on the tax status of the hosting organization.

Turning to the study, there are two major issues that contribute to a serious underestimation of the size of the economic impact of the Atlanta nonprofit arts community. Both of these issues stem from the caution used as the study interprets their survey result, as the study itself acknowledges.

The first problem is that only 21.9 percent of the eligible nonprofit arts and cultural organizations in the Metro area responded to the survey, and there is no attempt made to upwardly adjust the numbers based on this low response rate. The national response rate was 59 percent, and, among the communities, response rates varied from 9 percent to 100 percent. A list of survey respondents is available from the Atlanta Regional Commission, and a casual examination of those institutions that did respond suggests that all of the larger nonprofits participated in the survey. Still, we don’t know what we don’t know. That the study limits itself to the institutions that responded makes for a very credible lower bound for economic impact estimates, but with almost 80 percent of the eligible institutions not reporting, the economic impact is likely to be seriously understated. We just can’t quantify by how much.

A second problem with the study is that there is no attempt to discuss multiplier effects – that is, when additional money is spent in an institution, that institution, in turn, spends more money on its suppliers, labor, etc., who then spend more money and on and on. Multiplier estimates are subject to much debate. So, again, the report is cautious and does not make any attempt to talk about the larger impact of the induced and indirect income generated by the nonprofit arts community. While the size of the multiplier may be subject to debate, its existence is not. Implan is a widely used econometric model of multiplier effects which broadly sets the multiplier for spending on arts and entertainment slightly above two (that is, a one additional dollar of spending eventually changes hands enough to generate about two dollars in overall income), which is slightly greater than the overall average estimated for the entire metro economy. So, through the use of a commonly used model, leaving out multiplier effects for nonprofit arts spending results in a larger underestimate than other average additional spending.

Another issue beyond the scope of the study is that at a deeper level, a city is often characterized by its cultural institutions. This has profound but immediately unquantifiable consequences for economic development. Firms that approach the Metro Atlanta Chamber, particularly those abroad, often inquire about the type, scale, and quality of cultural amenities. It is an important part of deciding where you want you and your firm to live. It is not accidental that metro areas’ business and cultural activities tend to thrive together. While difficult to measure, the caliber of local culture is a critical contributor to the overall local well-being.

The importance of local culture is why the ChooseATL initiative continues to be a valuable addition to our economic development activity and a benefit to the metro region. By highlighting our unique cultural assets, ChooseATL seeks to attract and retain next-generation talent who place a high value on experiences such as those on offer here.  

The bottom line in all of this is that the carefully executed economic impact study of the nonprofit arts and culture sector in Atlanta, because of its caution, may have understated the true economic impact by more than half. The nonprofit arts and culture organizations in Atlanta are a formidable economic block with a wide-sweeping influence in many sectors, from workforce to site selection to the business community itself. While there are many good reasons to be conservative in estimating its value, nonprofit arts and culture should also be recognized as the force that they are, and policies should be made with this knowledge in mind if we are to continue to nurture the unique qualities native to Atlanta that are responsible for driving growth.