City renovation—economic profit, study says

Real Estate Weekly, June 18, 2003

Randall Bourscheidt, president of The Alliance for the Arts today released its groundbreaking study, Culture Builds New York: The Economic Impact of Capital Construction at New York City Cultural Institutions. The study demonstrates the direct and indirect economic benefits to the city incurred through the renovation, expansion and construction of nonprofit cultural institutions such as museums, concert halls, gardens and zoos, as well as the impact that further construction could have over the next four years on the New York City economy.

The study, conducted by Catherine Lanier and Rosemary Scanlon for the Alliance for the Arts and made possible by the support of the New York Building Congress and the Real Estate Board of New York, covers the years 1992-2002, a period of ambitious growth and renewal for hundreds of nonprofit cultural organizations in New York City. It also provides a preliminary assessment of the impact of construction planned for the years 2003-2006.

"This report tells a story of success and of the economic wisdom of building and supporting cultural institutions," says Bourscheidt. "The benefits to the construction industry and building trades and other segments of New York City's economy are quantifiable and significant. The result of this building is an enhanced cultural infrastructure that will continue to serve the city, attract tourists and bring much-needed dollars into the City."

The study's key findings point to short- and long-term benefits of capital investment in cultural institutions.

Short Term:

From 1997 to 2002, the $1.8 billion in direct capital expenditures at cultural institutions generated a total of $2.3 billion in economic activity in New York City. This economic impact includes:

* An average of 2,255 full-time equivalent jobs each year over the six-year period.

* $512 million in wages for New York City residents.

* $36 million personal income, corporate and sales taxes to New York City.

The benefit to New York City derived from these building projects is magnified by the fact that most of the design and the construction labor and management are local.

Long Term:

* Investing in the nonprofit cultural facilities expands the quantity as well as the quality of productions, exhibits, and educational offerings, and as a result increases the attraction for additional audience and visitors. For example, paid attendance at the American Museum of Natural History increased almost 60% from 1995 to 2001, boosted by the opening of the Rose Center. International visitors increased to 25% from 7% of total visitors prior to its opening.

"The Rose Center's success demonstrates the long term benefits of capital construction," says Bourscheidt. "Other on-going cultural projects, such as the renovation and reconstruction of the Museum of Modem Art, the creation of Jazz at Lincoln Center and the recent opening of the Brooklyn Children's Museum, will confirm what our study has proven - that cultural. construction is good for the economic health of the City, as well as what we have always known - that these improvements are good for its spiritual health."

"New York City's preeminent arts and cultural facilities are major contributors to the City's economy and fundamental to its quality of life," said New York Building Congress President Richard T. Anderson.

"Additional investment in and expansion of these facilities must be viewed as a critical component of the city's long-term economic development strategy."

The study also emphasizes the importance of city funding as an impetus for private contributions. City participation is critical even when it accounts for a small percentage of total capital spending on a given project.

* Capital funding from the City of New York for capital projects amounts to one-quarter of the total spent but helps leverage private and other government funds by a ratio of three to one.

* Nearly half of the funding for cultural building projects is supplied by individual donors.

This is particularly important as the study points to the finding that organizations with operating budgets of over $10 million derive most of their income for capital projects from individuals, while organizations with budgets under $10 million derived almost half of capital improvement funds from the city.

The study projects the economic impact for 2003-2006 to be $2.7 billion, based on a total planned investment of $2.2 billion, and including:$599 million in wages, 3,960 full-time equivalent jobs annually over the four-year period and $42 million in city personal income, sales and corporate taxes.

However, these future benefits are now threatened by the proposed cut to the Cultural Affairs Budget and by uncertain prospects for the economy and the equity markets, which could dampen important sources of private giving. At the release of this report, a reduction of about 30% in the city's capital appropriations for cultural projects has been proposed.

"This upbeat story has a somber final chapter, reflecting the ramifications of Sept. 11 and the current economic downturn," continues Bourscheidt. "Some large-scale projects, such as a new Guggenheim Museum in Lower Manhattan, have been abandoned. The city's important role as the financial partner of many private donors may well diminish, at least temporarily. The effects of such cuts would be felt for years to come, in both the social and economic health of New York City neighborhoods."