The Cultural Investment ROI

ROI

Wanted: Models for Input, Output and Causality

I can’t tell you how many times my firm has been in the situation of proposing an investment in cultural facilities or in other types of cultural infrastructure (e.g., grants, public art, technical assistance) when the response is some version of “That’s all well and good, but what will be the return on investment to our community?” Our first response is buy multipliers from the Bureau of Economic Analysis, crunch some numbers and then trot out the economic impact analysis, which suggests how new expenditures to build and sustain cultural facilities or organizations might drive more sales, earnings and employment on the part of the operating organization and audiences. In other words, ROI.

That analysis is helpful, but we have to be very careful about how we measure these impacts. Operating impacts can only be measured in terms of the incremental growth caused by the investments. Audience expenditures cannot include anyone from inside the defined market area who would simply be moving their spending from one place to another within the region. And because input-output multipliers tend to be only available for counties or large metropolitan areas, we can’t really look at the ROI of cultural investments in a specific downtown or community.

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And the larger problem is that economic impacts represent such a small part of ROI; it only suggests the direct, indirect and induced outputs caused by specific investments in particular sectors.

Thus begins the hunt for additional “returns,” which inevitably forces us to switch from the search for data to the collection of stories. That means we look for examples of how certain types of cultural investments led to certain outcomes in other places. The renovation of the historic theater, driving the revitalization of the downtown. The development of a public art program, changing the perception of a community. The sponsorship of festivals, leading to significant increase in cultural tourism. The after-school art program, causing reductions in crime.

Within this search there is still some quantitative analysis. We can show how a new grants program led to new arts activity. We can suggest how new facilities created stronger cultural organizations. But these are not the returns that matter. We must show how investments lead to things that communities look for — growth, sustainability, prosperity, diversity.

If all goes well, we’ll cobble together some combination of data and stories from other places that will suggest the possibility of a positive ROI. Our clients have some numbers to defend the investment and some stories that create hope. But we can’t really say with any certainty what that total return might be, when it might come or even how it is to be measured.

We need to fix this problem. Public and private sector funders are increasingly looking for stronger arguments and measurable outcomes. We are competing with other causes — financial inequality, environmental sustainability, healthcare — where ROI is much more tangible. And we have the particular challenge that too many people still believe that the value of the arts is something limited to those few people who choose to attend a performance, event or exhibit.

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I believe the solution to this problem lies in the development of a much more comprehensive and robust input-output model that might allow government and private sector funders to make informed decisions about how and why to invest in the arts. This model would depend on three things:

Inputs: The easiest part of building the model is to collect and understand all of the possible ways that we invest in the arts, from new facilities to community calendars. The sources of data should be clear. We can accumulate grant information from funders and financial statements from organizations to determine how much was received for specific purposes. There are already places where elements of this are being collected, from the Cultural Data Project to Guidestar.

Outputs: The bigger effort is identifying all of the possible outputs associated with investments in the arts and culture. And again, these must be outputs that suggest a positive return to the community. So it’s things like new economic activity, property value increases, new taxes collected, companies and workers moving to the community, higher graduation rates, lower crime, more visitors and improved longevity. All of this information is theoretically out there, but it comes from many different sources in many different forms. Those who work in the social sciences have done a lot of work in collecting and organizing this sort of information.

All of this information is theoretically out there.There have been attempts in the arts and culture sector to do this. In 2011, the Canadian Urban Institute published a guidebook for municipal cultural planners called Indicators and Performance Measures. It includes a menu of more than 70 indicators that can be used to measure impacts of cultural planning. It lists the indicator, the metric and the data source. Within the Strengthening Social Cohesion outcome cluster, for example, there is a diversity indicator, which is defined as the percentage of persons who are identified as visible minorities.The data source is the particular report from Statistics Canada measuring the size and growth of minorities. What is the relationship between cultural investment and diversity? How do we know that an investment in a minority-based cultural organization leads to more diversity?

Causality: So the hardest part to all of this is establishing the relationship between a set of inputs and a set of outputs. We’re fairly confident that investing in a downtown arts center leads to new commercial development in that same area. But how much of that return is due to that investment as opposed to all of the other things going on, like the arrival of a Starbucks franchise, increased community policing or cyclical improvements in the economy?

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I’m told that the recreation sector is doing a much better job then arts and culture on establishing links between investments in recreation programs and facilities and overall community benefits. Apparently, there was a recognition of the need to do so some 20 years ago, leading to research and advice on how to make these connections. I would guess that a lot of this was about the emerging understanding of the relationship between exercise and physical/mental health, and then riding that wave as far as possible.

How do we establish stronger, more measurable links between cultural investments and community development? What waves can we ride to make this happen? Next month we’ll look at some of the possible approaches to this challenge, looking for ways that we can make reasonable forecasts on the impacts and returns associated with particular types of cultural investments. In the meantime, I’d love to hear from others thinking and working on these same issues.

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