Sustaining the arts and creative placemaking through tax increment financing, Part 1

It seems like everybody involved in creative placemaking is talking about funding cuts to the arts.  Well, maybe not everybody.

In Allegheny County, Pennsylvania, (which includes the city of Pittsburgh), the county's Regional Allocation District is planning to increase its allocation to arts and cultural activities by 2%.  This is thanks to a creative way of funding the arts -- through a portion of sales tax revenue.  The District gets revenues from half of a 1% sales and use tax in the county, and distributes it to arts, cultural and entertainment facilities and parks throughout the county.  Though the amount of the tax may seem insignificant to a shopper, it has translated to more than $2.3 billion since 1995. In fiscal 2011, the Regional Allocation District Board is expecting to give $81.1 million.

Colorado does something similar with its Scientific and Cultural Facilities District in the Denver metropolitan area.  This fund -- based on a tenth of a percent of sales tax -- distributes about $40 million per year to around 300 organizations in seven counties.

Sales taxes are a great way to support the arts and creative placemaking.  Governments don't even have to create new taxes to make this funding system work.  Through a process known as tax increment financing, arts and cultural organizations can get a portion of any sales taxes above a certain baseline.

Here's how it works.  Let's say in 2011, ABC County collects $100 million in sales taxes.  That $100 million is the base.  In 2012, because of an improving economy, ABC County collects $110 million in sales taxes.  That additional $10 million goes to support arts and cultural activities.  A government agency wouldn't have to wait years for the money to pile up.  It could float a bond that could be paid for by increased sales tax revenues.

Most states have tax increment financing programs (TIFs).  But, like in New Jersey -- where it is called a Revenue Allocation District -- TIFs usually go to support big development projects.  So in New Jersey, a TIF could help build a big performing arts center, but provide no funding to support its operations. This is a big problem -- not just for arts organizations that struggle to keep the lights on, but also for the municipalities and leaders who sometimes use a lot of political capital to get these big projects built.

And of course, most arts activities happen outside of big theaters and cultural centers.  Some, like public art and street art, generate no or little money.

New Jersey uses a form of tax financing. A portion of the tax that guests of hotels and motels pay goes to the New Jersey State Council on the Arts, which distributes revenues to arts organizations.  (Arts Build Communities is one of many grantees supported by this fund.)

Why should the arts be singled out for special treatment with a portion of sales tax?  Because arts and cultural activities are proven generators of economic activity. According to several economic impact reports, the arts bring people to downtowns and other places,  where they will spend $8, $10 or $20 per person on top of the ticket prices.  As you can imagine, this is good for nearby restaurants and stores (especially the smaller businesses that have little money for marketing.)   And it's also good for high-tech and information industries, such as pharmaceuticals.  They want to attract the best educated and most creative people to come up with the next product to generate billions of dollars.  And what do creative people like?  To be in places and with other people who are creative.

It's a virtuous circle: more arts activities and artists tend to generate more money for restaurants and stores.  And all of these provide a windfall benefit to companies that want to attract educated and talented employees.

That's why a hotel/motel tax is a good start, but not enough.  A portion of sales taxes from businesses that benefit from arts and cultural activities could be used to support the arts and creative placemaking.

How the money is distributed, and for what purposes, determines whether the sales taxes generate a good return on the investment.  That's the subject for the next part of this essay...

--Leonardo Vazquez, AICP/PP

To learn more:
About the Allegheny Regional Allocation District
About the Scientific & Cultural Facilities District
About the New Jersey State Council on the Arts

Arts Build Communities and the Bloustein Online Continuing Education Program offer several courses on creative placemaking, including economic development through the arts, programming cultural uses, and cultural heritage tourism planning.  Learn more about our upcoming courses.