What’s Next for State-Designated Cultural Districts?

(Rebecca Chan is Director of Programs for Station North Arts & Entertainment, Inc., which manages a cultural district in Baltimore. She holds a Master’s of Science in Historic Preservation from the Graduate School of Design at the University of Pennsylvania and B.A. in Anthropology and Cultural Resource Management from the University of Illinois, Urbana-Champaign. -IDM)

It’s a crisp spring evening in Philadelphia’s East Passyunk neighborhood, and the avenue is coming alive. Market lights cast a warm glow over a restaurant patio where groups of people dine at picnic tables and a band does a quick sound check on stage. A little further down the block, shops and boutiques begin to close up for the evening, dimming their display window lights as a nearby gallery begins to fill with people out for an opening and a cafe prepares for open mic night. Pedestrians meander the sidewalks and through a small public square, chattering as they pass sandwich boards advertising restaurant week and lampposts plastered with flyers for upcoming film screenings and art shows.  A cyclist darts past a couple hailing a slow moving cab on the narrow street, and a group of twenty-somethings crack open the door of a crowded bar before stepping in.

Summer night on East Passyunk Ave. in Philadelphia. Photo credit: Christopher Woods (Flickr user: ChrisinPhilly5448)

A summer night on Philadelphia’s East Passyunk Ave. Photo credit: Christopher Woods

If Passyunk Avenue sounds like a place you would like to be on a Friday evening, you are in good company. Known for their bustling pedestrian-oriented streets, repurposed historic buildings, inviting public spaces, diverse cuisine and retail offerings and the presence of the arts, informal or “Naturally-Occurring Cultural Districts” (NOCD) such as East Passyunk are highly desired by those vying for an apartment in the hippest area in town, budding entrepreneurs seeking space for new venues, not to mention urban planners and policy makers around the country. The term “cultural district” has been used to refer to a variety of different types of urban neighborhood, and there are even some cultural districts in rural areas (note: for the purposes of this post, arts, entertainment, and cultural districts are collectively referred to as cultural districts). NOCDs evolve without any government intervention, which is the ideal scenario from an urban planning and economic development perspective—due to a fortuitous combination of circumstances, a particular neighborhood turns into a hotbed of cultural vitality without any effort or public spending. Indeed, studies have shown that the benefits of successful cultural districts go beyond their nightlife; these areas are often home to ethnically, educationally and economically heterogeneous populations, and also offer residents a variety of services, making them convenient and distinctive places to live and work.

Designating Cultural Districts

Many cultural districts seek to replicate the success of NOCDs through careful planning and policy, with varying degrees of success. Since the 1980s, cities across the country have tried to foster the development of these planned cultural districts in areas that share many characteristics of NOCD, but where cultural life remains somewhat isolated from the rest of a community, or is just beginning to emerge as a significant factor. The idea is that with a little extra help these neighborhoods could turn into the next cultural hotspot. The development of these districts typically begins with identification of a neighborhood’s potential, often through the nomination and application by local stakeholders. If selected, an official designation is awarded, sometimes accompanied by a suite of government incentives targeted specifically at artists and other cultural producers. Usually positioned as economic development strategies, these programs are designed to encourage artists, entrepreneurs, institutions and potential developers to build on and organize around existing arts- and culture-based assets. If successful, the initial effort to designate a district will eventually result in increased tourism, tax revenue and outside investment in the designated areas.

A concert in a vacant lot in the state-designated Station North Arts & Entertainment District in Baltimore. Photo credit: Theresa Keil, courtesy of Station North Arts & Entertainment, Inc.

A concert in a vacant lot in the state-designated Station North Arts & Entertainment District in Baltimore. Photo credit: Theresa Keil, courtesy of Station North Arts & Entertainment, Inc.

Mere designation of neighborhood as an officially recognized cultural district can by itself provide several benefits, including:

  • Credibility: Though the designation process and standards vary from state to state, designating a cultural district recognizes the arts and cultural resources as defining characteristics of an area. A state-level review process and subsequent designation also lends credibility to this recognition.
  • Catalyst and Organizing Principle: Cultural district designation at the state level can function as an organizing principle amongst artists, residents, business owners, and community development professionals to establish cooperation and consensus as a neighborhood undergoes redevelopment or creates a neighborhood vision plan.
  • Marketing Potential: Given the cachet of cultural districts, designation can be a powerful marketing tool for a neighborhood undergoing active development. Designation offers the opportunity to change or influence the narrative about a given neighborhood in a positive way, as well as influence future investment.
  • Leverage Funding: In addition to some states enabling designated cultural districts access to specific loan funds, state designated cultural districts are uniquely positioned to attract regional and even national funding that might not otherwise be possible in the absence of designation. As an added bonus, the inherently place-based nature of a cultural district draws funding toward defined geographies.
  • Formalizing Relationships: Designated cultural districts offer the opportunity to strengthen state and local partnerships, strengthening relationships between agencies at these levels. Depending on the district’s management model, designated cultural districts can also link artists and informal arts collectives and bolster working relationships across the nonprofit, private and public sectors.

There are currently 13 state-designated cultural district programs, with designation criteria and process varying by state. Statewide programs are usually administered by the program’s respective state arts council, or in some cases by a state Main Street program, another economic development strategy that leverages local assets and emphasizes local heritage and historic character in its approach. Management strategies vary at the local level as well: some are volunteer-led organizations, others are fused with a Main Street program or community development corporation, and a few are autonomous nonprofit entities.

Of the 13 states that have designated cultural districts, only five (Iowa, Louisiana, Maryland, New Mexico, and Rhode Island) offer tax incentives for activity occurring within districts. These tax incentives can take the form of income tax exemptions, property tax incentives, sales tax credits or exemptions, preservation tax credits, or admissions & amusement tax exemptions. Other benefits for state designated districts include technical assistance programs or small grants offered directly to organizations, artists or other entities that are either located in designated districts or partner with the districts’ managing body.

A street view of Central Avenue in Albuquerque's Arts & Cultural District. Photo credit: Kent Kanouse

A street view of Central Avenue in Albuquerque’s Arts & Cultural District. Photo credit: Kent Kanouse

Evaluating State-Designated Cultural District Programs

With the earliest state-designated cultural district programs now more than a decade old, it’s time to ask whether they are working effectively. To date, unfortunately, limited research evaluating state designated cultural districts exists. The National Assembly of State Arts Agencies (NASAA) produced a 2012 overview of state cultural district policy and programs. The topic of cultural districts, designated and not, has also been addressed by Americans for the Arts, and was the focus of a 2013 AFTA preconference.

Several states have attempted to shed some light on the broad impact of their cultural district programs. The Maryland State Arts Council provides a yearly report on the economic and fiscal impacts of its arts & entertainment districts. According to the analysis, which uses the IMPLAN software and input/output methodology, an estimated 5,144 jobs were supported by arts & entertainment districts along with $458.2 million in total state GDP and $38.3 million in total tax revenues.

The Texas Cultural Trust used interviews, case studies, census data and tax records from Texas cultural districts to measure economic impact based on five indicators: population, employment, property tax base, taxable sales, and annual operating budget of the cultural district. The document also attempts to forecast the three-year impact of Texas’s designated cultural districts based on increased marketing and promotion, and changes in property value/property tax base increase.

The Iowa Department of Revenue evaluated its three-tiered state historic preservation tax credit program, one part of which is specifically applicable for the renovation of historic properties in designated cultural and entertainment districts. Using tax credit recipient surveys and Iowa Department of Revenue tax data, the study compares the Iowa historic preservation tax credit to similar programs in other states and evaluates the economic impact. It claims that every dollar awarded in state tax credits leveraged an additional $3.77 in federal and private investment.

Overall, the reports present the presence of a designated cultural district as a benefit and driver of economic development. Data on the number of people taking advantage of the tax incentive programs and the economic impact of these programs is missing from these reports, however, and from other state-designated cultural district programs with yearly reporting mechanisms. While the Iowa report provides an analysis of its historic preservation tax credit, it does not provide an analysis of those used specifically in its cultural and entertainment districts. This may be because certain data is difficult to locate: cultural district income tax benefits for artists, for example, are filed with an individual’s yearly tax forms and are therefore not publicly accessible.

Challenges

If better data on cultural district tax incentives were available, there’s a good chance it would show that the incentives are of little consequence for the artists, organizations, and developers catalyzing revitalization in designated cultural districts. Several sources, including the NASAA policy overview, a Johns Hopkins University report, and anecdotal evidence from conversations with district managers, suggest that even where tax incentives are available, not many people or organizations take advantage of them.

This is likely a function of the limitations of state cultural district incentives. Specifically,

  • Stringent definitions of “qualifying artist” and “artistic worksignificantly reduce the number of individuals eligible for the incentives. This is particularly true of the income tax and sales tax incentives offered by several state programs. The definitions often require art to be made and sold within district boundaries, which does not reflect contemporary art-making, marketing, and sales practices. “Industry-specific work” such as graphic design or commercial photography does not qualify for most state incentive programs, which prevents many creative professionals from using the incentives.
  • Unclear guidelines for administration of incentives make it difficult for comptrollers or other government officials to determine eligibility for the incentives and to administer the programs consistently. In turn, this lack of an established protocol makes it difficult or impossible to use the credits, causing artists to seek alternatives.
  • Insignificant amounts of eligible income derived from the sale of art, tickets, or other work that does qualify for the incentives further limit the potential pool of applicants. In a time when many artists derive their primary income from other jobs, proceeds from the sale of work might not meet minimum thresholds for reporting, or might go unclaimed on an annual income tax form due to complicated documentation requirements.
  • A lack of promotion highlighting the availability of tax incentives leaves them relatively unknown to the public. Simply put, the existence of cultural district incentives is not widely advertised.

Given the hurdles for using districts’ incentives and the fact that most state programs do not offer incentives at all, it appears the success of cultural districts primarily stems from designation itself and the opportunities to market, program and organize that the designation provides. However, even the components of the programs that do not provide direct financial assistance still require funding and a management structure through which to administer the program. This brings us to another challenge for cultural districts: sustainability.

Regardless of management structure, dedicated staff time is vital to realizing the goals and reaping the benefits of a designated cultural district. Beyond small technical assistance grants, only two states offer operational support for the management of districts at the local level. The minimal funding available for this purpose seems disproportionate to the economic impact that cultural districts are expected to yield.

Perhaps the greatest challenge of cultural districts lies in maintaining affordability for the artists, entrepreneurs, and other longtime residents and businesses of designated districts, ostensibly those catalyzing the economic impact of the neighborhoods. While many NOCDs are celebrated success stories, some, like New York City’s SoHo or Miami’s Wynwood District are criticized for becoming victims of their own success, having experienced rapid commercialization, rising rents and displacement of the artists and longtime residents of the neighborhoods.Policies for state-designated cultural districts do little to consider the long-term sustainability of cultural districts whose “assets” are in large part reliant on individuals who are vulnerable to economic shifts and rising cost of living. Existing cultural district policy does not address issues of affordability, putting the creative clusters that rely on affordable live and workspace options at risk of displacement.

Conclusion

State-designated cultural districts benefit communities across the country, serving as a organizing principle, lending credibility to creative communities at the local level and boosting marketing potential in the neighborhoods in which they are initiated. With some programs now more than a decade old, however, it seems the policy and incentives programs accompanying some of these programs lag behind. While steps are being taken to increase advocacy efforts and expand the applicability and usefulness of these credits, including an expansion of geographic limitations for eligible artists in both Maryland and Rhode Island, progress remains slow. As arts organizations, researchers, and policymakers continue to explore cultural districts and make decisions about the creation of new districts, several key pieces of data need to be added to the equation.

First, data on cultural district tax incentives should be collected and compared to the expectations of policymakers at the time of their creation. Specifically, how many individuals are using the incentives, and how much is being claimed as a benefit of these programs? In addition to providing a clearer picture of the costs and benefits of designated districts, this data would enable more strategic decision-making for promotion of incentives.

Secondly, policymakers and researchers should adjust programs to better support and sustain artists, administrators and organizations. Where incentives for artists and creative professionals are offered, policymakers need to consider how art is marketed and eventually purchased. For example, the relatively recent emergence of Etsy, Kickstarter and other online platforms has changed the way artists and creative professionals seek visibility for their work, network, and sustain their business. Furthermore, increased connectivity between major urban areas makes it common practice to live in one city as a practicing artist and participate in exhibitions in another metropolitan area. Existing policy incentives do not align with these practices.

Finally, cultural district programs need to consider and promote affordability when it comes to residential and work space within districts. Whether at the policy level or local district level, administrators need to consider how to incentivize property owners to continue developing and maintaining safe and affordable studios, galleries, venues and living spaces. Another aspect to consider is adjusting policies and programs to incentivize renters to remain in cultural districts.

At their best, designated cultural districts provide a policy framework that leverages existing creative energy to foster the type of asset-based economic revitalization observed in NOCDs. However, as designated cultural district programs age and additional states create similar programs, it is vital that administrators delve more deeply into the research and evaluation of these programs to monitor the success of these districts, as well as some of their unintended consequences and areas for improvement.

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  1. […] Manager for Station North Arts and Entertainment, Inc., has a great overview in the most recent Create Equity blog post. Among the things Rebecca discusses: “naturally occurring” versus purely designated arts […]

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