Economic development ; Cities and towns ; Fiscal policy

Charles Gerena

English

Research Papers in Economics

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THE STATE OF THE ARTS
Struggling for an Encore
M
oney troubles nearly closed the Charleston, S.C.,
symphony orchestra’s doors for good in 2006. 
The orchestra has been a fixture on the city’s performing
arts scene for more than 70 years.
Finances have been touch and go for several years, says
Leo Fishman, president of the Charleston Symphony
Orchestra’s board of directors. Each crisis brought short-
term solutions and unusual donations. In 2003, for instance,
the symphony’s full-time musicians agreed to an 18 percent
pay cut for three years just to keep the orchestra playing, 
a typical move for arts nonprofits when finances fizzle. 
This is not a new problem: Symphony orchestras nation-
wide struggle to balance budgets, and some have folded. 
The problem is particularly acute in mid-sized cities 
like Charleston. 
Savannah, Ga., 100 miles south of Charleston, lost its 
symphony in 2003, for instance. Charlotte’s symphony music
director has decided to step down in 2009, reportedly over
the group’s precarious finances. 
“The forces that are driving their financial squeeze
haven’t changed,” says Kevin McCarthy, an arts and cultural
affairs expert at RAND Corporation. Symphonies fight
growing competition from other entertainment as well as
aging audiences.
The dependence on public and private contributions has
been predicted since at least 1965 when economists W.J.
Baumol and W.G. Bowen, formerly at Princeton University,
dissected arts groups’ economic structure. 
Technology brings little in the way of increased efficiency
for performing arts groups, yet they still face increasing
costs, just like any business. “The output per man-hour of
the violinist playing a Schubert quartet in a standard concert
hall is relatively fixed, and it is fairly difficult to reduce the
number of actors necessary for a performance of Henry IV,
Part II,” the authors wrote in “On the Performing Arts: The
Anatomy of Their Economic Problems.”
And since a symphony is a “supplier of virtue,” it makes
sense that it “distribute its bounty as widely and as equitably
as possible,” Baumol and Bowen wrote. And so it isn’t 
possible to raise ticket prices enough to pay the bills. 
For such groups to flourish, a wide variety of funding sources
must be tapped.
But support for midsized orchestras in cities like
Charleston can pose a problem. Nationally, less than half 
of a symphony’s revenues comes from earned income, 
according to the American Symphony Orchestra League.
Private contributions, endowments, and government grants
make up the rest. Public money represents about 4 percent
of revenues. The Charleston Symphony Orchestra, with an
annual budget of more than $2.3 million, receives no state 
or federal funds, but does receive funds from the 
city, Charleston County, and the nearby town of Kiawah
Island. The orchestra also raises money from individuals
and corporations. In fact, a successful fund-raising effort
allowed the orchestra to finish the most recent fiscal year
with a surplus.
To draw crowds, particularly occasional concert-goers,
symphony orchestras must stage blockbuster performances
and invite superstar musicians. But big productions require
big budgets, and that means only big groups can invest in
those expensive performances. — VANESSA SUMO
STABILITY, CREDIBILITY
D.C. Makes Fiscal Progress
W
hen the new mayor of Washington, D.C., Adrian
Fenty, took office in 2007, he inherited a govern-
ment  in better shape than it was when Anthony Williams
took the job in 1999. In Williams’ eight years as mayor and
his previous tenure as the city’s chief financial officer, he
was widely credited for bringing stability and credibility to
a government plagued by scandal and insolvency.
“His reputation as a comptroller and accountant was a big
factor in building confidence for investment in the city,”
recalls Tim Priest, an economist by training who leads the
marketing efforts at the Greater Washington Board 
of Trade. 
For example, with its investment-grade bond rating, the
city has been able to raise capital for infrastructure and
social projects. Those included mixed-income developments
that have replaced public housing complexes and a new 
stadium for the Washington Nationals baseball team.
The District’s experience illustrates the relationship
between economics and stable, responsive, and fiscally
sound government. 
Economists avoid passing judgment on what forms of
10 Region Focus • Fall 2007
SHORTTAKES
Music director David Stahl has been faithful to the Charleston
Symphony Orchestra since 1984. governance are good or bad for economic development,
according to Beth Honadle, director of the Institute for
Policy Research at the University of Cincinnati. Rather, they
“empirically study what the likely effects of various
approaches will be relative to a number of generally 
accepted criteria or measures.” These criteria may include
equity, efficiency, and the influence of government actions
on private business decisions.  
Economists do have some idea of what works and 
what doesn’t when it comes to governance. “Government
discourages the attraction of industry, new business 
formation, and the retention and expansion of existing
industry when it under invests in education, fails to control
crime rates and protect people and property through public
safety, and allows public infrastructure to deteriorate so that
it impedes transportation and the sustenance of health,
peace, and quality of life,” Honadle says.
For example, a local government facing a fiscal crisis may
drastically cut “nonessential services” that undermine 
quality of life. In the long run, this may deter new residents
and businesses, which can inject new tax revenue and 
spending into a community. Also, borrowing may become
prohibitively expensive, since the government’s risk of
default – real or perceived – is greater. Thus, fewer funds 
are available for municipal projects.
The District’s fiscal progress has contributed to the city’s
economic progress. “The District’s record over these last
eight fiscal years of consistently balanced budgets … has
taken the city’s bond rating from ‘junk’ status up to grade 
A, a first for this city,” noted Alice Rivlin during her Senate
testimony in July 2006. (The former Federal Reserve 
governor chaired the Control Board that took over manage-
ment of Washington’s local government from 1995 to 2001.) 
Private investors have been confident enough in
Washington’s government to make long-term commitments.
More than $12 billion of projects were completed in
Washington, D.C., between 2001 and 2005. “When Mayor
Williams took office nine years ago, there was a huge surge
in real estate investment in the city,” says Priest of the Board
of Trade. “The migration of residents out of the city 
stabilized and job growth strengthened.”  — CHARLES GERENA
RELOCATION STATION
N.C. Workers Bound for Richmond
B
obby Hines has worked for Philip Morris USA for 28
years, the last eight of them at a plant in Cabarrus
County, N.C. He transferred from Louisville, Ky., when
PM USAclosed down that shop. Now, he may again pull up
stakes, this time for Richmond, when the company shuts
down its North Carolina facility by decade’s end. But that
would be his last stop, if he’s even offered a position,
because Richmond will be the last remaining domestic
plant for the makers of Marlboro.
After the closing announcement, the company set up a
“Richmond room” at the Concord plant, and has said 
it will issue bonuses of $50,000 to relocate workers.
“They give you updates on house sales” as well as data
on schools, recreation and other information about the
area, says Hines. He is president of Local 229-T, the Bakery,
Confectioners, Tobacco Workers and Grain Millers
International Union. Union rules, he says, require the 
company to offer jobs to members if they have openings.
Most of the 1,900 hourly employees are members of one of
two unions. “I guess it all depends on how many openings
and how many people retire up there [in Richmond],” he
says. “I hope I get the opportunity.” 
Falling U.S. cigarette consumption and exports have
driven the Richmond-based company to close the plant. 
In 2006, PM USA expanded the North Carolina plant,
adding 12 high-speed cigarette machines and an 11-story
automated storage facility. But even that, and the $1 
million that state and local officials contributed to keep
them, didn’t sufficiently make up for the stateside 
consumption slide. The firm announced in June it will 
produce cigarettes closer to where the customers are —
overseas — under its sister company Philip Morris
International based in Switzerland. It will return the 
$1 million.
Domestic demand for cigarettes has continued to fall –
Philip Morris USAcigarette sales declined by 1.1 percent in
2006 compared to 2005 – and the company now sells four
times as many cigarettes overseas as it does here. The firm
will shift its export production, about 20 percent of 
cigarettes made at the Cabarrus plant, to Europe.
The consolidation to the Richmond plant won’t be
complete until 2010, and by then those who choose or are
chosen to relocate should know Richmond pretty well. 
While it may be common for firms to cultivate and
place their salaried employees in various locations, it is 
an unusual move to do so for hourly workers. It could be
designed to lighten the blow of the surprise announce-
ment, says North Carolina State University economist
Mike Walden, or simply to draw on their high skill levels.
Union negotiations are likely to contribute too.
“We try to demonstrate that we value our employees,”
communications manager Paige Magness says, confirming
that their training will benefit the firm. “I think our effort
to attract them to Richmond to keep them in those jobs
[makes that] evident.” She does not yet know, however,
how many hourly or the more than 500 salaried workers
will be offered jobs at the Richmond plant, or, of course,
how many will choose to leave North Carolina.
The shutdown marks the end of the cigarette giant’s
hefty contribution to the municipal tax base, $5 million in
2006, as well as the ancillary community spending that 
the plant’s high wages generate. Tobacco manufacturing 
largely has faded from North Carolina’s economic 
landscape, with the last big operation consisting of 
6,800 employees who remain in Winston-Salem at the
R.J. Reynolds Tobacco facilities. — BETTY JOYCE NASH
Fall 2007 • Region Focus 11

Stability, credibility : D.C. makes fiscal progress

http://www.richmondfed.org/publications/research/region_focus/2007/fall/pdf/short_takes.pdf

Stability, credibility : D.C. makes fiscal progress

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