The January grand opening of the $126m Palladium at the Center for the Performing Arts, the crown jewel of the $600m Carmel City Center project in Carmel, Indiana, seems in stark contrast to the symphony of crushing budget cut debates spreading throughout state and city governments in the US.

In 2011, it is estimated that anywhere between 50 and 100 cities could declare bankruptcy, according to financial analyst Meredith Whitney of New York City-based Meredith Whitney Advisory Group. Ever-mounting debt has state and city budget and legislative officials frantically implementing austerity measures. 

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In January, Illinois governor Pat Quinn signed a 66% temporary four-year personal income tax increase and a separate corporate rate hike to close a $15bn budget gap. Minnesota governor Mark Dayton is pushing $3.3bn in new taxes by primarily raising rates on top earners. In February, angry budget standoffs and governors’ efforts to tackle the power of public employee unions led Democratic law makers in Wisconsin, Ohio and Indiana to flee their states to avoid a vote on anti-union legislation.

Bucking the trend

But in November last year, two months prior to the Palladium’s gala event, James Brainard, mayor of Carmel, Indiana, a city just north of Indianapolis, was defending his massive construction budget to those who thought it inappropriate in such hardened economic times. Already, Grammy-nominated entertainer Michael Feinstein has been signed to be artistic director of Carmel’s Center for the Performing Arts, a $165m complex that includes the Palladium, two theatres, an amphitheatre and parking lot.

Mr Feinstein, in fact, had chosen Carmel in 2008 as the location for his Foundation for the Preservation of the Great American Songbook after considering Las Vegas and Los Angeles. The foundation’s museum-quality archives will make original sheet music and objects associated with American popular songs accessible to the public for the first time.

Funding controversy

The $126m Palladium alone was originally estimated to cost about $30m, although its architect, David M Schwarz, principal of Washington, DC-based David M Schwarz Architects, calls its final price tag a "bargain" compared with other concert halls in its class.

But in today’s backdrop of nationwide government budgetary deficits, the Palladium is stirring up an election-year debate in Carmel over the government’s role in real-estate development and arts projects. Carmel City council member John Accetturo, who is seeking to unseat the four-term incumbent Mr Brainard, is using the Palladium to demonstrate that the mayor is a profligate spender of taxpayer’s money and that such big-ticket items should be better scrutinised. It is the type of argument that is spreading across many states.

“We now have the government competing in the worldwide entertainment business,” Mr Accetturo is quoted as saying.

Rising costs

One premise of Mr Accetturo's argument is cost: the Carmel Performing Arts Foundation, formed to raise money for and to operate the arts complex, estimates that operating costs of about $4m in 2011 will escalate to as much as $7m each following year when all venues are running.

The 14,300-square-metre, 1600-seat Palladium building was paid for by the city’s Carmel Redevelopment Commission and tax incremental financing (TIF) taxes collected from businesses that have located in the TIF district, the city’s designated redevelopment area.

“Carmel was able to get bond financing because the Palladium was billed as Indiana’s first purpose-built concert hall,” says Mr Schwarz.

When arranging the bond for the TIF district several years ago, the city had originally projected producing about $7m annually. “We are doing about $17m this year,” Mr Brainard reveals. Financing also included $80m in bonds and private contributions.

“I had originally wanted to take the $80m and make up the difference with private contributions,” says Mr Brainard. “But the recession got in the way. Fortunately, the TIF district grew so much that we were able to get to the same end point without any impact on the taxpayers. This is a perfect example of how the arts can help economic development.”

Big risk

Still, the financing has been controversial and Mr Brainard admits the Palladium is a big risk for a city the size of Carmel. Carmel’s population, which has been growing rapidly, is 120,000. “No city our size has invested this much in the arts,” Mr Brainard says. 

But the city, which is quite affluent, sits on the edge of Indianapolis and a region of 2 million people. The mayor also expects the facility to draw visitors from as far away as Chicago in Illinois and Columbus and Ohio.

The Palladium should also give Carmel landmark status: its structure is classic. Its four-fronted symmetrical structure, massed around a domed central space, was inspired by Andrea Palladio's Villa Capra, 'La Rotonda', built in 1566 in Vicenza, Italy.

Mr Brainard, who contends that only public money could build such a structure, has spent much time examining architecture, redevelopment efforts and venues for inspiration, including the Big City Plan development taking place in Birmingham, UK. He expects the Palladium to be an enormous economic driver for companies to locate to Carmel.

“We don’t have interesting topography and our weather isn’t great,” Mr Brainard admits. “So we need the best cultural amenities on earth if we want to be placed on the map and compete for economic development.”

Carmel already gets 29% of its revenues from commercial entities, double the national standard. Major companies there are Delta Faucet, Thomson Consumer Electronics and Conseco, but with ample land available, the mayor believes Carmel can do better.

Its arts project has already spawned $350m of private investment for Carmel’s 364,000-square-metre city centre that includes housing, upscale shops, restaurants and a hotel.

Careful planning went into creating the city centre. Emphasis, for example, is on pedestrian friendliness with sidewalks, interesting store fronts, public art galleries and an extensive municipal park. Carmel also boasts an extensive roundabout system, one of the most elaborate in the US.

Driving economic development

Despite budget woes, cities around the world are realising how culture makes a big contribution to the vitality and attractiveness of their cities, both as places to live and visit. Bob Lynch, president and CEO of arts advocacy organisation Americans for the Arts, emphasises how investment in the arts serves as a strong driver for economic development.

“We know that cultural visitors spend more and stay longer, which is why mayors and governors in the US and worldwide have for centuries turned to culture as a way to build better towns, states and nations,” he says.

In fact, studies point out that for every $1 spent, a city gets $6 to $8 in benefits. By comparison, sports venues get $3 in benefits for every $1 spent. “The 109,000 not-for-profit arts organisations in the US create an economic impact of some $166bn dollars supporting 5.7 million jobs in the cities and towns of our country,” adds Mr Lynch.

And, according to his figures, while federal support accounts for only a fraction of 1% of not-for-profit arts organisations’ total budgets, it leverages a huge level of private (31%) and consumer (60%) contribution to the arts industry, which in turn, pays back some $30bn in federal, state and local taxes.

Pared down spending

Understanding the benefits, Philadelphia mayor Michael A Nutter retained $3.2m for the Philadelphia Cultural Fund, Philadelphia’s primarily city-funded competitive grant-making programme, although that amount was down $1m from the 2009 budget of $4.2m.

“This year we face a 47% cut to the budget, taking it under $2m,” says June W O’Neill, the fund’s manager. “But even this speaks highly of the governor. At a time when budget cuts are so severe, the fact we have any arts funding at all demonstrates his tremendous support.”

Meanwhile, prior to leaving his office, former New Mexico governor Bill Richardson supported and signed the Fine Arts Education Act, which provides arts education for elementary school and children in New Mexico, and established a state music commission to promote New Mexico musicians and music. He supported the development of the New Mexico History Museum, and awarded the University of New Mexico $3m to create its Art, Research, Technology and Science Laboratory.

The efforts of Messrs Brainard, Nutter and Richardson was recently recognised by the US Conference of Mayors for fostering arts and culture as a means of shaping quality of life. And while the debate for public arts spending rages, cities around the world are continuing to make such investments.