As an economic tool, culture is a hot ticket.

Across the nation, cities have turned to the arts as an economic development strategy. At last count, no fewer than 90 U.S. cities had put forward plans to use culture to revitalize distressed areas. For the most part, such plans focus on the direct economic impact of large-scale institutions and planned cultural districts. In New York, for example, the Brooklyn Academy of Music LDC is developing a 14-block, $560 million "cultural district" in Brooklyn's Fort Greene.

But what if a handful of homegrown, community-based arts groups could have just as dramatic an effect on a neighborhood as a planned cultural district or major arts institution? What if a church-basement theater troupe were actually just as important for a struggling area as a MOMA or a Lincoln Center?

Over the past eight years, the University of Pennsylvania Social Impact of the Arts Project has studied the ways in which the arts and culture influence Philadelphia's neighborhoods. We learned that culture does have a powerful effect on neighborhood revitalization--but it is one that has little to do with tourists, jobs or even revenue. In Philadelphia, the average community arts group had only a few hundred people register for its classes per year; the average annual budget of a cultural organization in a low-income neighborhood was $150,000; the average group employed no more than two or three full-time employees. In short, even when considered as a sector, whatever direct contribution these groups were making to their local economies was quite small. Nonetheless, these same community cultural programs seemed to have a substantial impact on the economic fortunes of their respective neighborhoods.

During the 1980s, for example, Philadelphia neighborhoods with an active arts scene (measured by the number of cultural providers within one-half mile) were nearly three times more likely to see their poverty rates decline and their populations increase.

The connection between culture and community vitality continued into the 1990s. During that decade, the city of Philadelphia lost over 65,000 residents-a decline of 37 people per "block group" (approximately six city blocks). The results, however, varied widely from one neighborhood to another, and these variations were strongly linked to cultural participation. In the quarter of census block groups with the lowest cultural participation rate, the numbers were far worse than those for the city overall; these areas lost an average of 90 residents during the decade. Among block groups with higher-than-average cultural participation rates, the news was much better; these neighborhoods gained population, an average of nearly 20 residents per block group.

The impact of culture on population change was not restricted to well-off neighborhoods. A low-income neighborhood's chance of experiencing population growth more than doubled if it had a higher-than-average cultural participation rate. The results also held across ethnic lines: Older white ethnic neighborhoods such as Fishtown, established African-American neighborhoods such as Germantown and East Oak Lane, and emerging Latino areas such as Oxford Circle all used high levels of cultural engagement as one way of attracting new residents.

Culture had a positive impact on housing prices as well. Between 1995 and 2000, the average sale price of a home in Philadelphia increased from around $49,000 to $59,000. In neighborhoods with few cultural organizations, the increase was much smaller--only about $3,000. By comparison, in neighborhoods with many cultural organizations, the average price increase was nearly $30,000.

What's more, these boosts in neighborhood economic fortune generally occurred without substantial gentrification. Certainly, in some neighborhoods the speculative housing market was so strong that neighborhood revitalization quickly became wholesale displacement, but for every "hot" neighborhood there were, and still are, dozens of communities eager to attract new residents and new investment. Here, urbanist Jane Jacobs' classic distinction between "cataclysmic money" and "gradual money" makes all the difference. Although we can point to some neighborhoods where a flood of speculative money pushed longtime residents out, a lively cultural scene was more likely to attract smaller and slower redevelopment efforts. Fishtown, for example, continues to attract new development gradually. It has also emerged as a diverse area with people of different economic and ethnic backgrounds living together as neighbors.

The connection between diversity and culture is one of the keys that explains the impact the arts have on neighborhood revitalization. We've discovered that neighborhoods that are economically and ethnically diverse are most likely to have high levels of cultural engagement. Neighborhoods that have higher-than-average poverty rates and large numbers of professionals living in them--what we call pov-prof neighborhoods--consistently have more cultural organizations and high participation rates. The cultural institutions in these neighborhoods serve as anchors, preventing diversity from becoming a transient state. That is why economically and ethnically diverse neighborhoods with high levels of cultural engagement were much more likely to remain diverse over time. Cultural organizations simultaneously stimulate population growth in and the stabilization of diverse neighborhoods.

How do small, perennially cash-strapped local arts and cultural programs perform all this magic? The answer is simple: Culture stimulates revitalization not through direct economic impact, but by building the social connections between people.

A lively cultural scene appears to contribute to neighborhood vitality in two important ways: It increases the inclination and ability of residents to make positive changes in their community, and it increases the connections between neighborhoods of different ethnic and economic compositions.

Culture and other forms of civic engagement increase "collective efficacy"--the willingness of neighborhood residents to protect their local quality of life. The trust and commitment that flow from community involvement lead to this sense of efficacy, even in neighborhoods in which poverty and unemployment are common.

Engaged citizens not only help neighborhoods thrive, they also create a more positive social environment. Take for example delinquency and truancy rates. If we look only at the most disadvantaged neighborhoods in Philadelphia--those with the highest poverty and unemployment rates--communities with high levels of cultural participation have much lower rates of delinquency and truancy than other disadvantaged neighborhoods. For example, only about 5 percent of all disadvantaged neighborhoods in Philadelphia have very low delinquency rates. However, disadvantaged neighborhoods with high cultural participation were four times more likely than average to have low delinquency rates.

This is not all. Cultural participation also builds bridges across the city's ethnic and class divides. Approximately 80 percent of community cultural participants travel outside their own neighborhoods to attend cultural events--a fact that separates culture from other forms of civic engagement. Neighborhood improvement groups, town watches, home and school associations, and youth groups draw a lot of volunteers, but generally people contribute their time to such organizations in their own neighborhoods. Because innovation and excellence are the foundations of cultural expression, however, people are often willing to leave the confines of their neighborhoods to search out new and stimulating cultural experiences.

This regional audience for community arts reduces social isolation and builds connections across divides of ethnicity and social class. This combination of a strong local presence and a regional profile is a unique contribution of arts and cultural organizations to a region's quality of life.

Strong communities with a sense of "collective efficacy" that are linked to one another through the regional audience for community arts are the foundation for local economic revitalization. In other words, even though the community cultural sector has a small direct impact on neighborhood economics, it helps put the conditions in place that make that revitalization possible.

What are the implications of this for policy? First, stop trying to turn community cultural providers into flawed copies of larger cultural institutions. Because funders tend to measure a group's "success" by its fiscal and organizational capacity, cultural groups that do a wonderful job of engaging their communities and providing cultural opportunities are likely to get overlooked unless they also build new facilities and expand their programs. But even large cultural organizations that do this often find themselves caught on a treadmill: They build new facilities to attract larger audiences, and then must work harder to increase their earned income to pay for the new facilities. Some large institutions have the capacity to pursue a number of goals at once, but others soon find themselves spending more effort building museum shops than worrying about their programs.

When small community cultural providers are pushed onto the treadmill, however, they quickly deplete any resources they have for other activities, and inevitably must run harder. As they spend more time worrying about their fiscal health, they are frequently forced to spend less time responding to the needs of their neighborhoods.

If you're a community artist who has spent his or her life working in a church basement, for example, the lure of a new space can be overwhelming. But once in the new space, you're less likely to give an unknown playwright a chance to stage her play; better to put on a crowd-pleaser that will fill the seats. And if you're worried about making your mortgage payments, you're less willing to provide free space to a youth group or town watch that needs performance or meeting space.

In the end, a small organization using an old church or a rowhouse can have a larger impact than one that spends its energy building a shiny new theater or exhibition space.

Second, recognize that the major way in which small community cultural providers contribute to the economic development of neighborhoods and cities has nothing to do with them as businesses. Community arts organizations are "successes" when they stimulate broader civic engagement, expand residents' sense of collective efficacy, and strengthen the bridges between neighborhoods. These activities are not only good in themselves, but they lay the groundwork for community revitalization.

Community cultural providers make a tremendous contribution to the revitalization of urban neighborhoods, even though the organizations themselves are not the direct source of economic growth. To treat these groups as lesser versions of larger institutions is to miss the point, and to trade their achievements for mixed-use development projects is a bad bargain indeed.