Advocates have long argued that the economic benefits of the arts and culture provide a firm rationale for public support. Recent scholarship on the "creative class" and "creative economy" is simply the latest effort to link cultural expression to community prosperity. In contrast, the social benefits of cultural engagement have received relatively little attention, even though -- as we shall see -- they provide a stronger case. We need to avoid a simplistic either-or choice between the economic and social impacts of the arts. People who live in our cities, suburbs, and countryside are simultaneously consumers, workers, residents, citizens, and participants. Culture's role in promoting community capacity and civic engagement is central to its potential for generating vital cultural districts. To separate the economic and the social impacts of the arts makes each more difficult to understand. This document provides an overview of the state-of-the-art literature on culture and urban revitalization. In Part 2, we place the creative sector in contemporary context with a discussion of three social dynamics. The "new urban reality" has restructured our cities by increasing social diversity -- fueled by new residential patterns, the emergence of young adult districts, and immigration; expanding economic inequality; and changing urban form. Shifts in the economic and political environment have changed the structure of the creative sector. Finally, the changing balance of government, nonprofit, and for-profit institutions in social policy development -- the shift to transactional policymaking -- has profound implications for cultural policy and the creative sector broadly defined. These three forces -- the new urban reality, the changing structure of the creative sector, and the emergence of transactional policy-making -- define the context within which culture-based revitalization takes place.