Nonprofits Bad for Business, Says City Councilor

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January 23, 2011; Source: The Republican | Here's yet another tactic being employed by municipalities in response to the purported "problem" of nonprofits within their borders. In Holyoke, Mass., a city council member has concocted an argument on behalf of the city against Massachusetts Governor Deval Patrick's idea of cutting state aid to municipalities by 7 percent. (70 percent of Holyoke's municipal budget is state funded.)

He plans to create a list of all the nonprofits in the area, proving that Holyoke can’t afford the cuts – not because the lost services provided are essential, but because nonprofits are bad for business.

As reported by The Republican, Councilor Todd McGee believes not only "that it doesn't make sense to cut the [state] funding . . . at the same time that many people from outside the city come here to partake of services at nonprofits from which the city gets no revenue," but – and here's the interesting new wrinkle – that "the case must be made to the state that having so many tax-exempt organizations here handicaps the city in trying to lure in new businesses for which tax bills will be a consideration in deciding where to locate."

Here’s his argument: Too many nonprofits is bad for business and bad for economic development. McGee says he isn’t at the point of recommending payments in lieu of taxes, but Holyoke's mayor, Elaine A. Pluta, is already working on a strategy to do just that.

According to the mayor, almost half of all of the business and commercial properties in the city are owned by nonprofits that do not pay property taxes. Holyoke is just a little behind its all-but-bankrupt municipal neighbor, Springfield, which is working on a scheme to exact voluntary payments in lieu of taxes from nonprofit colleges and hospitals there.

Nonprofit associations have tried to make the argument about the economic contributions of nonprofits to local economies in terms of jobs and wages, and if they're sophisticated, they also make the argument of multiplier effects through purchasing power and even supply chains.

The Holyoke case requires nonprofits to answer – and answer they should – the claim that nonprofits are detrimental for private business development. It would be good to see the nonprofit associations take on that claim, assisted by some solid assistance from economists, and nip this burgeoning anti-nonprofit line in the bud.—Rick Cohen

  • ephraim

    this is a problem many nonprofits face- how to put a dollar value on ROI. if they could, then they could show Holyoke what they bring to the city by being there. with today’s economy, it’s a matter of bottom line- nonprofits have to figure out that amount and bring it to the attention of politicians etc

  • Deborah Davidson

    According to the Corporation for National and Commnunity Service (CNCS), Americans provided 8.1 billion hours of service in 2009, with an estimated value of $169 billion. Many, if not most, of those hours were donated under the auspices of a nonprofit organization: CNCS also tells us that as the number of nonprofits rises in an area, so rises the volunteer rate. These staggering figures don’t even take into account the value of direct services supplied by nonprofits, many of which directly lessen the burden of federal and local governments. Reducing the number of nonprofits per se is not necessarily bad, since too often organizations overlap in their mission and purpose and could do with some judicious analysis of how they cover their area. But to claim that nonprofits are bad for business is to conveniently forget that the services they provide have to come from somewhere…and without them, businesses would have to come up with more taxes to pay for them.
    Deborah Davidson

  • Matt Chapuran

    A pretty simple argument to make would be a review of commercial vacancy rates in Holyoke. If they were at all-time lows, the Mayor’s case would hold some validity; non-profits are holding a place that could be taken by a tax paying entity. But I doubt that is the case.

  • rick cohen

    I suspect that downtown Holyoke isn’t exactly overwhelmed with for-profit commercial tenants squeezed out by nonprofits. Like many small cities in central and western Massachusetts (as we have covered here in the NPQ Newswire regarding Worcester and Springfield, just to mention two), nonprofits are frequently taking and using vacant commercial space that the business sector isn’t exactly chasing. The commercial real estate markets in these small cities have been wracked by shopping mega-malls and office parks, not by the nonprofits that are often using properties that would otherwise be empty storefronts with painted flowers and curtains on their facades.

  • rick cohen

    I am not very persuaded by the volunteer estimates as opposed to analyses of dollars. The imputed value of volunteer time won’t impress local pols and administrators (I used to be one in a mid-sized city in New Jersey). I think we need to better demonstrate the importance of the nonprofit sector (and the health and human services sector) to the economy. Do realize, for example, that the education, health, and social services sector of the economy (as distinct from government) added 680,000 jobs during the recession. Contrary to the views of some entrepreneurs, the functions these people carry out are economic boons to their localities in terms of not only spending power, but suppliers and vendors and much more. As Ephraim noted in his comment, nonprofits have to do a better job in calculating not just jobs, but ROI–or as I would think of it, the credible multiplier effects of the economic impact of nonprofits in a locality.