Nonprofits Bad for Business, Says City Councilor

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