Can nonprofit organizations boost a regional economy?

February 10, 2013

The impact of a nonprofit is frequently gauged by the reach and effectiveness of its services. But beyond their power to help and support a community, can these organizations provide fuel to rev a regional economy?

In Montgomery County, at least, a new report concludes that nonprofit groups have indeed played an important role in boosting the labor market and the broader economy, a finding that the study’s sponsors hope will inform policymaking and corporate strategizing in the community.

“In an environment where you see the federal government potentially shrinking contract dollars, it’s going to be very important we look to all sectors for possible expansion,” said Steven Silverman, director of the Montgomery County Department of Economic Development.

While Montgomery County sees value in supporting the growth of its nonprofit industry, there is some evidence that the sector has limited power to lift an economy.

Daniel J. Mitchell, an economist at the libertarian Cato Institute, said the strength of nonprofits depends on conditions in the business community.

“Nonprofits require a healthy private sector to exist,” Mitchell said.

Because nonprofits tend to provide services rather than produce goods, their contribution to the economy can be less certain.

The report shows that nonprofit workers in Montgomery comprise 10 percent of the county’s labor force and earned a collective $2.2 billion in wages in 2011. Many of those dollars, researchers say, are spent at local businesses.

And while such enterprises are focused more on executing their mission than on raking in big money, they still consume goods and services just as a private sector company would. They also hold events and conferences, which can create spending and bring visitors to the county. For example, the Jewish Council for the Aging of Greater Washington said it paid $100,000 to the Bethesda North Marriott Hotel & Conference Center and about $45,000 to other county businesses for expenses related to its annual awards dinner.

‘No different’

The study, produced by Nonprofit Montgomery, with sponsorship from the Montgomery County Department of Economic Development and the Department of Health and Human Services, found that the county’s nonprofits have $4 billion in purchasing power.

In this respect, “they’re no different than any other business in the county, and we should be supporting their growth,” Silverman said.

Silverman said his agency has previously tailored its assistance measures for cybersecurity, life sciences and green technology businesses, so it could plan to do the same for nonprofits.

“What we’re trying to do is understand whether there’s any unique needs they may have, the same way we’d look at any other industry,” Silverman said.

The nonprofit sector showed resilience in Montgomery County during the recession and the tepid recovery, consistently adding jobs even as many private sector and government employers shed them. There were 43,371 nonprofit employees in the county in 2011, up from 39,769 in 2007. That increase comes as the total number of employees in the county dipped to 447,755 in 2011 from 459,313 in 2007.

In addition to providing jobs and generating spending, the report found that the county’s nonprofits can support economic expansion in indirect ways.

The Montgomery Coalition for Adult English Literacy, which serves 20,000 learners in the county each year, is one such organization. Kathy Stevens, the Rockville-based nonprofit’s executive director, said its services have enabled students to qualify for a job, fill out an application or even simply navigate the bus system, all of which can boost one’s chances of earning wages.

“English really proves to be one of the key starting points for people to be able to manage their lives and get off a safety net,” Stevens said. “It’s a key skill for jobs, it’s a key skill for daily living.”

It’s not just job preparedness organizations that can have ripple effects on the economy. Arts and culture nonprofits have the ability to drive consumer spending. In addition to what a patron might spend on admission to an arts event, they frequently rack up related charges such as meals, souvenirs, transportation and lodging. These event-related expenses totaled $74.3 million in Montgomery in 2010.

Montgomery County is an especially hospitable climate for nonprofits to thrive, thanks to its relatively low unemployment rate and its affluence. But Mitchell said a focus on growing the nonprofit sector might not make as much sense in a different municipality where there’s not as much wealth or where the labor market isn’t as solid.

Sarah Halzack is The Washington Post's national retail reporter. She has previously covered the local job market and the business of talent and hiring. She has also served as a Web producer for business and economic news.
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