Not all nonprofits are created equal

December 9, 2013 

Last month, the Central Coast Economic Forecast released a study showing that local nonprofits had nearly $800 million in economic impact in 2012. The findings of the study are simultaneously encouraging and concerning.

In the spirit of full disclosure, I was involved with others in the design of the study, especially in the design and promotion of a questionnaire distributed widely to nonprofits. Others collected the data and wrote the draft report. I reviewed a draft of the final report and passed along to the researchers some of the following.

One observation I made was that the impact of nonprofits on the local economy is impressive but understated in the final report by about $260 million. The researchers used IRS Form 990s because of the low response rate from nonprofits to the survey. Form 990 data is reliable and publicly available. The limitation is that the report included the Form 990s of nonprofits headquartered in San Luis Obispo County, as defined by the ZIP code of the main office, and excluded those that operate in the county and report through a headquarters office elsewhere.

Numerous affiliates and chapters of national and regional organizations conduct activities that positively impact the quality of life locally but are headquartered elsewhere. Because of the way information is reported and analyzed, it is difficult to measure the economic impact these organizations are having locally. Some examples of these are Alzheimer’s Association, American Red Cross and Special Olympics.

Falling in this same category are the two Dignity Health hospitals in San Luis Obispo County: Arroyo Grande Community Hospital and French Hospital Medical Center. The information for these two nonprofits is reported through Dignity Health in San Francisco and isn’t included when data for local nonprofits are pulled by ZIP code. However, hospitals must report information to the state of California, and these two hospitals report annual expenditures of $154.4 million (http://siera.oshpd.ca.gov/FinancialDisclosure.aspx). French Hospital Medical Center in San Luis Obispo is the largest nonprofit in the county, and Arroyo Grande Community Hospital is the third largest.

The Economic Impact Study includes expenditures of $416.4 million in the calculation of the total impact. Add in the expenditures of nonprofits operating in SLO County but headquartered elsewhere and the total economic impact exceeds $1 billion.

Nonprofits, in other words, account for about 10 percent of the local economy, which is similar for nonprofits nationwide.

Three things are concerning about the study. First, although appropriate, the report lumps all nonprofits together, much as sector reviews typically lump all participants together. Nevertheless, it is wrong to consider all nonprofits to be alike. For example, it’s hard to believe that French Hospital Medical Center is the same as the rabbit rescue organization run out of volunteers’ homes, which leads me to my second concern.

The concentration of resources in the 10 largest nonprofits is actually worse than the study found because of the addition of the two local nonprofit hospitals. Seven out of every 10 dollars of economic activity are concentrated in the top 10 nonprofits. The next 620 or so organizations account for 27 percent of the spending.

The report states that approximately half the nonprofits operate on $30,000 or less per year, or about 3 percent of all spending by nonprofits. How many organizations are sustainable? Which ones would you get rid of? Is your list the same as your neighbors?

Last, if your list is different from your neighbor’s, we must let market forces do their work. Let’s say you don’t eat at Italian restaurants because you don’t like the cuisine. You don’t dismiss all restaurants; you patronize the restaurants you like. If enough people don’t eat at a restaurant, it changes its menu or goes out of business. Let market forces help shape the nonprofit sector. If you don’t like one nonprofit, don’t support it.

The report points out that nonprofits add to the quality of life in San Luis Obispo County. Economically, the sector is important. Nonprofits need your support, both financially and as a volunteer. Pick one that you value and get involved. All of us benefit.

Barry VanderKelen recently retired as executive director of The Community Foundation San Luis Obispo County.

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