A new study commissioned by New York’s Nonprofit Coordinating Committee (NPCC) contends that nonprofits pump a massive $43 billion a year into New York City’s $430 billion economy, and that their workforce swelled an employment-enhancing 25 percent in the 1990s, compared with the city’s meager 4 percent job growth. Clearly, the study implies, this nonprofit boom is something to celebrate.
But wait a minute. True, some nonprofits—like museums and universities—draw lots of private-sector spending to Gotham from outside the city. As New York rebounded in the 1990s, for instance, local universities became a magnet for students around the country, and their tuition helped pay for new staff and new construction. Jobs at Gotham’s colleges increased by 20,000, or 35 percent, to about 80,000 from the end of the recession through last year. Students’ spending helped the rest of the economy too. Similarly, as tourism rose to 38 million people in 2000, up from 24 million in 1991, the city museums and concert halls that helped attract them here added about 2,000 jobs, a 30 percent gain to a job sector that now employs more than 8,000 people.
But these institutions account for only about a quarter of the city’s nonprofit spending. Social services and health-care institutions generate the other three-quarters; but instead of bringing money into the city, these groups largely subsist on tax dollars drained from the city’s private economy. Gotham shells out more than $3 billion in taxpayer money a year in contracts to private social services agencies, and the state spends several billion more tax dollars in the city on such agencies. About $5 billion a year in state and city Medicaid expenditures flow to various city health-care nonprofits. That all adds up to $10 billion a year or so that nonprofits get mostly from city taxpayers—hardly an economic boost. Add in $5 billion in federal Medicaid spending in the city, much of which also comes from local residents’ pockets, as well as federal grants to housing groups, social services organizations, and private schools, and the total government spending on this sector may be as much as $20 billion.
The NPCC study’s implicit purpose is to convince policymakers that their member institutions constitute a key economic engine that needs to be fueled. But the real lesson we should draw from the study is that not all nonprofits are created equal, and that what best fosters those that benefit the local economy are safe streets, a welcoming quality of life, and economic vitality, while the steady stream of tax dollars pumped into social services and health-care institutions threatens the city’s economy, consuming rather than creating wealth.