Study Underlines the Economic Power of Nonprofits

By Zamná Ávila, Assistant Editor

For many people the term “nonprofit” canotes a beggar organization for the needy. That’s misleading according to a recent report.

The Long Beach Nonprofit Partnership commissioned a study, The Power of Nonprofits: Engines of Growth, an economic impact report that builds upon the ground-breaking 2007 study, Nonprofits: Profitable Partners for Long Beach, which analyzed the economic impact of local nonprofit organizations on the local economy. The recent report focused on the economic impacts on Long Beach and surrounding communities.

For example, the 7,500-member Boys & Girls Club of the Los Angeles Harbor, which is comprised of 202 paid positions and 600 volunteers, serve about 2,250 at-risk children a day. With this workforce, the organization provides quality services and programs in a safe environment.

“In addition to the hundreds of jobs we provide in San Pedro and Wilmington, from entry level to executive, we offer comprehensive after school programming for only $25 for the entire school year,” said Kimberly Caballero, a spokeswoman for the organization. “This includes everything from afternoon supper and homework help to enrichment activities that help our kids develop their strengths and talents. We focus on helping our members plan for the future to be productive members of our community.”

But few people see the ripple effect the nonprofit has on the economy.

“The key take away is that the nonprofit is a key factor in the economy,” said Lisa Grobar, one of the authors of the report. “The contributions nonprofits make to the economy are not insignificant. That is not even mentioning the social impacts.”

The report, completed in September, found that every member of the communities studied had some type of contact with a nonprofit organization. In fact, nonprofits have proven to be resilient though recent recessions, the author’s of the study state.

“Our objective was to dig in and document employment and spending in the local economy,” said Lisa Grobar, one of the authors of the report. “The government gives us a lot of data on employment … but the government doesn’t publish data on nonprofits. That’s the motivation for the study.”

The report found that nonprofits substantially contribute to local economies in Southern California, help communities thrive, bring money from the outside, and keep dollars in communities by employing workers and purchasing goods and services.

Researchers defined nonprofits as charitable organizations designated as 501 (c) (3)s under the federal tax code for the study, excluding private foundations, religious institutions and professional associations.

The board of directors of the Long Beach Nonprofit Partnership commissioned the report. Cal State Long Beach’s Economics Department researchers generated the report, specifically Grobar and Joseph P. Magaddino.

“The great thing is that we had really great source,” Grobar said. “Every nonprofit has a 990 with the IRS and it is made public … which is exactly the raw data we need.”

The researchers used 2012 data and surveys completed in 2013 to prepare the report. They used an economic model to calculate the multiplier effect. Researchers also used the surveys to identify the service area, the ethnic area and socio-economic categories of clients. Eighty-eight Long Beach organizations responded to the survey. About one-fifth of the respondents indicated that 95 to 100 percent of their clients are low-income.

In Long Beach, 417 nonprofits were surveyed in 2012. The study was divided into eight categories: Human Service, Health, Community Improvement/Social Justice, Arts & Culture, Education/Training, Youth, Housing Shelter, and Animals & Environment. Nonprofits account for 10 percent of the workforce (about 19,230 or about $687 million in payroll).

The average payroll is about $35,712 for all nonprofits; the average payroll for Long Beach is $50,968. The total direct spending impact in the city $2.7 billion for nonprofits.  Hispanics and youths are among the most served groups.

Nonprofits employ a variety of workers and generate indirect jobs as they spend on legal, accounting, technology and other professional services. Out of the 81 organizations surveyed 60 percent said they plan on increasing their hiring in the near future.

Nonprofits’ $2.7 billion in expenditures have a domino effect that creates more employment and spending in the Long Beach area. When nonprofits spend on goods and services they indirectly create jobs and further spending into the local economy. In Los Angeles County, the total economic impact is about 42,000 jobs, more than $2 billion of labor income and total spending of about $4.9 billion.

The nonprofit health care industry is the anchor, mainly because of all the hospitals in the city.  Health care nonprofits spent about $3 billion and employed about 9,000 workers. That’s 82 percent of all nonprofit spending and 47 percent of all nonprofit jobs. When health care is defined broadly to include mental health and research, employment figures rise to 10,637 jobs.

In addition, researchers looked at 436 nonprofits in 17 communities in South Los Angeles: Artesia, Bellflower, Carson, Cerritos, Compton, Downey, Harbor City, Hawaiian Gardens, Lakewood, Lomita, Lynwood, Norwalk, Paramount, San Pedro, Signal Hill, South Gate and Wilmington.

The report found that there were 11,370 nonprofit jobs in those communities. Payroll for these jobs summed up to about $346 million, with a total labor income of $407 million — the difference represents spending on employee benefits. The proportion of benefits in total labor income is smaller for the nonprofit sector than the economy as a whole: 18 percent versus 30.9 percent for the U.S. economy. Direct spending in the 17 communities is about $666 million.

Health care nonprofits in the 17 communities spent $830 million and employed more than 4,808 workers, which is 76 percent of all nonprofit expenditures and 42 percent of all nonprofit jobs; mental health and medical research pushed the numbers to 5,289 jobs.

The report section, which focuses on the 17 communities, shows that fee-for-services is the largest source of funds, followed by individual donations and foundation grants and miscellaneous fundraising. The direct value of the total spending of those nonprofits is $1.586 billion.

Nonprofits support a total of 21,579 jobs, generating labor income of $1,008 million in the 17 communities. They also support spending on goods and services in the county. At least 50 percent of all nonprofits surveyed (42 respondents) stated that near future hiring anticipation, concluding that the nonprofit workforce is the third largest in the United States and accounting for 10.1 percent of the nation’s total private employment. Eighty-three percent of the organizations surveyed stated that 83 percent of their clients were low income. Of those, 95 to 100 percent indicated that their clients were low-income. Similar to Long Beach, the highest categories of clients served in the 17 communities were Hispanic youths and the lowest were LGBT Native Americans.

Toberman Neighborhood Center, for example, is a non-profit community-based organization committed to assisting Harbor Area families and individuals through literacy programs, mentoring, food distribution and volunteering.

Yet, there are secondary ways that may not be so apparent as to how the nonprofit helps the community, such as English as a second language. A volunteer routinely teaches English as a second language. Community members later can use that skill to help them get promoted or employed, which in turn allows them to spend more on goods and services, and contribute to the well being of the economy.

Toberman also has about 20 full-time workers in different positions, and about six part-time workers, not counting the 10 to 20 volunteers. Again, those employees bring back their working dollars into the economy.

And then, there are the businesses and people with whom nonprofits do business such as banks and mechanics, who also circulate their income into the economy.

“Every time one of our clients gets food at the Toberman food pantry and/or meets with one of our case workers, they are a little better off,” said Bill Keenan, Toberman’s director of finance and operations.