Non-Profit’s, DC’s Biggest Moneymaker
By Eli Lehrer and Christian Robey

(A version of this On Point Memo appeared in the June 30, 2009 edition of the DC Examiner.)

Public Charities—organizations that do everything from advocating for wildlife to supporting stronger national defense—are the heart of Washington, D.C’s private economy. If the District wants a healthier economy, it has to do more to treat them like the economic drivers they are.  

The numbers tell the story. The District has 8,200 non-profits and they account for a third of the District’s overall economy (more than retail, restaurants, and law firms combined), provide over 100,000 jobs, and bring in $25 billion in government revenue. If D.C. wants to reduce poverty, cut its near-10-percent unemployment rate, and get out of the recession ahead of the rest of the country, it should focus on improving things for the area where it’s already strong: because it’s home to the federal government D.C. has more non-profit jobs than any city of similar size.

Most District officials would probably acknowledge the importance of the non-profit sector but they do it in the wrong way. Under current policies, D.C. focuses on giving money to a select few non-profits that are politically favored: according to the D.C. fiscal policy institute, 130 non-profits got a little less than $25 million in earmarked grants.  This is a waste. Plenty of legitimate government functions might well be accomplished by non-profits but the practice of propping up a few favored ones leaves a lot to be desired. When the District funds non-profits, it should make them compete.

Rather than sending them money, D.C. should recognize the importance of non-profits to the city economy and cut things that keep them away. It could start by actually making them welcome. Right now, the District doesn’t do that when they register. (All states, like D.C. require registration for all charities.) D.C. makes registration really hard. Registering in Virginia requires two steps and one form. Maryland requires the same.  D.C. requires  9 steps and 6 forms..  In both Maryland and Virginia, all the forms are located on one user friendly webpage. In D.C., an applicant is directed to fill out the multiple forms on different websites, and in the case of one of the forms, the registrant has to physically go to the Department of Consumer and Regulatory Affairs. 

The District government should also look at ways of reducing non-profit businesses costs, as well.  Most non-profit organizations don’t want “high-image” plush office space (in fact, many would probably lose donors if they spent on it.) Instead, they want lower rents. And those aren’t available in the District. According to a 2007 Staubach Company study the DC market costs far more than others in the region. And a lot of this difference comes from D.C.’s vastly higher taxes. D.C. charges over $11,000 a year in property taxes for a 1,000 square foot downtown office a non-profit might want. In Crystal City, about the same distance from the capital as downtown, Arlington County demands less than $3,000.  As a result, Northern Virginia now has somewhere around 30,000 non-profit jobs –and many of them that want to be near the centers of power that are located in the District and might move if the District made it simpler. Of course, lower property taxes would have similar benefits for any other type of business that wants to locate in the District.

D.C. has to recognize the power of its non-profit sector. And, to do that, it should give non-profits the freedom from excessive taxes and regulation that nearly all businesses want.

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Eli Lehrer is a Senior Fellow at the Competitive Enterprise Institute, and Christian Robey is President of DC Progress, a DC focused think tank

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