Thursday, May 3, 2007

Economic Development: What Do We Spend and Is It Worth It?

At the onset, let me say that the issue I am about to raise is a thorny one, and not one any of us is presently well equipped to answer.

Are we investing enough in economic development, and is the investment we make worthwhile?

As I look at the nonprofit side of economic development alone, I am struck at how little we know about the characteristics of the organizations working in our field. Shame on all of us. We should be doing a better job in this area.

It strikes me that the vast majority of nonprofits working in the economic development field are small organizations trying to tackle a "big cause." Yes, it is true that a large number of governmental organizations also serve the economic development needs of areas, but for now let's look at just the private nonprofit side of the ED industry. At another point, we can examine governmental ED organizations.

It is not uncommon to find a network of let's say 13 nonprofit ED organizations (usually one or two bigger ones and several much smaller ones), perhaps with a combined annual operating budget of $20 million and a combined staff of 120 people, working to strengthen a $200 billion urban county economy. Is that too much, about right, or not enough? Hard question to answer in the abstract.

Here are three better questions we might ask:

1. What should we include in our definition of an ED organization? Do you include the total budget of a chamber of commerce or just the direct ED budget of the chamber? Do you include your regional technology council? (And yes, in a comprehensive accounting study of the field we would need to include the governmental ED organizations.)

2. What impact are we trying to have on a local or regional economy? How many jobs and what type are we trying to grow? How much do we want to add to total county or regional economic output on an annual basis? These are just two of many questions we might ask.

3. Is the investment (annual operating) made in EDOs sufficient to attain their intended local or regional impact? I dare say that most areas would have a hard time answering these three questions with any degree of precision.

Recently, I reviewed a list of the top 100 nonprofits in America. No, economic development did not make the list. One reason why we are not included is we do not follow a national model like United Way or the American Cancer Society. Most of the organizations on this list have local organizations on the ground in cities and counties across the country. For example, United Way has local organizations in most counties and regions.

Where does economic development, as a field, stand compared to the fields (education, healthcare, poverty, food, environmental conservation, etc.) served by organizations on this top nonprofit list. Perhaps it is time we as leaders in the economic development field think about the scalability issue and whether we should do something about it.

Let's start with the question of whether what we do is important. A better question is: How important is what we do? If what we do is so important, perhaps it makes sense to increase the scale of what we do. Again, back to my original question: Are we investing enough? And as a follow-up question I would add: Are we spending enough on the right things that will make the greatest difference in local economies? Just adding to the number of organizations at the local or regional level is not the answer. As many studies have shown, we have too many organizations now that tend to operate in a decentralized and loosely coordinated manner.

For starters, there is no comprehensive accounting on how many ED organizations exist, how much is spent annually by these organizations, and what collective impact they have on economic conditions in American communities. This would be a daunting task, to say the least, but maybe we should be doing better research on the EDO industry and its collective impact.

Before you decide to run off and do an economic impact study on your organization's efforts, let's talk about this issue a bit. Some perspective can be helpful before we start thinking about the scale issue. Let's look at some basic facts about the top 100 nonprofits nationally. These are national organizations, but let's look at their size and characteristics. I will share a few insights from the 2006 Top Nonprofits list published by The Nonprofit Times (NPT). You can download the full report here.

In the 18th annual NPT 100, the buy-in to make the list was $130.77 million, up from the $115.27 million it took to make it onto last year’s list. Overall, total rev­enue for the 100 organizations was $58.99 billion, compared to $49.7 billion last year, a difference of almost 18 percent, and nearly double last year’s 9.8 percent increase. Public support also was up nearly one-third among the 100 nonprofits,up from $23.1 billion to $29.4 billion. (Note: These revenues represent the budgets of the national organizations and not the collective budgets of all their state and local affiliates.)

Here is a list of the 25 largest from the Top 100 list (2005 $ Income):

1 YMCA of the USA, 5,130,851,000
2 Salvation Army, 4,559,292,000
3 American Red Cross, 3,888,172,726
4 Catholic Charities USA, 3,286,072,070
5 Goodwill Industries International, 3,022,623,000
6 United Jewish Communities, 2,948,891,000
7 Memorial Sloan-Kettering Cancer Center, 1,789,954,000
8 Boys & Girls Clubs of America, 1,329,349,168
9 AmeriCares Foundation, 1,316,498,349
10 Habitat for Humanity International, 1,021,837,686
11 American Cancer Society, 977,851,000
12 Nature Conservancy, 918,403,961
13 World Vision, 901,661,000
14 Planned Parenthood Federation of America, 866,100,000
15 Gifts In Kind International, 860,480,186
16 Feed the Children, 851,964,213
17 Volunteers of America, 839,435,494
18 Boy Scouts of America, 836,012,000
19 National Easter Seal Society, 833,706,602
20 Food For The Poor, 781,838,931
21 Girl Scouts of the USA, 737,141,253
22 Catholic Relief Services, 707,894,000
23 Shriners Hospitals for Children, 705,002,000
24 CARE 624,414,00025
25 American Heart Association, 589,862,099

We do not have the facts to adequately address the issue I am raising here, but I believe we need to think about the scale issue as we examine future strategies to strengthen the health of local economies.

As you look at the above list of 25 nonprofits, should economic development be a $5 billion industry or a $500 million industry? How big are we now from an income or revenue perspective? If we assume that the 362 metro areas across the US spend on average $10 million annually on economic development, then we are looking at a $3.62 billion industry in metropolitan America. And yes, some very large areas spend far more than that, and some smaller MSAs spend much less than that. This does not include the large number of ED organizations working in non-metro areas. And once again, it does not include the budgets of governmental ED organizations.

What's my point? I think we need to know our industry better in the future, and we need to find a more worthwhile way of relating investments in ED organizations to the scale of the challenge we seek to tackle. As leaders in this field, we must work toward better answers to these key issues that will determine our future success.

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