BALTIMORE – After 55 years of renting pricey office space in Manhattan, Jonathan Frerichs says he’s glad his organization settled on a permanent headquarters overlooking Baltimore’s famed Inner Harbor.
So are the city’s economic development officials, who helped secure a bundle of incentives, including grants and loans, to lure Lutheran World Relief and its 40 jobs to Baltimore and away from Minneapolis and Philadelphia, two other cities under consideration.
Even though the charity organization enjoys tax-exempt status with the Internal Revenue Service, officials in Baltimore saw the jobs the organization would bring and the money it would pump into the local economy. Those jobs and the spin-off business that non-profits can generate have made them an increasingly attractive target for Maryland business recruiters.
Maryland’s 25,000 tax-exempt organizations reported about $24.5 billion in annual income, according to a Capital News Service analysis of IRS data on Maryland’s tax-exempt organizations. By comparison, Maryland has budgeted $22.5 billion to run state government next year.
While most of the thousands of tax-exempt organizations in the state are small, local groups that report little or no income — such as a Boy Scout troop or a daycare center — a handful of them are among the state’s largest employers. They include research centers, hospitals, pension funds and charities that report billions of dollars of income each year.
The IRS said 358 tax-exempt organizations reported at least $10 million in annual income in their latest reporting year, which is either 1999 or 2000. Those 358 organizations earned a combined $18.8 billion, or about 80 percent of Maryland’s total tax-exempt earnings.
Of those 358 top tax-exempt organizations, 142 were related to the medical field, including giants like Howard Hughes Medical Institute in Chevy Chase, Johns Hopkins Hospital in Baltimore and the University of Maryland Medical System, which has 6,000 workers.
Medical-related organizations reported a total of $10.2 billion in annual income.
Not all of that money stays in Maryland, however. Some of the tax-exempts are charities like Lutheran World Relief, which have headquarters in here spend their millions elsewhere. Others, like the American Postal Workers Union Health Plan in Silver Spring, oversee millions in pension and retirement funds for beneficiaries across the nation.
But the tax-exempt organizations do have a sizeable direct impact on the state economy. According to a study by Johns Hopkins University — itself a leading tax-exempt — about 200,000 people earned $6 billion in 1998 working at the hospitals, charities and other organizations that make up the state’s private nonprofit sector.
About one out of every 12 workers in Maryland is employed by a nonprofit organization, the Hopkins study said. That’s more workers than employed by the state or federal governments, or in the state’s construction industry.
The impact on Baltimore is even greater. One fifth of the state’s tax- exempt organizations call Charm City home, according to the IRS database. And one in five Baltimore City workers collect paychecks from nonprofits.
Baltimore’s tradition as a center of medical research includes the establishment in the late 19th century of the Johns Hopkins Hospital. Today, Baltimore-based research and teaching hospitals employ more than 20,000 people and also include University of Maryland Medical Systems, Sinai Hospital and St. Agnes Healthcare.
Not all tax-exempt organizations are giant employers. About 40 people work for Lutheran World Relief, which has made its headquarters in downtown Baltimore since 1999.
Tax-exempt organizations can get breaks on paying taxes on income and assets, but that doesn’t present a problem for the National Taxpayers League, as long as the organization is not making a profit by delivering goods and services.
The league draws the line at nonprofits accepting public money directly. That could undermine a group’s independence, especially if the agenda runs counter to government policy, said Pete Sepp, spokesman for the Northern Virginia-based organization that lobbies for lower taxes and fairness in the nation’s tax code.
But if organizations get a tax break on earnings and assets, that’s fine because their employees still pay income taxes, Sepp said. And for big employers that can be substantial.
Tori Leonard, a spokeswoman for the Maryland Department of Business and Economic Development, said tax-exempt organizations create jobs and consume goods just like any other business. And they are often affiliated with national associations, which also may be headquartered in Maryland.
“That gives Maryland some exposure,” Leonard said.
Despite those benefits, however, the department opposed a bill this spring that would have created a statewide nonprofit development program to help nurture along tax-exempt organizations. The bill failed.
“The legislation called for us to do things that we didn’t even do for for-profits,” said Leonard.
But Leonard said her department does not have a problem with the grants and technical assistance given to groups like Lutheran World Relief. She said it makes sense that economic development agencies would go after nonprofit organizations in much the same way a community may court a major corporation to build a plant or relocate its national headquarters.
Peter Berns, executive director of the Maryland Association of Nonprofit Organizations, said Maryland should market itself as a magnet for nonprofit centers. He noted that the state is close to federal lawmakers and agencies whose policies and funding can affect charities, unions, medical and research centers and other special interests that make up the nonprofit sector.
All that courting has paid off in creating jobs in Maryland, Berns said. Employment in the non-profit sector grew by nearly 31 percent from 1989 to 1998, compared to a 7 percent growth rate in the for-profit and government sectors.
“It’s the jobs,” said Berns, whose 9-year-old association has about 1,100 members. “Maryland’s nonprofit sector is a major economic force.”