An interesting article in the New York Time today describes various cities’ efforts to get money out of their nonprofits.

It strikes me that when municipal governments start looking to local nonprofits for help with public sector financial problems the end of civilization cannot be far off. What’s next, the mayor standing in line at the soup kitchen?

This phenomenon reminds me of a story I heard from a client who worked for a tech company. He claimed he could track his company’s fortunes by the prices at the soda vending machine in the lunchroom. When he first started at the company the vending machine was left open and the sodas were free. As the economy tightened a modest charge was imposed at the vending machine, basically to cover the cost of the drinks. “But,” he told me, “when they raised the prices again and I figured out that the vending machine was now being viewed as a profit center, I knew the company was in trouble.”

Viewing nonprofits as a revenue source for local government strikes me as the “vending machine as profit center” way of thinking.  The entire tax system is off, yet we look to nonprofits rather than to tax reform. The U.S. has the highest corporate tax rate in the world – yet many large companies pay nothing at all. Let’s look to close those loopholes before we start asking the local community hospital to contribute to the city’s coffers.

The President’s bipartisan task force on deficit reduction is having a hard time coming to consensus. No wonder.

Aside from the politics there are just no good choices for reducing our nation’s indebtedness. Raise taxes generally and you hurt the recovery.  Raise taxes on the rich and you incur their wrath and mobilize an onslaught of lobbyists. Cut spending and you hurt the recovery plus a lot of people who are in need of government services ranging from unemployment insurance to mental health care.

What’s the President to do?

One approach that is sure to be included in any agreement is to delay implementation until the economy improves. By the time that happens we will be a lot further in debt, but any draconian moves will be less damaging.

Another approach, recommended by economists, is to ignore the debt per se and focus instead on growing the economy so that the debt becomes a smaller percentage of GDP. This is how we have dealt with it in the past. Robust economic growth coupled with modest reforms could do the trick.

Lost in the debate over the deficit is the role our nation’s nonprofits can play in bringing about economic growth. If the engine of employment is small business, most nonprofits are local, community-based employers of anywhere from one to a couple dozen people. Increased funding for essential services such as homeless shelters, food banks, and counseling programs achieves a trifecta of economic benefits.

First, most of many local nonprofits’ budgets are devoted to human resources so any new money coming in is instantly translated into new jobs, and those workers pay taxes.

Second, newly hired nonprofit workers help their fellow Americans deal with the consequences of the poor economy. Whether it is finding a stable living situation or putting food on a family’s table, most nonprofit programs involve helping their clients through increased economic activity. Renting an apartment or providing a service enhances a community’s economic output.

And third, safety net services provided by nonprofits help government at all levels to avoid expenses.  For example, mentoring programs or other support services provided by nonprofits benefit adolescents  – who might have struggled with an unplanned pregnancy or juvenile detention in the absence of those nonprofit services – and save the state tens of thousands of dollars in related health, welfare, and police expenses.

Unspoken in my argument above, but equally important to our country’s well-being, is the alleviation of suffering nonprofits deliver to our society.

The bottom line: added investment in our nation’s nonprofit service providers will yield immediately increased employment and other economic activity plus long term reductions in cost. It is not the total solution to our economic mess but it is a step in the right direction.