Real Talk: Discretionary awards and the pitfalls to watch out for

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City Hall
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City Hall

Real Talk: Discretionary awards and the pitfalls to watch out for

Here’s what you should know as thousands of nonprofits are scrambling to apply for the latest round of awards.
February 16, 2022

A detailed analysis of New York City's discretionary awards made in Fiscal Year 2018 found roughly 1,000 were made to 550 nonprofits of which 70% got no other support from the city and almost half had budgets under $1 million. So although the awards are tiny – the median is $78,000 and more than one-third are less than $50,000 – they matter a lot to many of the groups that get them. Since the mayor, borough presidents, and two thirds of the city Council members are new, there will likely be very significant changes in which nonprofits get – and which do not get – discretionary awards this year. In fact, thousands of nonprofits are scrambling to meet the Feb. 22 application deadline hoping to keep, or get, an award. Here are some things they should keep in mind.

The money takes a long time to come
As this training video states, discretionary awards are expense reimbursement contacts. “Organizations should have funds on hand to start or administer the program,” the video warns. This is a massive understatement! In most contexts an expense reimbursement means payment within 30 to 60 days of doing the work. This is not true for discretionary awards, where history suggests that nonprofits will have to wait between 1 to 1 1/2 years to actually get the cash.

The paperwork is burdensome
Even for the smallest award, procurement rules require city agencies to develop and negotiate a detailed scope of work, with all the associated paperwork, just as if it were a multimillion dollar award. Since many organizations receiving discretionary awards do not get any other city funding, and most get only one award, this information is often being collected for the first time and cannot be reused.

Any award comes with risk
The long payment delays and burdensome paperwork creates an element of risk for any nonprofit fortunate to receive an award. Many nonprofit horror stories – of missed payrolls, burned out staff, unhappy vendors – start with a grant or contact that seemed wonderful at the time but actually led to the road of ruin. How much risk an award creates depends on the capacity of the organization and how the award is being used:

  • Lowest risk: The award is used to support a program that the nonprofit would have delivered anyway and is already fully funded. While a Council member was probably told that their award “made the program happen,” this is not really true. Yes, the award was allocated to the program but the nonprofit already had the money to pay for it, and when the award is actually paid the nonprofit will use it to bolster reserves.
  • Medium risk: The award is used to offer a one-time program that would not otherwise have happened. In this case, the nonprofit scrapes some money together to pay the one-time expenses and then waits to be reimbursed. Before applying for the award, the organization should know where it will get this money. It could do this by borrowing against the future award or by spending reserves that will later be replenished. Delivering one-time programs with paid staff is difficult because of the effort and cost involved with staff recruiting/training, so one-time projects often involve spending on goods, consultants, etc.
  • Highest risk: The award is used to start a new on-going program for which funding does not otherwise exist. This is the most exciting but also the riskiest. The expenses associated with a new ongoing program are usually staff. So the nonprofit needs to identify the money to pay the new staff while waiting to be reimbursed, and it needs to know where the money will come from after the award has been spent to avoid laying people off when the award is done. 

It will be exciting to see where the next round of discretionary awards will go. Doling them out is an important perk of public office and a vital source of funds for small nonprofits. However, these awards pose risks for the groups that get them and the groups that don’t. Every nonprofit with existing awards that have been used to fund ongoing programs should be making contingency plans for what they will do if these awards do not continue. Nonprofits applying for new grants should think carefully about how they will handle the associated burdens of payment delay and paperwork.

John MacIntosh
John MacIntosh
John MacIntosh is a partner at SeaChange Capital Partners which uses grants, loans and consulting to help nonprofits work through complex financial and organization challenges.
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