The trouble with city contracts

The trouble with city contracts

May 13, 2016

In my 27 years at The Fortune Society, there has never been a time when the nonprofit community in New York City has been under so much pressure to achieve results, while restrictions on the government funding we receive continue to increase.

All this while the needs of the populations we serve are escalating.

This is true across all service areas, not just in criminal justice and re-entry, The Fortune Society’s area of expertise.

Approximately 90 percent of Fortune’s total annual revenue comes from 80 public and private contracts. Key to our success has always been maximizing the impact of these government grants by leveraging funding from multiple sources to pay our staff and cover Other Than Personnel Services and indirect costs. However, in recent years, this has become ever more difficult and near impossible in many cases, because there are so many restrictions on the use of government funds.

In many cases, we must report staff “time and effort” on contracts, meaning the only staff members who can be covered under the contract are those that serve clients who fit the eligibility criteria for that particular program. This complicates human resources procedures and significantly increases the time that staff must spend on reporting and administrative tasks, reducing their capacity to serve clients.

We are also seeing more and more city contracts that define client eligibility very narrowly, such as by ZIP code, age, or, for instance, parole status. This siloed approach limits our ability to maximize our impact and meet the needs of clients.

The reality is that the populations we serve are very transient; many are “couch surfing” and might be staying with family or friends in Brooklyn one month, and the next month living in the Bronx.  Fortune’s funding should not be restricted simply because those we serve do not yet have a stable address or because their place of residence is outside the specific ZIP codes allowable under the contract.

In addition, contracts – especially city contracts – are consistently executed late. Right now, we are actively providing services and incurring costs on contracts whose renewals have yet to be executed. Many of them had a start date of July 1, 2015. The result? We cannot submit vouchers for payment and we cannot be reimbursed. When contract execution is delayed and we end up being paid late or not all, we have to draw down our line of credit, incurring significant interest that grows our debt.

Overall, many city contracts do not pay the full cost of providing services and achieving the outcomes that we are expected to achieve. That alone puts Fortune in a position of deficit spending, as we need to subsidize these contracts with other funds.

In addition, city contracts also limit funding for indirect costs. While we have a federally-approved indirect rate of 19 percent, too many city contracts restrict our indirect rate to 10 percent or as low as 5 percent. This means limited funding for infrastructure, information technology, evaluation and quality improvement, human resources, finance and executive management and oversight. These infrastructure costs continue to multiply each year, as we continually need more sophisticated equipment and technology, along with highly skilled staff, to manage these growing demands.

Lastly, as the minimum wage rises to $15 per hour – and Fortune supports this effort – government contracts must increase the salaries for front-line staff immediately so that nonprofits can handle the payroll increase.

Like Fortune, other nonprofits in New York City are struggling to effectively manage and maximize limited resources. City contracts are making this effort all the more difficult.

As charitable organizations, we are mission-driven. Fortune exemplifies this mission-driven focus, as we have evolved holistically to meet the needs of the men and women coming through our doors. This commitment to comprehensively address the complex needs of people with criminal justice histories and to serve anyone regardless of the nature of their criminal record is core to Fortune’s identity and mission. And we do this whether or not our approach fits the ever-narrowing eligibility rules on government contracts. This is why we are so effective.

A recently published Human Services Council Report, “New York Nonprofits in the Aftermath of FEGS: A Call to Action,”captures many of these problems in detail. The report emphasizes that government contracts rarely cover operating costs and provide payments late and unpredictably, resulting in cash flow obstacles and chronic underfunding.

If we, as nonprofits, are expected to meet the expanding demands of the people we serve in the most effective and efficient way possible, while continuing to innovate and improve on the work we do, it is imperative that we be given greater flexibility in the use of city funding, rather than increased restrictions and more demands on our limited resources.

The nonprofit world in New York City is at great risk right now. If nothing is done to change this onerous system, I am afraid we will see more nonprofits – like FEGS – unable to keep their doors open – resulting in fewer services available to New Yorkers in need, while the crises of poverty, homelessness, and reentry continue to escalate.

JoAnne Page is president and CEO of The Fortune Society, an agency founded in 1967 to help incarcerated and formerly incarcerated individuals. These comments were prepared as part of her testimony at the April 4 hearing of the City Council’s Committee on Contracts.

JoAnne Page