Scrambling to solve the human services sector’s fiscal crisis

Against the backdrop of looming federal cuts and tightening budgets at the city and state levels, human services providers are scrambling to find ways to respond to the worsening fiscal crisis. 

But the situation isn’t entirely hopeless, experts say. 

Among the potential solutions for these nonprofits are applying pressure on the city and state to fully fund government contracts while speaking with one voice and presenting strong data to help draw attention to the seriousness of their plight within a sea of competing priorities. 

“Because of the federal challenges that we have, right now it’s about immigrants and protecting and sanctuary cities, because that is our number one. But how can we be a sanctuary city without you?” New York City Council Finance Committee Chairwoman Julissa Ferreras-Copeland said at an April 17 forum hosted by The Center for an Urban Future. “There is no way that our city can sustain the protections and sustain the partnerships that we have with our constituents without the nonprofits in our area.” 

Ferreras-Copeland, whose committee oversees New York City’s $82 billion budget process, put the current challenges in a historical context by reminding the audience that when she was first elected to the council in 2009, the city was in “crisis mode” as a result of the Great Recession, and priority was given to funding direct services like the programs nonprofits offered to those in need, as opposed to funding indirect administrative costs, often labeled overhead. 

“So if your rent goes up – not a direct service. If you need to hire more people, wasn’t considered a direct service,” she said. “So I think that’s what we need to undo, is all of those years of not funding direct services, of not funding the support.” 

Jonathan Bowles, the executive director of Center for an Urban Future, moderated the “Heading off NYC’s Human Services Crisis” forum. Other panelists included Jennifer Jones Austin, CEO and executive director of the Federation of Protestant Welfare Agencies; Larry Lee, executive director of Womankind; Allison Sesso, executive director of the Human Services Council of New York; and Frederick Shack, chief executive officer of Urban Pathways. 

Nonprofit providers on the panel cited escalating rent, health care and technology costs, coupled with new overtime regulations and the need to cover minimum wage increases as just some of the factors weighing on their budgets as they work to deliver the services that government contracts often pay just 80 cents on the dollar to provide. 

To help address this, the Human Services Council, an umbrella group that represents about 170 social services organizations, has argued for including cost escalation clauses in contracts to guarantee that funders would adjust payments to reflect cost increases – usually related to inflation – that are out of either party’s control.

Another proposed solution would be the full and consistent implementation of the federal Office of Management and Budget’s uniform guidance. That would allow nonprofits to spend a previously negotiated percentage of the grant’s funds on overhead expenses. Typically such an indirect or overhead rate is around 10 percent of the full grant amount and applies to any grant that contains federal dollars.

Instilling a comparable standard overhead rate across all contracts would also provide significant relief – but require difficult trade-offs, said Sesso.

“Either the city has got to come up with more money to pay for that, or they’ve got to actually buy less services,” Sesso said. “The current dollars have got to serve less people, because they’re going to take some of those dollars and apply it to the indirect rates that aren’t currently being funded – which will make the solvency rate of the nonprofits better, but in the short term, it’s problematic.”

Shack, whose nonprofit serves about 3,000 homeless and formerly homeless individuals annually, agreed. 

“It’s totally doable,” said Shack. “It’s not about whether or not there’s enough money, it’s about how we spend the money that we have.”

However, nonprofits also have to provide the City Council with more clarity regarding what the base cost is for various services, Ferreras-Copeland said. What qualifies as a direct or indirect cost can vary from service provider to service provider and even from contract to contract. But working to gradually define parameters and set cost standards as contracts come up for renewal is one thing City Council members could work with nonprofits to do to help solve the challenge of accurately assessing how much contracts should actually pay.

“As elected officials, we don’t know what your costs are essentially for the day-to-day, what we know is what you are asking for for funding,” Ferreras-Copeland said. “You need to empower us with the information and the data so that we can make an effective plan.”

Jones Austin acknowledged this and stressed that when advocating for their needs, nonprofits must “bring their A game.”

“Frankly, we go in with anecdotes, but the city is not going to give 500 million dollars to the nonprofit, no matter how hard we try, based on anecdotal information. They want to see the hardcore numbers. They want to see it aggregated,” Jones Austin said, referencing $500 million that nonprofits have been seeking from the de Blasio administration to cover a 12 percent increase in human services contracts via a recent campaign titled Sustain Our Sanctuary. “Even though we’re struggling (financially), we have to get better at that.” 

The City Council’s response to Mayor Bill de Blasio’s preliminary budget proposal included a request for a comprehensive review of contract costs to “ensure that all of the city’s human service agencies engage providers under terms that are fair and sustainable.” The council estimated it would cost $4.6 billion in the upcoming fiscal year 

Key to implementing any of these improvements will be harnessing the strength of the sector by encouraging nonprofits to present a united front. Jones Austin cited the recent wage increases that direct care services professionals worked together to win at the state level, and recalled how difficult it was to encourage New York City nonprofits to join a similar advocacy effort in Albany.

“We may not be a union, we may not be organized in that respect – but we have to stand together like we are, and not be picked off,” Jones Austin said. “And then they’re going to respond.”

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