Momentum builds to increase funding for nonprofit contractors

An upcoming City Hall hearing comes at the right time for nonprofit advocates who want to channel media attention, and outrage following the release of a report this week by city Comptroller Scott Stringer.

New York City Hall

New York City Hall Photo illustration by Zach Williams

An upcoming City Hall hearing comes at the right time for nonprofit advocates who want to channel media attention and outrage following the release of a report this week by city Comptroller Scott Stringer into definitive improvements for city human services contracts.

The report highlighted an issue familiar to many nonprofits that contract with the city – delayed payments. Ninety percent of new and renewal contracts arrived at the comptroller’s office – the final step in the city procurement process – after their start date, according to the report. Some 10 percent of contracts overall arrived a full year after programming was required to start.

“The city of New York obviously is a huge entity. We owe it to (nonprofits) to pay them as quickly as possible – so I’m not satisfied with the state of affairs.” - Mayor Bill de Blasio.

For nonprofits, this means they must use their own money to begin providing city-contracted services on the start date – and continue subsidizing those programs out of pocket until the city catches up.

Following the report, elected officials blasted the performance of city agencies and called for hearings.

In addition, a New York Post opinion piece blamed the tardy payments on Mayor Bill de Blasio’s lack of a management style and stated: “The price of his indifference to substance is coming due.”

Nearly every contract awarded by the Department of Homeless Services, Human Resources Administration, Department of Education and the Department for the Aging was approved after its scheduled start date, according to the report.

The delays hold up funds for nonprofits that serve society’s most vulnerable and provide – on the city’s behalf – things such as foster care, homeless services, domestic violence shelters and drug rehabilitation.

For many in the sector, it was needed recognition of the seriousness of the problem.

“These delays cost organizations real dollars and impact their ability to function effectively, as nonprofits can't hold off on providing critical community services when city agencies take months to finalize paperwork and register contracts,” reads a statement from the Human Services Advancement Strategy Group. HSASG’s nine membership organizations represent more than 2,000 human services organizations.

To cope with these difficulties, nonprofits sometimes turn to credit lines which draw interest that isn’t reimbursed by the city. At other times, nonprofits cover the costs by turning to donations – or even calling up the city to beg them to move the contract further along in the procurements process.

But speaking out can be tricky because vocal nonprofits are effectively “biting the hand that feeds them” by airing grievances against agencies that fund a large part of their overall budget.

Yet, Kevin Sullivan, executive director of Catholic Charities of the Archdiocese of New York, found a way to make his point at a March 27 hearing of the City Council’s Committee on Contracts. He wielded an empty pizza box and waved his cell phone as an illustration and stated that if a pizza chain such as Domino’s has a smartphone app where he can order, receive alerts, and track delivery, then New York City should be able to implement a more efficient procurements process.

Along with the burden that late payments can place on nonprofits’ budgets, human services organizations have worked to draw attention to the strain caused as nonprofits struggle to pay for expenses such as rent, salaries, benefits and liability insurance – program-related costs that city contracts often don’t fully cover.

These costs have contributed to a long and documented decline in the fiscal health of the sector, with the March 2015 collapse of Federation Employment and Guidance Services – FEGS – serving as a defining moment.

A 2016 report from the Human Services Council released in the wake of FEGS’ collapse found that some 18 percent of human services agencies are operating at insolvency rates and 60 percent are financially distressed having no more than three months of cash reserves. Although government contracts dominate the budgets of human services nonprofits, they regularly pay 80 cents on the dollar of actual program costs, the report stated. In addition to these difficult operating conditions, federal threats to the social safety net continue to loom.

Advocates want $200 million in additional baseline spending on city contracts. They are hoping to get the City Council to pressure the de Blasio administration to support the funding increase.

The mayor for his part, responded to the comptroller’s report on May 31 at a press conference, the New York Post reported.

“A lot of nonprofits that do such crucial work in this city, they’re hand-to-mouth in terms of their budgets,” he said. “The city of New York obviously is a huge entity. We owe it to them to pay them as quickly as possible – so I’m not satisfied with the state of affairs.”

He did not elaborate as to any specific action that he would take on the issue, according to the Post.

A June 21 City Hall hearing on contracts has been announced, but it remains to be seen whether that will be enough to make a difference before the final budget is set to be approved at the end of June.

The City Council signaled support for a boost to contract funding by including the sector’s demands in its April 10 preliminary budget response to the mayor, but whether Council Speaker Corey Johnson will push the issue remains to be seen. The mayor is already battling to mitigate cuts at the state level and contending with spending issues such as the proposal to subsidize public transit costs for low-income New Yorkers.

Johnson did not respond to a request for comment.

For now, advocates remain hopeful that support for increased funding and timely disbursements is building as the joint hearing before the New York City Council Committees on General Welfare and Contracts approaches.

But if this budget season should end in disappointment, a Plan B will be activated on July 1, just as in past years, according to Allison Sesso, executive director of the Human Services Council.

“Until we feel like we are funding a robust system of human service nonprofits to carry out this work, we are going to be relentless in our advocacy,” she said.

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