The extensive strain placed on New York City’s non-profit community – a safety net of over 13,000 organizations, that contributes $77.7 billion a year to the local economy1 and employ over 18% of the City’s workers – is causing a domino effect of stress and financial uncertainty for the very same communities that our sector intends to serve.
Government contracts and reimbursements, which total about $12 billion annually to human services alone, often comprise the bulk of income of nonprofit organizations in New York City. This makes nonprofits serving those affected by the criminal justice system particularly vulnerable to fluctuations in government funding, further complicating their already challenging struggle to secure resources for their essential work. Nonprofits supporting people impacted by the criminal legal system face particularly unreliable financing through government contracts, which on average are registered 10 months late, resulting in $78.9 million in services for work that remains unpaid.2 Overall the current system results in organizations operating for up to nine months without secure funding, often requiring organizations to take out loans and implement lay-offs and pay cuts to remain viable.
The effects of delayed payments and stalled contracts have left a devastating impact on nonprofits and their staff, causing Philanthropy New York to prioritize this as a policy priority for the coming years, with our staff testifying before city council for a better city contracting system. On October 3rd, we heard firsthand accounts from nonprofit leaders who are fighting to sustain their operations to meet the needs of their clients. Moderated by Doug Bauer of The Clark Foundation, Wesley Caines of The Bronx Defenders, Kandra Clark from Exodus Transitional Community, Sherene Crawford from Center for Justice Innovation, and Taj Tabassoom, partner at SeaChange, explored the fault lines within the contracting system and ways in which philanthropy can help solve this cycle of dysfunction to ensure a more just and equitable future for these vital organizations.
Key Takeaways
Leaders discussed and shared the following insights and takeaways:
- The current government contracting system is inefficient and places many nonprofits in a recurring cycle of operating with little to no resources every fiscal year.
- Existing bureaucratic systems have staggering effects that impact the ways funders support nonprofit partners and nonprofit staffers and, most importantly, the communities they serve.
- Cultivating the collective power of nonprofits and philanthropy can be one of the pathways to change.
The Problem
In 2021, the city set up PASSPort Public, which shares its procurement data. Reviewing that data confirmed for SeaChanges’s Taj Tabassoom what she has been hearing and seeing for at least five if not six years: unregistered contracts with nonprofits waiting for reimbursement to fulfill payroll. It is not unusual for SeaChange to receive calls twice a week from nonprofits facing similar issues, especially with discretionary contracts.
A common scenario involves contracts not being registered until eight or nine months after their start of work date, causing reimbursements to nonprofits to be delayed for up to nine months. In some cases, payments aren’t made until the work has been completed.
This delay in funds causes a domino effect that harms the very people it is supposed to help. As the government fails to pay nonprofits in a timely manner, nonprofit staff are impacted, resulting in staff pay cuts and layoffs.
Kandra Clark speaks to her own experience with Exodus Transitional Community, which stepped up during the 2020 COVID-19 lockdown to open reentry hotels, which housed 900 people from Rikers Island and Upstate Correctional Facility. A year or two later, Exodus had to lay off the very people who worked tirelessly during that initiative because contracts were not being registered.
She details, “Ninety percent of our staff are justice-impacted, so we are laying off the people who have been the most impacted by these systems, and that creates morale issues and burnout.”
“There’s a real human cost to what seems like a very technical process.”
— Taj Tabassoom, SeaChange
Band-Aids and Their Limitations
Nonprofits use a variety of mechanisms to alleviate problems with their cash flow issues. Many use general operating funds to fill the gaps. Others have turned to the Fund for the City of New York (FCNY), which allows organizations to leverage their unregistered contract to receive their contracted monies upfront. However, there is an arbitrary disbursement of 25% of the contract’s value to FCNY once the contracts are registered.
Many organizations turn to private lending institutions adding another layer of complexity to the issue. The Bronx Defenders’ Wesley Caines recounts this challenge, “For the past eight-and-a-half years, we did not have a line of credit with any banking institution. For a lot of lenders, they feel this work is the government's responsibility …imagine having a conversation with bankers who are perplexed as to how we have contracts totaling millions of dollars and have seen not a dollar from them.”
“You start in a hole. They give you a bit to get out of it. Then, there’s a disbursement of 25% and the recoupment happens. Then, you’re back in the hole trying to pull yourself back up again.”
— Wesley Caines, The Bronx Defenders
What Can Philanthropy Do?
With financial delays rippling through nonprofits doing work on behalf of the City, it is time to build a more equitable system for these essential organizations. Panel moderator Doug Bauer, Executive Director of The Clark Foundation, led a discussion on what the philanthropic sector can do. Key takeaways include:
- Providing more flexible, unrestricted funding.
- Leveraging our position and privilege as funders, whether it be starting the conversation with peer organizations and public sector partners on this topic or guaranteeing a loan as they work with lenders.
- Building and sustaining relationships with nonprofits through conversations to see what flexible and general operating funds are needed.
By collaborating with nonprofits, philanthropy can help to facilitate? usher in change. All services being provided by justice-focused nonprofits are services that the government is required to provide, such as community-based alternatives to jail, legal aid support to people who are incarcerated, and support for people returning home from incarceration. The evergreen and current struggles with the City contracting system is a problem that our immense philanthropic sector can lean into. By rallying together to raise our collective voice, we can create not only more effective processes but a city that serves its communities without delay.
“I believe this is a solvable problem. A lot of it is a human problem. It’s a very bureaucratic system that, with the right energy and efforts, could be corrected.”
— Sherene Crawford, Center for Justice Innovation
1 https://comptroller.nyc.gov/reports/the-economic-impact-of-nyc-nonprofit-organizations/
2 Based on data retrieved Sept 24, 2024 from PASSPort Public NYC