OMB Uniform Guidance: Are Your Grantees Prepared?

Tuesday, March 17, 2015

by Michael Hamill Remaley, SVP, Public Policy & Communications

This piece was originally published as the feature article for the March 2015 issue of the New York PhilanthroPost Policy Edition.

After years of organizing and lobbying by the National Council of Nonprofits and other organizations, the federal Office of Management and Budget formally recognized, in new rules called the Uniform Guidance, that nonprofits hired by government to provide services need to be paid for their indirect costs. The new rules expressly require pass-through entities using federal funds (typically state and local governments) and all federal departments/agencies to reimburse nonprofits for the reasonable indirect costs they incur when performing services on behalf of governments, at a minimum of 10 percent. This is a huge deal for many of the nonprofits foundations support. It’s also a big deal for philanthropy.

In our new Issue Guide, “OMB Uniform Guidance on Indirect Costs, How will New York Respond?” we examine the challenges of actually implementing the OMB Uniform Guidance, the lack of clarity about how State and City governments will respond and the potential implications for philanthropy.

For decades, the philanthropic sector has faced its grantees seeking to use private dollars to subsidize government programs when governments at all levels have failed to pay nonprofits the full costs of delivering services for which the governments have entered written agreements with nonprofits. To fill these gaps, nonprofits then divert limited resources and incur more costs trying to raise private funds. So you’d think the new rules are a good news story all around.

But the OMB Uniform Guidance really presents only a promise of fair reimbursement practices for nonprofits providing services under programs funded in whole or in part by the federal government. It is not clear how State and City governments, or even the nonprofits that have long sought reimbursement for the full costs of providing services, will integrate the Uniform Guidance into their daily practices going forward.

Even though the OMB Uniform Guidance is the law of the land, it is possible, especially in the early stages of implementation, that nonprofits will encounter resistance when seeking full compliance by pass-through entities. In New York, the Nonprofit Coordinating Committee, the Human Services Council, Philanthropy New York and other nonprofit associations are talking directly with State and City government officials to understand what actions they will take to ensure contracting offices respond appropriately. The outcome of those talks is far from certain.

It is very possible that legislative bodies at the federal, state and city levels may further reduce project budgets or keep them flat -- despite the requirement’s implicit imperative to add an additional 10 percent or more to begin paying indirect costs that nonprofits have incurred under their government contracts. If they don’t, then the new grants and contracts will therefore need to reduce the amount provided in contracts dedicated to direct service provision. This may mean that, in order to maintain the same level of services, nonprofits will seek additional resources from the philanthropic sector to make up the difference. Philanthropy’s active voice in the conversation between government and nonprofits on this matter could be essential in ensuring that philanthropy does not get left holding the bag – or worse, that critical human services are further limited.

There is a potentially important and positive role for philanthropy to play in those discussions. Leaders of the philanthropic sector can be an immensely important and constructive voice at the table to further impress the message that nonprofits need to be paid for the full cost of providing services, which includes indirect costs.

New York has the opportunity to be a leader in ensuring that its nonprofits have the resources they need. To make that happen, philanthropic leaders need to follow OMB Uniform Guidance implementation and participate in conversations about what is fair and right for the nonprofits they support.

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