Philanthropy New York Signs Letter to Governor Cuomo for Prompt Contracting and Payment of Nonprofits

Wednesday, July 29, 2020

Philanthropy New York Signs Letter to Governor Cuomo for Prompt Contracting and Payment of Nonprofits

700 nonprofits have signed a letter to Governor Cuomo calling for more attention on the  immediate and long-term financial effects of the pandemic on nonprofit contracting and payment.

July 21, 2020

The Honorable Andrew M. Cuomo

Governor of New York State

New York State Capitol Building Albany, New York 12224

To The Honorable Andrew M. Cuomo:

As representatives of New York State’s health and human services, arts and cultural, and philanthropic nonprofits, we are unified in calling for your urgent attention to the rapidly deteriorating financial condition of the State’s nonprofit contracting partners that is now accelerating into a crisis for many as result of Executive Order 202.48.

 Executive Branch leadership is desperately needed to mitigate both the immediate and longer-term toll the pandemic and State budget crisis is having upon the individuals and communities we serve, our workforce, and the very survival of many organizations that are essential for a healthy recovery. To demonstrate this toll, attached to this letter are brief impact summary statements by fourteen (14) of the umbrella organizations who count these nonprofits among their members and are signatories to this letter.

We understand and are attuned to the budget challenges that the State faces due to the pandemic. We also share your hope that federal relief will soon be on the way. Although the issued Budget Bulletin directed certain State agencies to be flexible with respect to nonprofit contractual obligations, the State Budget Director’s decision to intentionally delay payments beyond what is already a serious chronic systemic problem and freeze new or renewed contract commitments is proving to be devastating. The recent announcement suspending prompt payment laws in Executive Order 202.48 will make the situation for nonprofits much more untenable. The fact that this executive order was put out with no advance notice or consultation from those impacted is gravely disappointing and not respectful of importance and value of nonprofits across the State. The sector cannot provide the necessary services and jobs New York needs to recover if the State is unwilling to honor its financial commitments to pay for the services it has contracted nonprofits to provide, while also asking nonprofits to continue to provide those services at great financial risk.

Many nonprofits entered this pandemic at a breaking point caused by underfunded and late contracts, late payments, high staff turnover, stagnant wages, fully tapped out credit lines, and limited or nonexistent cash reserves. COVID-19 has dramatically increased the need for human services at a time where our workforce and program capacity has been greatly diminished and de-stabilized.

Nonprofits represent the largest private sector employer in the State, employing (pre-COVID) 1.3 million people (18% of the state’s workforce) and generating $260.26 billion in annual revenue. The vast majority of nonprofits are community-based with a workforce that is comprised of low-income workers who are predominately people of color. The people we serve are also those most impacted by COVID-19; the virus has hit low-income communities of color at a staggering rate with Black and Latinx New Yorkers dying of COVID at twice the rate of white residents. Nonprofit jobs and services will be key to the recovery in these communities, and at a time they are needed more than ever, budget cuts and payment delays results in service reductions and layoffs. These unfortunate choices by the State disproportionately effects communities that have been hardest hit by the pandemic due to structural racism, ableism, and income inequality.

The lack of leadership and progress in prompt contracting is our sector’s underlying economic condition that is glaringly exposed by the pandemic and the State’s recent actions. Nonprofits would have been in a much better position to absorb some of the emergency cash measures being taken by the State, if the State had taken the actions necessary to resolve chronic delays in procurement as is well-documented annually by the State Comptroller.

There are actions that can be taken now by the State to mitigate the direct as well as collateral damage. Responsible actions would better position all of us to move forward in combatting the pandemic and moving quickly to a solid recovery. Our sector needs real support and systemic change to fully recover from the impacts of COVID-19 and to continue to build the wellbeing of New Yorkers. We look forward to a quick response and the opportunity to meet to discuss the needs of our communities.
We, the undersigned nonprofits, on behalf of the people and communities we serve, urge the Executive Branch to provide the leadership necessary to immediately act upon the following:

1. Fully implement the recommendations made by the State Comptroller in the 2019 report on state contracting and payments with not-for-profit organizations. These recommendations are as follows:

  • State agencies should take responsibility for their critical roles, and make prompt contracting a priority. This remains the most important action needed to achieve on-time contracts and payments.
  • The Not-for-Profit Contracting Advisory Committee should meet regularly to address new and continuing barriers to prompt contracting success.
  • State agencies and NFPs should increase their use of the Grants Gateway and use the contract tracking tools in the Gateway to identify and address processing delays.
  • State agencies should use electronic means to pay prompt contracting interest and ensure that the NFPs receive what is due as required by law.
  • State agencies should pay any interest due with the first payment under a contract to help NFPs avoid cash flow problems.

2. Rescind Executive Order 202.48 which suspends prompt payment laws and prioritize and pay out invoices on existing contracts promptly and remove additional barriers, like DOB review, that have significantly and seemingly intentionally delayed payment. The July 6, 2020 Executive Order suspending prompt payment puts nonprofits in an impossible position; provide lifesaving services with no assurance of when and if the State will pay, or close programs that communities need to survive. It jeopardizes untold millions of dollars of charitable assets that may be lost as nonprofits may be forced to bankruptcy and/or dissolution. Many nonprofits that have been able to manage or borrow the cash to cover receivables from State delays, can no longer do so and are no longer in a position to effectively loan money to the State. Philanthropic sources are only a drop in the sector’s dollar bucket and cannot backfill what the State owes. The unintentional consequence of this practice continuing will be economic devastation for many valued nonprofit partners and significant harm to the people and communities served.

3. Register all pending contracts and do not impose retroactive cuts. Nonprofits put mission first and often continue to operate without a registered contract because shutting down programs and laying off employees while waiting on government delays would negatively impact communities. This goodwill should not result in providers being asked to take a loss because of State delays. Again, as with the aforementioned action, the financial wherewithal of nonprofits to take and absorb such a risk is no longer there. Contracts need to be registered immediately so providers do not continue to operate at risk and without funding.

4. End the policy and practice of financially penalizing nonprofits that have successfully secured bank loans from the Payroll Protection Program. The reason why many nonprofits doing business with the State have been able to financially stay afloat during the peak of the COVID-19 crisis is that they were able to secure money from a bank through PPP. Although there does not appear to be a unified State policy in this regard, some State agencies have informed nonprofits that they will be recouping PPP loan money where the loan is based on employees being covered under State contract. In essence, this bureaucratic practice is exploiting and further exacerbating the distressed financial condition of nonprofits in this crisis for the purpose of taking their loan money, which may or may not be forgiven by the SBA, to subsidize the State. The consequences of the State taking these dollars from its nonprofit partners will be further reductions in workforce and services and an increase in nonprofits going out of business.

5. Streamline executive branch approval process for licensed program transfers, mergers, acquisitions and dissolutions and commit to process applications within 90 days. The nonprofit corporate and economic landscape is rapidly and dramatically changing as a result of the crisis and the financial hardships created by the State’s systemic and most recent contracting and payment policies toward its nonprofit partners. The times require that nonprofits be able to pivot quickly to effectuate restructuring strategies that best preserve mission and charitable assets and help ensure sustainability. These strategies include divesting in licensed or regulated programs to other providers, merging and affiliating, and, where appropriate, responsibly dissolving the corporation. The State’s systems are not at all prepared to effectively meet the need and surge in demand that is forthcoming. Executive Branch approval processes in this regard are incredibly burdensome and expensive to navigate as they are decentralized, complicated, lacking in transparency, are not consistent across agencies, and when there are multiple State agencies involved, there is no central coordination or integration. Obtaining such approvals can often take a year or more to secure.

6. Create a Nonprofit COVID-19 Recovery Advisory Committee and re-install a nonprofit representative agency as Co-chair. The State will need to make timely decisions as we learn more about federal funding and economic recovery, and the various nonprofit subsectors need to be consulted as to how to move forward as experts in their fields. The State lacks a coherent and strategic approach on how to partner with our sector on COVID-19 recovery efforts, how to mitigate budget impacts on our communities, and on common issues that cross State agency bureaucracies and the many siloed funding streams. The Not-for-Profit Contracting Advisory Committee, which is mandated by statute, and the nonprofit liaison’s office have not been given the staff or authority to make change across State agencies and are not the central place for the COVID-19 discussions we need. The Committee has been meeting infrequently and the community/nonprofit representative chair recently stepped down in frustration with the lack of progress. Our sector needs to be taken seriously, now more than ever. It is imperative that we be regularly at the table with real decision-makers at the State, to develop and monitor the economic conditions of the nonprofit sector, inform the State policies of the impact of policies, and how to partner on COVID-19 recovery efforts, and how best to mitigate budget impacts on our communities. We are all in this together and nonprofits have much to offer in information, advice, connections and resources that can be leveraged. We have our boots on the ground in every community and are acutely attuned to needs, trends and opportunities.