Council Member Rosenthal at a recent hearing (photo: William Alatriste)
Human services nonprofits serve the city’s most vulnerable populations, providing a range of critical programs like foster care, homelessness services, after-school programs, mental health care, food pantries, and more. But, many of these organizations are faltering due to problems with the ways in which government approaches contracting.
On Monday, the New York City Council Committee on Contracts held an oversight hearing to examine serious and systemic issues facing human services nonprofits operating under contracts with the city. The hearing, chaired by Council Member Helen Rosenthal, was held in response to a report released by the Human Services Council (HSC), a coalition of 170 nonprofits that provide vital programs like childhood education, senior care, and job training to New Yorkers. The report identifies the major challenges facing the nonprofit human services sector, as well as recommendations to strengthen and stabilize it.
Leaders from 25 organizations testified at the hearing, echoing the issues outlined in the report and painting the picture of a sector in crisis: government contracts account for the majority of provider budgets, but pay roughly 80 cents or less of each dollar of true program delivery costs, creating budget gaps and diminishing the quality of services nonprofits can provide; contract payment is chronically late, forcing providers to turn to costly borrowing to meet their organization’s needs, often accruing interest that is not covered by government contracts; and, programs are often developed without input from the human services nonprofits that are responsible for implementing them, resulting in “ineffective and unworkable programs,” according to the HSC report.
“We absolutely feel that the government has left us behind,” said Dr. Jeremy Kohomban, president and CEO of The Children’s Village, during his testimony. “In addition to underfunding, we often deal with delayed reimbursement, and hidden costs upon reimbursement of interest payments, that we are forced to make on extended credit lines.”
“While we are untiring in our fundraising,” Kohomban added, “our donors are most interested in helping children and families, and least interested in subsidizing what they increasingly see as government shirking its responsibility.”
The city is required to provide many of the support services involved, but contracts them out to nonprofits in order to save on costs and increase efficiency. According to the Human Services Council, the city’s human services nonprofits deliver “essential government services to 2.5 million New Yorkers” every year.
According to the HSC report, the sector includes more than 200,000 workers and New York City is engaged in over 5,100 contracts worth $4.3 billion in the current fiscal year, which ends June 30. There are also thousands of state contracts that add another $1.5 billion in contracts.
Many of these organizations rely on the government for almost all of their funding, and are told to seek grants or other funding methods to account for the rest of their expenses. The city often turns to outside providers to meet city needs, for instance, “When the city decides to build a $40 million bridge, they hire a construction company with that expertise,” Council Member Rosenthal said during her opening remarks.
However, Rosenthal continued, “the city would never say to a construction company, ‘We’re going to pay you $35 million. Try to get philanthropy, foundations, or other jobs that you do to pay for the remaining $5 million.’”
Not only do those contracts rarely cover the actual operating costs of the city’s human services nonprofits, but the payment is often late and unpredictable, creating an unsustainable situation that forces many of these nonprofits to take out loans from private banks in order make payroll and rent.
“Do you know of any human services providers that have had to borrow from a bank in order to provide services?” Rosenthal asked Michael Owh, director of the Mayor’s Office of Contract Services, during his testimony. Owh said he didn’t have any specific examples, but knows that some providers have lines of credit.
Rosenthal asked leaders from several human services nonprofits if they had been forced to take out a loan due to a lack of timely and sufficient funding, and eventually instructed Allison Sesso, executive director of the Human Services Coalition, to consult with her organization’s affiliates and put together a comprehensive list of how many providers have needed to borrow money.
“We are often forced to borrow against a line of credit to meet payroll…last year, CAMBA paid $375,354 in interest for the use of our line of credit,” said Thomas Dambakly, chief administrative officer of CAMBA, a large Brooklyn-based nonprofit that provides employment, education, health, legal, and youth services.
Several human services nonprofits have been forced to close in recent times, and a number of others are on the brink of insolvency. According to a report from SeaChange Capital Partners, a merchant bank serving the nonprofit sector, 18 percent of New York City nonprofits in the health and human services sector are insolvent, while the HSC report (created by a commission of 32 human services executives, civic and philanthropic leaders, former government officials, and others) determined that 60 percent of humans services nonprofits are financially distressed, with no more than three months of cash in reserves.
In March of last year, after 80 years of operation, the Federation Employment and Guidance Service (FEGS), a “$250 million behemoth nonprofit human services provider, announced it would be closing; a clear signal that systemic issues threatened the survival of the sector as a whole,” says the HSC report.
Before filing for bankruptcy, FEGS provided mental health, housing, disability, home care, and employment services to 120,000 households and individuals. As a result of FEGS’ closure, the city’s remaining nonprofit human services providers have been relied on to meet the needs of those 120,000 households and individuals who relied on FEGS services.
If the city does not address the issues facing the sector, providers argue, the communities that these nonprofits serve will be the first ones to suffer the consequences.
“Our ability to effectively serve New Yorkers is seriously compromised by a government system that simply doesn’t cover the true cost of programs and services, and how those costs grow over time,” said Dan Lehman, chief financial officer of the Children’s Aid Society. “Failure to address this issue jeopardizes the viability of community-based organizations, and ultimately harms those who we serve, and who the city depends on us to serve.”
The HSC report and representatives from human services nonprofits who testified at Monday’s hearing put forward a number of solutions that could ameliorate the nonprofits’ dire financial situation. For one, the government could seek input from and collaborate with the human services sector while designing programs, which would ensure the creation of programs that the nonprofits are truly capable of implementing.
Additionally, the government could issue contracts that fully fund nonprofits’ operating costs, including so-called “indirect costs,” or expenses like IT, building maintenance, accounting, and human resources, and fulfill those contract payments in a more timely and consistent manner. These contracts, human services workers say, should also account for cost increases that occur over time due to inflation or newly added mandates.
Toward the end of the hearing, Council Member Rosenthal asked Sesso to return to the testimony table to answer a few additional questions. “Do you think it’s reasonable to ask the administration for some sort of roadmap or strategic plan for how you get from these recommendations to implementation?” Rosenthal asked.
“At the heart of this is the rates, and it’s about what do we consider to be program costs...I do think that, [Mayor’s Office of Contract Services] would be a good partner, but there does have to be a directive at the very highest levels of the administration to do this.” Sesso replied.
“And if there’s another recession,” Sesso continued, “If government has to cut back, we are first on the list - this is going to be a big problem if we do not act, in the context that we are providing services that are a bridge to opportunity for some of the neediest people in New York City.”
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by Meg O'Connor, Gotham Gazette
@megoconnor13 @GothamGazette
Mayor de Blasio briefs Council members on his budget (photo: William Alatriste)
The City Council on Monday issued its formal response to Mayor Bill de Blasio’s $82 billion preliminary budget for fiscal year 2017, capping a month of budget hearings that were fraught with concerns over how Governor Andrew Cuomo’s proposed state budget would affect the city and how prepared the city’s coffers are for a rainy day.
Until last week, uncertainty over significant cuts in funding to New York City outlined by Cuomo had the City Council on its toes, with Council Speaker Melissa Mark-Viverito traveling to Albany to participate in efforts to eliminate them. The de Blasio administration said at the first Council budget hearing that it did not have a contingency plan if the state were to shift nearly $700 million in costs for Medicaid and CUNY in fiscal 2017 to the city. Instead, officials said, they would be making every effort to ensure that the cuts did not stay when the state budget was passed.
In a letter to the mayor on Wednesday, the Council identified its budget priorities but stopped short of issuing its full response given that the state budget had yet been finalized.
At the end of last week, a new $147 billion state budget was passed without the most significant cuts to city funding, and the Council had the all clear to move forward with its priorities unchanged. Out of a budget process so far largely focused on identifying savings across city government, the Council outlined specifics for a city budget that serves immigrants and youth, sets aside more in reserves, and invests in expanded services that it can track.
“The Council’s budget recommendations are the culmination of dozens of comprehensive budget hearings and reflect the needs of all New Yorkers while also planning for our City’s future,” said City Council Speaker Melissa Mark-Viverito, in a Monday statement accompanying the Council’s budget response, which will form the agenda over the next three months as it negotiates a final budget with the mayor’s office by the June 30 deadline. “This is a budget that is smart, fair and fiscally responsible, all while greatly expanding opportunities to New Yorkers across the City,” Mark-Viverito wrote.
The Council identified eight major priorities in its response: increased investment in city youth; investment in healthcare, education, jobs and legal services for immigrants; specific funding for the diverse communities; capital investment in infrastructure; creating a Rainy Day Fund and adding to existing reserves; baselining essential city services; expanding criminal justice, community support, and human services; and more accurately tracking city agency performance.
The Council is proposing $790 million in new spending and tax reductions but estimates that the increase to the budget would ultimately be only about $127 million once larger agency savings and changes to debt service payments are included. Even with additional spending, the Council estimates a budget surplus of $258 million in fiscal 2017.
The Council identifies $91.2 million in agency savings that the preliminary budget did not account for. A majority of this amount, $80 million, would come from reducing the city’s contribution to fringe benefits for the Administration for Children’s Services (ACS) and the Human Resources Administration (HRA), which have received increased state and federal funding for these costs, the Council says.
The response also calls for reduction in the city’s data processing equipment budget by $14 million and a $6 million reduction in Other Than Personal Services costs at the Department of Transportation. All of these savings figures were arrived at through analysis by the Council’s budget office, which is under the supervision of Mark-Viverito, Council Member Julissa Ferreras-Copeland, who chairs the finance committee, and Finance Director Latonia McKinney.
Although the state budget no longer haunts the city’s fiscal future, the Council recognizes risks remain. An economic slowdown is widely expected by city officials, economists, and budget watchdogs, and the Council’s budget response notes the consequences it could have on consumer spending, tax revenue, real estate prices, and cost of living.
“These preliminary budget recommendations reflect a central challenge in government: making our city more equitable while also planning prudently for the future,” said Ferreras-Copeland, in a statement. “The proposals included address inequality in New York City while remaining fiscally responsible, and I believe they represent the diversity of needs across our city. As the budget process advances, I will continue to ensure that the Council is an equal partner and that the Administration’s investments are transparent.”
The budget is due before the start of the next fiscal year on July 1. Along with the state budget, Mayor de Blasio will take the Council’s feedback into consideration as he crafts his executive budget, due out later this month. The release of that updated spending plan, which the mayor has indicated will likely include a more robust agency savings plan, will trigger another round of hearings at the City Council. Then, the two sides will negotiate out of public view until a deal is struck.
Asked to respond to the Council’s preliminary budget response, Office of Management and Budget spokesperson Amy Spitalnick, recounted by email that “Budget monitors and rating agencies have all applauded this administration's fiscal prudence and focus on targeting investments and protecting against economic uncertainty – and investors agree,” while providing a link to a Bloomberg news article on the subject.
Spitalnick outlined that the administration has “unprecedented” reserves while restoring “funds cut under the prior administration.” Even with billions already in savings, she wrote, “the Mayor has made clear, we’ll continue to build on those savings in the Executive Budget.”
“We look forward to continuing to work with the Council throughout the budget process,” she said.
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by Samar Khurshid, senior reporter, Gotham Gazette
@samarkhurshid @GothamGazette
photo: Ed Reed/Mayoral Photography Office
In December, Mayor Bill de Blasio signed into law the City Council bill creating a separate, dedicated Veterans Affairs department which would take over responsibility from the Mayor’s Office of Veterans Affairs (MOVA) in handling services for more than 200,000 military veterans living in New York City.
By law, the new department will be official on April 10 and the fiscal year 2017 budget being negotiated between the de Blasio administration and the City Council will outline its first agency allocation and spending plan. The city’s fiscal year begins July 1.
As part of ongoing Council hearings on the mayor’s $82 billion preliminary budget, the new veterans affairs department was scheduled for a session on March 21. As is usually the case in such hearings, where agency heads and other administration officials testify before a Council committee, MOVA Commissioner Loree Sutton would have testified, Council members would have asked her questions, and advocates and members of the public would have aired their concerns.
But, owing to the transition of veterans affairs from the Mayor’s Office to a full-fledged department, the hearing was deferred. “It doesn’t officially become a department in name till April 10,” said Joe Bello, a member of the city’s Veterans Advisory Board, “and it doesn’t become a real department budgetary-wise till July 1. So there was really no preliminary budget to discuss.”
The Council veterans affairs committee’s preliminary budget hearing couldn’t really occur because the mayor and his budget office had not established a budget for the new veterans affairs department in the initial spending plan.
Instead, it will be taken up when the administration and City Council get down to brass tacks during executive budget negotiations. The Council will soon release its preliminary budget response, which will trigger closed-door discussions and lead to the mayor’s release of his revised spending plan later in April, followed by another round of hearings. The new veterans department is expected to be included in the executive budget and to have a budget hearing thereafter.
Last year, the MOVA budget was $1.9 million, up from $600,000 the previous year, “the largest increase in its 29 year existence,” according to the VAB’s annual report. Between January and July 2015, MOVA’s full-time staff increased from six to 20.
The administration is also doubling down on its commitments through other initiatives. In late March, the first veterans affairs satellite office opened in Queens. Then, on March 28, the Mayor’s Fund to Advance New York City and MOVA announced partnerships with the private sector to end veteran homelessness, with an investment of $750,000. It’s not clear yet, however, what the total budget for fiscal 2017 will entail.
“As we've said, we are determining costs for the new agency and expect it to be reflected in the executive budget,” said Amy Spitalnick, spokesperson for the Office of Management and Budget. “We look forward to working with the Council on this and more throughout the budget process.”
Spitalinick declined to provide details of what the executive budget may include.
Bello from the VAB, a Navy veteran, is not worried about the preliminary budget hearing being scrapped. “As an advocate, I just want them to get it right,” he said. He expects significant increases in the budget and said the department could have as many as 35 staffers by the end of the year. “They gotta ramp up personnel. They gotta ramp up services,” he added.
City services for military veterans include helping connect them to federal programs and often deal with housing, education, employment, and health care needs.
Bello spoke of the ThriveNYC mental health roadmap the city has released, which touches on veterans, and mentioned conversations with the de Blasio administration on veteran homelessness as well. He wasn’t sure if the latter would be directly tackled by the new department or remain under the purview of the Department of Homeless Services.
“I don’t know what I’m expecting,” said Kristen Rouse, an Army veteran and president and founding director of NYC Veterans Alliance, an advocacy group. Rouse is a bit more skeptical than Bello, insisting on a line-by-line breakdown of the department’s budget. “They’ve never put out a policy paper saying, ‘Here’s what we’re doing on veterans services and here’s how much we’re spending,’” she said. “The administration has quoted a lot of different numbers to us.”
While she appreciates the administration’s initiatives, she hopes for an explanation of the budget to the veterans community and outreach for advice from veterans once a hearing is set. “I would hope that members of our community will be notified so we can contribute to it,” she said. Bello echoed the sentiment and said the VAB has been soliciting comments online from veterans in the city. “The public and advocates wouldn’t be able to give feedback if there wasn’t a hearing,” he said.
A spokesperson for City Council Member Eric Ulrich, chair of the veterans affairs committee, insisted that the Council will hear from veterans themselves. “We look forward to working collaboratively with all the interested parties to ensure New York City provides the highest level of service to our veterans,” said Kevin Tschirhart, Ulrich’s director of communications. “Issues regarding the budget will be taken up at the executive budget hearings and will be finalized in coming months.”
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by Samar Khurshid, senior reporter, Gotham Gazette
@samarkhurshid @GothamGazette