Nonprofits Nationally Suffer From Late Government Payments, CT Tackling Issue

Connecticut is one of eight states that has begun to respond to a serious problem facing nonprofit organizations in a time of tight budgets and reductions in state funding:  late payments and duplicative requirements by government agencies.  A new report from the Urban Institute says the problem – which grew more serious during the recession – may be easing somewhat, but still has a way to go.

The 57-page report, “Nonprofit-Government Contracts and Grants:  Findings from the 2013 National Survey,” indicated that “Joint government-nonprofit working groups in Connecticut, Hawaii, Illinois, Maine, Maryland, New Jersey, New York, and Texas are tackling issues, such as duplicative documents and audits and late payments, with the goal of improving government processes and the ability of nonprofits to win and successfully implement contract and grant requirements.”

The data, according to the report, is “a sobering reminder that human service nonprofits are continuing to wait extended periods of time for payments.”  The national survey indicates that 22 percent of nonprofits received payments 61-90 days late from local governments, 24 percent from state governments and 20 percent from the federal government – all increases from 2009 survey data.  The number of nonprofits experiencing late payments of more than 90 day dropped slightly for local and state government payments, but grew slightly for federal government payments.

The Urban Institute report outlined a series of recommendations for governments and nonprofits to improve systematic relationships; state-by-state data is due to be released next month.

A 22-member Connecticut panel appointed by Gov. Dannel Malloy, in a report issued last fall, found that “some state agencies do not pay contractors in a timely manner consistent with agreed upon timeframes and thereby create additional hardship and costs of borrowing for nonprofit service providers.”

The group recommended that “the State of Connecticut adopt Principles to Guide the State-Private Nonprofit Provider Partnership, intended to promote a fair, effective, responsive, transparent and accountable partnership between nonprofit providers and their state government funders.” It also called for revisions to the state’s procurement standards, streamlining data gathering, and “payment rates that cover the true cost of services.”

Nationally, nearly half of organizations reported that they experienced limitations on the percentage of government funds that could be used for program and organization administration costs. Approximately one-quarter of organizations with a contract indicated that they had to share in the cost of the contract and one-half of grantees said they had a matching requirement associated with a grant.

Reflecting the fiscal challenges faced by nonprofits, the report found that “more than 40 percent of respondents turned to their reserves to make ends meet and about 25 percent of nonprofits reduced the number of employees on their payroll. About 14 percent of organizations reduced the number of clients served and almost 11 percent cut programs.”  In addition, 21 percent of respondents nationwide said their experience with government contracts and grants was worse than in the previous year, while 6 percent said it had improved.

The report concluded that “all types of nonprofits reported problems with late and insufficient payments, complex and burdensome application and reporting processes, and changes made to contracts and grants after they have been approved.”

Late payments have the biggest impact on human-service and health organizations, which receive the lion’s share f all government spending on nonprofits, the Chronicle of Philanthropy reported. Overall, the national study found that:

• government agencies entered into approximately 350,000 contracts and grants with about 56,000 nonprofit organizations;
• on average, nonprofits have six contracts and/or grants per organization; the median is three; and
• governments paid $137 billion to nonprofit organizations for services (in 2012)

The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and governance problems facing the nation.