NewYorkStatesNotforProfitSector

DelayedStateContractsandLatePaymentsHurtServiceProviders
ThomasP.DiNapoli
NewYorkStateComptroller

November2011

Executive Summary
NewYorksnotforprofit(NFP)communityisavitalpartnertoStategovernmentandanimportanteconomic engineacrosstheState.Currently,NewYorkStatehasnearly27,000registerednonprofits,whichaccountfor almost$148billioninannualrevenue,accordingtotheNationalCenterforCharitableStatistics.In2010,the JohnsHopkinsCenterforCivilSocietyStudiesfoundthatNFPsintheStateemployed1.25millionpeople14 percentoftheworkforceprovidingimportantservicestoavastcrosssectionofNewYorkers.NewYork reliesheavilyonNFPstoprovideabroadrangeofbasicservicesfromhealthcareclinicstoworkforce developmentprograms,withmorethan22,000activecontractstotaling$16.8billionasofOctober2011. ThePromptContractingLawof1991requiresStateagenciestocontracttimelywithNFPproviders.Under thatlaw,theOfficeoftheStateComptroller(OSC)isrequiredtoissueanannualreportonthestatusof promptcontractinginNewYorkState.Twodecadesafterthepassageofthislegislation,amajorityof Stateagenciesstillfailtocontracttimelymostofthetime.OSCs2010PromptContractingReportissued inMayshowedthat71percentofgrantcontractswithNFPswerenotapprovedbythestartorrenewal date,accordingtoStateagencyreports.NFPssufferwhentheyprovideservicesbeforecontractsare approvedorrenewedandincuroperationalcoststhatarenotreimbursedtimely.Whilethe2010results areanimprovementoverthe82percentofcontractsapprovedlatein2009,thepatternoflate contractinghasgoneonforfartoolongandreformisclearlyneeded. Overthepastseveralyears,ComptrollerDiNapolihastravelledthroughoutNewYorkmeetingwithNFP leadersinanefforttogainabetterunderstandingoftheirchallengesespeciallyinlightofthesevere nationalrecession.ManyNFPsnowhaveheaviercaseloadsduetohigherunemploymentandresulting increasesinpeopleinneedofservices.Atthesametime,manyNFPshavealsoexperiencedcutsin governmentfundingaswellassignificantdecreasesinprivatedonations,asbenefactorshavealsobeen negativelyimpactedbytheeconomy.Ontopoftheeconomicchallengesofdealingwithlatecontractsand theresultingpaymentdelays,NFPshavereportedfacingburdensomeandineffectiveadministrativeand monitoringrequirementswhichcontinuetoaffecttheiroperationsnegatively.TheNewYorkCityMayors officehasbeenworkingonaseriesofactivitiestoaddresstheseconcernsattheCitylevel.Nowisclearlythe timetoresolvetheseissuesontheStatelevelbyworking tostreamlinethecontractingprocess,aswellasmaking otherreformstobringaboutgreaterefficiencyand accountabilityinNewYorkspartnershipwiththenot forprofitsector. Thisreportmakesrecommendationsforreformand offersanumberofpolicyandproceduralsuggestionsto improvethewayNewYorkStatedoesbusinesswiththe thousandsofNFPagenciesthatprovidecriticalservices.

ComptrollerDiNapoliaddressestheattendees ofhisJune2010NotforProfitForuminAlbany

www.osc.state.ny.us

Prompt Contracting
NFPleadersacrosstheStatehaveindicatedthatlateapprovalsoftheircontractsbyStateagenciesand latepaymentsforservicesrenderedarecreatingincreasingrisksthatcriticalservicescannotbe provided.
Since1991,Stateagencies havebeenrequiredto contracttimelywithNFPsto helpavoidservice interruptionforconsumers andfinancialhardshipfor NFPs.OSCannuallyreports oncontractingresults reportedbyStateagencies andmakes recommendationsto advancethegoalofprompt contracting. The2010reportcanbeviewedat: http://www.osc.state.ny.us/agencies/pcl_reports/pcl_2010.pdf

OSCs2010PromptContracting Reportfoundthat71percentof contractswithNFPswerenot approvedbythestartorrenewal date,asreportedbyStateagencies.In addition,OSCalsocompareditsown dataonNFPcontractsthatare required,bylaw,tobepreapproved byOSCwithin15daysofsubmission. Thisdataincludesonlycontracts valuedat$50,000ormore,andthe reportfoundthatnineoutoftenof thesecontractswereapprovedan averageofsixmonthsaftertheirstart date.Thesedelayscreatefinancial difficultiesforNFPs,aspaymentsfor servicescannotbereceiveduntil contractshavebeenapproved.

NewYorkreliesheavilyonNFPstoprovideabroadrangeofbasicservicesfromhealthcareclinicsto workforcedevelopmentprograms,withmorethan22,000activecontractstotaling$16.8billionasof October2011.NFPsfacefinancialhardshipswhentheyprovideservicesbeforecontractsareapproved orrenewedandincuroperationalcoststhatarenotreimbursedtimely.Whenpaymentsfortheir servicesaredelayed,manyNFPsborrowordipintoreserveaccountstocovertheshortfallincurring interestexpensesthatarenotreimbursable.SmallerNFPsoftenlackreservesoracreditlineandmust delaypaymentstotheirownvendors. LatecontractsalsotriggerStatemandatedinterestpayments.Interestcostsassociatedwithpayments delayedfromlateapprovalofcontractsbyStateagenciesin2010areestimatedtohavebeenashighas $2.6million.However,accordingtoOSCs2010PromptContractingReport,onlyfouragenciesactually madeinterestpayments,whichtotaledjust$215,583.ExplanationsbyStateagencystaffastowhy interestwasnotpaidindicatedthatagencieseitherdonotfullyunderstandthestatutoryrequirement orthattheycircumventrequirementsthroughcontractlanguagethatpostponespaymentswellintothe contractterm.OSCiscontinuingitseffortstoincreaseagenciescompliancewiththelegalrequirements forpayinginterestonlatepayments.
Forquestionsaboutpromptcontractingcontact: MargaretBecker DeputyComptroller,ContractsandExpenditures 5184869544 JosephGalante,AssistantComptroller ComptrollerDiNapolisLiaisontotheNFPSector Contacthimat: 2126814475

www.osc.state.ny.us

Challenges
Inadditiontopromptcontractingissues,NewYorkStatesNFP sectorhasbeenseriouslychallengedoverthepastfewyearsin otherways.AccordingtotheNonprofitFinanceFunds2011State oftheSectorSurvey,60percentofrespondentsprovidinghealth andsafetyrelatedservicesindicatedanincreasednumberof clientsservedin2010.However,57percentofrespondents reportedtheywereunabletokeepupwithdemandforservices. NFPsarebeingcalledupontoprovidemoreserviceswhilealso experiencingsubstantiallossesinfundingandcharitable donations.ASeptembersurveybytheNonprofitResearch Collaborativereportedthat40percentofrespondentsindicateda declineincontributionsforthefirstsixmonthsof2010compared totheprioryear.Forthefirstsixmonthsof2011,NFPfinances continuedtobenegativelyaffectedbytheeconomy,with30 percentofrespondentsreportingacontributiondeclinecompared tothesameperiodin2010. In2009and2010,ComptrollerDiNapolihostedaseriesofforums incommunitiesacrosstheStatewithnotforprofitleaders. Amongthecommonconcernscitedwere:latecontracting; delayedpayments;burdensomeadministrativeandmonitoring requirementsfortheNFPsthatcontractwithmultipleState agenciesforrelatedprograms;andlowreimbursementof administrativeoverhead.OSCsreportshavealsofocusedonthe economicandemploymentsignificanceofthesector.According totheNationalCenterforCharitableStatistics,NewYorkhas nearly27,000registerednonprofits,accountingforalmost$148 billioninannualrevenue.In2010,NewYorkNFPsemployed1.25 millionpeople,about14percentoftheStatesworkforce.(U.S. NonprofitEmployment:TheImpactofRecession,L.Salamon,et al.,JohnsHopkinsCenterforCivilSocietyStudies,forthcomingin 2011,availableathttp://ccss.jhu.edu/publications-findings?did=270)
ComptrollerDiNapoli hostedforumsforNFP leadersinthefollowing communities:theCapital Region,Chautauqua, Corning,LongIsland,New YorkCity,Plattsburgh, Rochester,Syracuse, WesternNewYork,and WhitePlains.

WhatNotforProfitLeaders AreSaying

Thereiswidespreadfrustration withtheStatesinabilitytomeet thedeadlinesinthelaw.Legally requiredcontractactionsand paymentscontinuetobelate.The result?Delaysstretchingto monthsinbeingpaidforservices performedfortheState,and severechallengestothebusiness continuityofnotforprofits.Yet thevoluntarysectorcontinuesto serveaneverincreasingnumber ofNewYorkerswhorelyonusfor help.Itistimeforrealreform.
SusanK.Hager,PresidentandCEO, UnitedWayofNewYorkState

Itisdisappointingthat20years afterpromptcontracting legislationwasfirstenacted,so manyStatecontractsarestillnot processedinatimelyfashion. LateStatecontractsmeanmany NewYorkresidentsarenot assuredofhavingtheirneedsmet inaconsistentandtimely manner.
RonSoloway,ManagingDirectorof GovernmentandExternal Relations,UJAFederationof NewYork

Thetimeforreformingtheway NewYorkStatedoesbusiness withthenotforprofitsectoris now.ItisourhopethatNewYork Statesleaderswillworktogether tobringaboutthesemuch neededchanges.

MichaelStoller,ExecutiveDirector, HumanServicesCouncil

www.osc.state.ny.us

Recommendations
SolutionsformanyoftheissuesfacingNFPscanonlybeachievedthroughExecutiveandlegislative action.OSCistakingsteps,wherepossible,thatcanprovideimprovement.TheNewYorkCityMayors OfficehasbeenworkingcollaborativelywiththeNFPsectoronpromptcontractingreforms,accessto financialsupport,andtrainingofagencycontractingofficialsandNFPstaff.TheCitysworktoestablisha centraldocumentvaultandstandardcontractlanguageshouldreduceredundancyindocument submissionsbyNFPs.TheCityseffortsaswellasarecentproposalbytheGovernorforaonestop fundingshopfororganizationsseekingeconomicdevelopmentfundsmayprovidemodelstosimplify andreformNFPcontractingintheState. ComptrollerDiNapolihassubmittedlegislationtoimprovethegrantcontractingprocessandrequire agenciestopayinterestonlatecontractsearliertoeasethefinancialburdensonnotforprofits (http://www.osc.state.ny.us/legislation/2011-12/oscb9.htm).InadditiontothemandatedPrompt ContractingAnnualReport,OSCwillconductanannualassessmentofmajorissuesimpactingtheNFP sectorandreportonprogressbeingmadeonanyreformefforts.ComptrollerDiNapolihasalso proposedthefollowingactionstohelpaddresschallengesexperiencedbytheNFPsector.NewYork Stateshould: ProvideadequateresourcestoensuretimelyreviewandachievecompliancewiththePrompt ContractingLaw. WorktostandardizecontracttermsandconsidermastercontractsforNFPsthatworkwith multiplecontractingagencies. EnsureagenciescollaboratetocentralizethemonitoringandauditofNFPs. SharesignificantfindingsfromthemonitoringofNFPsfundedbymultipleStateagenciesto ensurethatdecisionssuspendingpaymentbyoneagencyforproblematicorfraudulentactivity areknowntoallfunders. Developlongertermmultiyearcontractstoensuresmoothyeartoyearfundingtransitions. Establishperformancebasedcontractsusingperformanceexpectationsdeveloped collaborativelywithNFPs.Theresultingdatawillenablepolicymakerstofundprogramsmore strategically. Lookforcostsavingsbyeliminatingorreducingfundingforprogramsthatareinefficientornot costeffective,basedonperformancehistory.Avoidinganacrosstheboardapproachtofunding cutscanensureongoingsupportforeffectiveprogramsandservices. ProvideeffectiveinterimfinancialsupportforNFPsfacingcontractdelays.Whilelatecontracts maybeunavoidable,especiallyifbudgetsaredelayed,NFPsprovidingservicesshouldbe supportedwhenthisoccurs.Tomitigatethefinancialburden,aneasilyaccessed,affordable sourceofcapitalisneeded,suchasarevolvingloanfundrepayablefromtheexecutedcontract. EnsuretheStatewideFinancialSystem(SFS)workswithgrantmakingStateagenciestoincludea grantawardandmonitoringprocesstofacilitatethetimelyexecutionofcontracts. EncouragetheSpendingandGovernmentEfficiency(SAGE)Commission,whichhasbeencharged withimprovingthedeliveryofgovernmentservicesandincreasinggovernmentefficiencyand accountability,toconsiderthepromptcontractingrecommendationsprovidedbytheNotfor ProfitContractingAdvisoryCommittee.

www.osc.state.ny.us