The City: Nonprofit Service Providers Take on Debt, Mull Layoffs as City Hall Slow Walks Payments

Published in The City

Nonprofit organizations around New York are still facing months-long delays in getting paid on city government contracts, recently forcing some to close their doors while others are worried about paying their staff.

One group, Hester Street Collaborative — which worked primarily in community engagement, design, planning and other development efforts in neighborhoods across the boroughs — announced in August they would begin the process of shutting down.

“We know that it is a real loss for the field and the communities and organizations we serve,” a letter on the organization’s website reads. “However, we’ve determined that Hester Street’s financial model has proven unsustainable.”

Like many nonprofits across the city, Hester Street relied on city-issued contracts to supplement and in many cases do the work of government agencies. Tax documents show the bulk of Hester Street’s funding comes from city-issued grants, and a former employee said a delay in payment was one of the reasons they decided to “sunset current operations.”

THE CITY reported in February about how leadership change at the Mayor’s Office of Nonprofit Services and problems with the payment system had organizations worried about paying their staff while awaiting checks from the government.

At the time, organizations were owed millions of dollars and many blamed the newly-integrated PASSPort online portal that was supposed to streamline services. Those issues have persisted and worsened, nearly a dozen people told THE CITY this month.

Several nonprofit leaders — some who spoke on the condition of anonymity to both not frighten their staff or anger the city — said they’re mulling layoffs, taking out exorbitant lines of credit or loans, and fundraising just to pay off the interest of loans, rather than focusing on more services.

“It’s definitely the worst it’s ever been,” said Michelle Jackson, the CEO of the Human Services Council, an umbrella organization that works with around 170 nonprofits in the city.

Understaffing issues at city agencies have only exacerbated the issues, she said.

Her organization recently conducted a survey of its members to address issues in having contracts finalized and paid — where half said the city’s delayed procurement process was worse than ever.

Of the respondents, 90% said they had delayed payments totaling $365 million, with PASSPort issues, regulation delays and invoicing issues the biggest reasons, they said.More than 32% of respondents said they have payments delayed for more than six months.

More than 48% said they’ve taken out loans or a line of credit valued at more than $87 million, with $6 million in interest payments.

A spokesperson for the Mayor’s Office of Contract Services, Yexenia Markland, said the transition to PASSPort has improved the procurement process and that 81% of contracts were submitted on time for the last fiscal year — compared to just 56% the previous year.

“Our latest transition to PASSPort — and the newly added PASSPort Vault which delivers on a recommendation from the Joint Taskforce to Get Nonprofits Paid On Time — demonstrates our commitment to continuous improvement,” she said in a statement.

“Additionally, the renewed investment to the Returnable Grant Fund distributed in partnership with Fund For the City of New York offers interest free loans to providers to ensure that our workers leading the charge to support some of New York’s most vulnerable residents are fully resourced to do great work.”

That task force, formed by Mayor Eric Adams and Comptroller Brad Lander, met three times between Dec. 1, 2021 and Jan. 31, 2022 to “take stock of the current state of nonprofit contracting, identify opportunities for reform, and to surface the most promising and actionable recommendations,” according to its the comptroller’s office.

But nonprofit leaders say the problems persist.

The problems have hit a wide array of groups, from public defenders who are required by law to represent people in criminal court who can’t afford attorneys to organizations who feed and house homeless New Yorkers.

Earlier this month, a group of legal-support nonprofits including The Legal Aid Society and The Bronx Defenders sent a group letter to Adams demanding the city address late-payment issues.

“Delays in payment are existential and threaten payroll and our ability to continue doing this work, especially for smaller nonprofits,” the letter read.

Last week, Manhattan Borough President Mark Levine backed the legal providers with his own letter to City Hall, emphasizing that many cannot submit invoices; some have not been paid for work completed last fiscal year, which ended almost five months ago.

“Our nonprofit service providers are the backbone of our city’s core human, social and legal services and are key partners in the work towards a more equitable city for all of us. They cannot sustain such delays in payment while doing their work, nor should they continue to be asked to,” Levine wrote.

“The city’s dysfunctional contracting process needs a comprehensive overhaul,” Twyla Carter, the CEO and attorney-in-chief at The Legal Aid Society, said in a statement. “Nonprofits that serve as New York City’s safety net can no longer endure this endless game of whack-a-mole, where resolving one contract issue is quickly followed by another.”

Kristin Miller, the executive director of the nonprofit Homeless Services United, said the fiscal year actually started off well in July but “then we again fell back into the old ways — delayed, stalled, falling into a black hole.”

Her organization works with homeless services providers and the slower payouts comes as the need for shelters and other help has increased.

She also blamed staffing challenges at city agencies.

“If you put it into perspective, the demand for shelter in homeless services doubled in two years — and the staff at DHS did not,” Miller said.

“There’s never enough people back at the ranch that do the business services that we need.”

Dr. Jocelynne Rainey, the president and CEO of Brooklyn Org, a local philanthropy platform, said the payment slowdown is “catastrophic” for nonprofits.

“This hustle doesn’t last forever, and when they give you loans they don’t give you loans for the full contracts, leaving them struggling to make ends meet while waiting for payment,” she said.

“This is what nonprofits do: They keep the community safe by providing services to people who need those services.”