State Contracting and Financing for Human Services

For the past four decades, states have increasingly contracted with nonprofit organizations to carry out state financed human services. Due to tight budgets and budget shortfalls, services have been in jeopardy. Contract changes, late payments and alternate financing are just a few of the consequences.

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With growing state budget gaps, concern has emerged over the ability of states to offer human services to the public. State governments rely heavily on nonprofit organizations to carry out needed services.1
  • Government agencies have approximately 200,000 formal agreements in the form of contracts and grants with more than 33,000 human service nonprofit organizations.
  • Nonprofit organizations have, on average, six contracts and grants with all levels of government. For example, as of June 2009, New York held 31,000 contracts with nonprofit organizations, worth $14.6 billion.2
By all accounts, the upcoming fiscal year will be a challenging one for states, as they face growing budget gaps in the aftermath of the Great Recession.
  • According to the Center on Budget and Policy Priorities, 44 states are currently projecting budget shortfalls for fiscal year 2012. This compounds the large shortfalls that states closed in fiscal years 2009 through the present.3
  • Many states have already accessed or depleted rainy-day funds.
  • The federal Recovery Act helped ease some of the pain of the recession and allowed states to minimize or delay cuts to some programs. The Recovery Act infused states with over $224 billion; however, now only $6 billion remains from those funds, and states will be straining to fill the gaps.
Late payments and contract changes are a pervasive problem with negative consequences to the state, general public and nonprofits. 
  • Lack of prompt payment to nonprofits results in disruptions of services rendered to the public. 
  • Nonpayment and delays can cause nonprofits to finance the cost of state-paid services, sometimes at their own expense.
The New York state comptroller suggests the following strategies for states to improve collaborations with contracts and grants:4
  • State agencies should choose start dates for grant contracts that are later than April 1, the start of the state’s fiscal year, so contract processing is not affected by the timeliness of adopting a state budget;
  • State agencies should use the grant contract boilerplate in a consistent manner to ensure the terms are uniform for all state agency grant programs;
  • Master contracts with the same not-for-profit should be utilized when feasible making negotiation required for any changes in terms; and
  • The (state’s) Not-for-Profit Contracting Advisory Committee should continue to meet regularly to review recommendations from the not-for-profit community and state agencies.

References:

2 Office of the State Comptroller. New York State’s Not-for-Profit Sector. 2010.
3 Center on Budget and Policy Priorities. "States Continue to Feel Recession’s Impact." January 21, 2011.
4 "Prompt Contracting Annual Report: Calendar Year 2008." State of New York, Office of the State Comptroller. May 29, 2009.