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Government Contracting and Funding Issues Require Our Best Efforts

by Brenda Peluso

MANP & Preble Street co-wrote the following OpEd piece, which was published this morning in the Portland Press Herald:

In the good old days, nonprofit human service providers depended on the United Ways for financial support, and state and local governments provided for many residents through large institutions and poor houses. In the 1960’s, in an effort to care for our vulnerable people more humanely, we as a society made the decision to move services into communities. We no longer wanted our loved ones with developmental and physical disabilities cared for in distant institutions where they were often isolated, neglected and even abused. Additionally, we decried a system where low-income elderly were forced from their homes. In moving to community-based care, our government began to outsource these services to nonprofit organizations which were smaller, more cost-effective and more flexible than government. This outsourcing saves the tax-payers money and gives local communities more opportunities to impact the quality and types of services offered.

As this system has evolved, though, the number of private nonprofit and for-profit service providers has grown tremendously. The complexity of the contracts between these service providers and government has also grown tremendously for a variety of reasons. One of the reasons is the nature of our political system. As issues arise, legislators and regulators enact new rules and regulations to ensure that undesirable outcomes don’t happen again. So, over the last 50 years, states and the federal government have pieced together a system that is full of redundancies, has some gaps, and often has conflicting reporting requirements. The problems with this contracting system have been exacerbated by the fiscal crises states are currently facing.

A report released by the Urban Institute and the National Council of Nonprofits in October of 2010, shines a light on the problems that exist within this contracting system. Some of the highlights of the report include:

  • An estimated 33,000 nonprofits contract with one or more government agency to provide human services.
  • The average number of contracts held by a nonprofit service provider is six.
  • Two-thirds of surveyed nonprofits report contracts do not cover the cost of services provided.
  • Three-fourths of surveyed nonprofits report the complexity of the reporting requirements is a problem.
  • Half of the surveyed nonprofits report that contracts are changed, sometimes frequently, during the contract period. These changes include reduced reimbursements and changes to service requirements.
  • Half of the surveyed nonprofits report that because of late payments, they have had to spend down any reserves they may have had, take out loans or increase lines of credit.

In a new survey from the Nonprofit Finance Fund, more than 4,500 respondents from nonprofits across the country (161 from Maine, the 8th largest response!) shared how they are adapting their organizations and finances to current economic conditions. The survey reveals that while 2011 was a year of significant organizational and programmatic changes, many nonprofits are still facing fundamental challenges that threaten the stability of the sector and the well-being of the people and communities that they serve.

  • Over 80% of responding Maine nonprofits anticipate an increased demand for services in 2012, with only about 2/3 of nonprofits indicating they anticipate being able to meet the needs.
  • Almost half of responding Maine nonprofits indicating that their financial outlook in 2012 is shaping up to be harder than 2011.
  • Responses re-affirm that in most cases, neither state nor local contacts (for nonprofits that receive these types of funding) are covering the true costs of services.
  • Delayed payments from both state and local contracts continue to challenge the financial stability of nonprofits.

The Maine results are available in a user-friendly, graphic display format which is filterable by a range of criteria making it very easy to sort through and apply the data.

These problems are not confined to nonprofit service providers. It is important to understand their ripple effect in the community. When a nonprofit day-care provider can no longer serve as many children, how will the low-income single parent who loses their child’s spot be able to work? When tax-payer dollars are wasted on duplicative audits and paperwork, what opportunities are lost? When human service providers are forced to do fundraising to cover the costs of their government contracts, how does this affect the ability of cultural and environmental nonprofits to compete for diminishing private resources?

The Maine Association of Nonprofits has begun a process to address the situation here in Maine by convening government, philanthropy, service providers, consumers, and advocates as well as by providing research assistance in order to identify ways in which we can partner better together to provide high quality service to our residents in the most cost-effective manner. This is an ongoing effort and we are committed to finding smart solutions.

We recognize the significant burden that an imperfect contracting system places on the provider community and appreciate the willingness of all parties concerned to come together and create a system that is streamlined, rewards excellence, and holds all parties to a higher standard. There is no silver bullet, no quick fix. But Maine has the commitment of its service providers, private foundations, and state government officials to make it better. Join us.

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