Report Finds NYC Nonprofits Plagued With Chronic Problems

A year after Federation and Employment Guidance Services (FEGS), a $250 million health and human services behemoth in New York City, went bankrupt, the city's human services sector is struggling to serve an estimated 2.5 million people, a report from the Human Services Council finds.

The report, New York Nonprofits in the Aftermath of FEGS: A Call to Action (45 pages, PDF), found that in addition to FEGS, a  number of human services organizations in the city have recently closed their doors. According to the report, underfunded government payment rates — 80 cents or less per dollar of true program delivery cost — are the primary driver of the sector's financial distress. In addition, chronic underfunding prevents agencies from delivering quality services and forces them to undertake costly borrowing to make payroll and rent; in 2013, nearly one in five human services providers in the city were insolvent.

"The FEGS bankruptcy took place against the backdrop of a chronically underfunded sector, and it gives us an opportunity to have a real discussion about the state of New York's nonprofit human services organizations," said Gordon J. Campbell, a professor of practice at New York University's Robert F. Wagner School of Public Service and chair of the commission behind the report.

The report also found that many programs are designed without input from the nonprofits implementing them, resulting in ineffective and unworkable programs, and that the sector does not have the tools to adequately assess the risk of contracts and mandated programs. To address these and other issues, the commission recommends that government and private philanthropy work together to fund the core functions and indirect costs of human services organizations, as well as account for cost increases and mandates that end up stripping money from programs; that government collaborate more effectively with the sector on program design and ensure that the sector is prepared to make a smooth transition to Medicaid Managed Care; and that nonprofits and their boards move quickly to adopt financial evaluation tools and risk assessment methods, while the sector itself should develop ratings systems to evaluate the risks associated with government contracts.

"Government feels like they can get away with underfunding programs because we're all so passionate about the work we do and we'll keep doing it anyway," David Rivel, CEO of the Jewish Board of Family & Children's Services,  told the Wall Street Journal. "There are lots of nonprofits on the brink."