Payments to nonprofit providers (photo: Ed Reed/Mayoral Photography Office)
Nonprofits that provide essential city services are in crisis. New York City government’s failure to pay nonprofits on time for the vital work they are doing for the city is jeopardizing the existence of these critical organizations that New Yorkers – especially the poorest and most vulnerable – rely upon.
In the past two weeks there has been reporting that two venerable nonprofits — GEMS and Sheltering Arms -- are in danger of closing because of delayed city payments. This is devastating news for New Yorkers.
Before GEMS’ founding, children as young as 11 years old – overwhelmingly low-income girls of color – who were the victims of repeated rapes as part of the commercial sex industry were sometimes being arrested and charged with prostitution. GEMS fights to empower girls and women ages 12 to 24 who have survived commercial sexual exploitation and trafficking to escape these circumstances and reach their full potential.
Sheltering Arms Children and Family Services operates much-needed youth homeless shelters, foster care, mental health treatment, and housing and educational programs throughout New York City.
Unfortunately, the fate of these two organizations is emblematic of a larger trend caused by the city’s failure to timely pay nonprofits that provide essential services on behalf of the city. A 2021 report by the city’s Human Services Recovery Task Force found that more than 1,800 nonprofits were in danger of closing, with revenues down an average of $9.1 million.
Much of this is a direct result of the city’s failure to pay contracts in a timely manner.
Before a contract can be paid, it must be registered. And the City does not do a good job of registering contracts in a timely manner. According to the City Comptroller’s office, in Fiscal Year 2021, for over 16% of all contracts it took the city over a year from start date to presentation to the Comptroller for registration. Another 27% took at least half a year. The numbers are even worse for human services contracts, where over 21% take more than a year and an additional 30.5% take more than half a year.
Not only does failure to register prevent payment, but registration is also important because it affects the rights of the nonprofit against city government. Without registration, there is no enforceable contract and so no right to sue for breach of contract if payments are never made or unreasonably late.
The problem of delayed payments is on the radar of both Mayor Adams and Comptroller Lander. Even before taking office, they created, in December 2021, a Joint Task Force to Get Nonprofits Paid on Time. In February 2022, the Joint Task Force released 19 recommendations. One recommendation was to put time limits on the various steps needed to approve contracts. Unfortunately, while these proposals came out a full year ago, many have not been implemented, including that timing one.
There may be some help on the way. There is a bill in the City Council (Intro. 511) now in committee that would legislate time limits on agencies for processing contracts. Specifically, the bill would require the Procurement Policy Board (“PPB”) to establish (1) The time limits within which the contracting agency must complete each step of the procurement process; and (2) The time limits within which each mayoral agency charged with oversight of the contracting agency must complete its oversight review of the procurement contract.
While this legislation is a helpful start, without some changes it may not have sufficient impact. To begin with, the legislation does not have hard deadlines for the PPB to do its work -- the Task Force to Get Nonprofits Paid on Time called for these same deadlines over a year ago and nothing has happened yet. Also, the bill sets no penalties if the newly-created deadlines are missed. As a result, the deadlines, even once they are set, will be difficult if not impossible to enforce.
With or without legislation, any real change will require mayoral buy-in.
We served for years as Commissioner (Peters) and First Deputy Commissioner (Brovner) of the city's Department of Investigation (DOI). It gave us a deep understanding of the inner functioning of the agencies now contracting with nonprofits to provide services, and one thing is clear: Without an increase in both staffing and technology infrastructure, it is extremely unlikely that these city agencies will meet deadlines no matter what strictures are imposed.
There are devastating consequences to good nonprofits going out of business. Not only do vulnerable New Yorkers lose the services that they are entitled to, but dysfunctional and sometimes corrupt nonprofits move in to take the place of the good ones that went under. We saw this over and over again both while prosecuting charities fraud at the New York State Attorney General’s Office and again at DOI while serving as the Inspector General for city agencies that repeatedly entered into contracts with questionable nonprofits when they couldn’t find anyone else willing to contract with the city.
We've seen the problem of delayed city payments up close as private attorneys as well. We have represented several entities that provide vital services on behalf of the city and have seen delays -- often of years -- in getting the city to pay for these services. This can pose a real threat to the providers' ability to stay in business and can lead to the untenable choice of taking out expensive loans or simply getting out of the business of serving the city and its residents.
New York City needs to start paying its bills on time, and it needs to do that now, before more essential nonprofits go under and vulnerable New Yorkers suffer needlessly.
Lesley Brovner and Mark Peters are founding partners of Peters Brovner LLP, a boutique law firm in New York City.