Senate Non Profit — 2026-08-05

Good afternoon everyone Good to see you all here I pleased to call this meeting to order of the Senate and Assembly Select Committee on the nonprofit sector with my co Assemblymember Greg Hart Welcome to all members and witnesses and community partners Today hearing is focused on the fact that California cannot meet its goals without a thriving nonprofit sector As I always like to point out, I think one out of 12 or 13 jobs in California is in the nonprofit sector, and it's very critical to my district. We've got a lot of very vibrant and vital nonprofit organizations in both the Valley and in the Bay Area. They are coordinated activities. They're very effective. And I'm proud to be a chair of this committee because I am so proud of their work. The nonprofit sector contributes billions of dollars each year to our economy, and they produce millions of jobs across the state. the organized food banks, community clinics, distribute grants, and all the work that the government cannot do by itself without their help. with severe federal cuts to programs like Medi-Cal and CalFresh. The nonprofits have stepped up at the most crucial time to assist with as many possible dealings as possible with fewer resources and more obstacles than before. Our purpose today is to examine how the state of California can organize its system of nonprofits with the nonprofit industry in partnerships. We look at the challenges and solutions that will best serve all of Californians. And now I'm going to be yielding to my co-chair, and I'm going to have to step out for about 20 minutes. So, co-chair, it's all in your capable hands.

I believe I am, yes.

Thank you, Chair Hart. I do have some slides here, so I'm going to just direct everyone over there. First of all, thank you for the opportunity to talk about the importance of the sector, sort of the current challenges that we're facing collectively as a nonprofit sector here in California, and some of the data that we've gathered in our most recent research for causes count. And I'll sort of lay that groundwork just to reinforce the notion, as you just stated, that nonprofits are a critical sector of our economy, our social fabric, our infrastructure throughout the state. So I want to start, however, just making sure folks understand a little bit about CalNonprofits, the organization which I have the pleasure of serving as CEO. CalNonprofits is a 41-year-old organization. Trying to get these slides to advance here. Let's see if we can get it to work. And as I was warned, they sometimes go fast. All right, there we go. So we are essentially three things So we are a membership organization with thousands of formal members representing the full broad swath of the 501c3 public charitable sector here in California which actually is roughly 110 organizations in California alone We do policy and advocacy work. We do education work for the sector and partners, and we do research and data work, mostly in finding good data and pushing it out into the broader sector. It is sometimes very hard, as you may know, to find good data on nonprofits. that when we see it, we make sure everyone has access to it, and when we don't see it, we often will partner with research organizations and collect that data. Our policy and advocacy work is largely focused on that structural piece, so how does the nonprofit sector work and interact within society, within community, in particular with the state of California. So we do sponsor bills, we do advocate for bills, we do weigh in on rules changes, we do oppose bills that we think would be harmful, et cetera. When it comes to the educational work, it's really taking a look at those things that cut across the entirety of the sector. So we don't generally focus on the mission or a particular submission. If we think about what nonprofits are and what they cover, it is quite literally anything and everything. So what we try to do is what's the common experience of being a not-for-profit organization in California, whether it be the HR, the policy, the grants and fundraising work, the tax policy, insurance, those sorts of things. And as things change, we want to make sure that our sector is as up-to-date as possible to adapt to those changes. And we'll talk about some of those changes, especially the federal ones, here in a moment. With data and research, these are just some examples of who we partner with. Independent sector does a lot of regular research about the broader health of the sector. Nonprofit compensation associates, we do an annual survey of compensation to try to make sure that nonprofits are and remain competitive. and in cost discount there is the research that we do ourselves that we are sharing a bit of today. But I do think it's important to just say what is probably the obvious to those in the room, but why nonprofits, why am I and we are so passionate about this? And that is simply, as you stated earlier, nonprofits do what the private sector simply won't do because there is not a profit motive, not a profit mechanism, and the public sector simply can't do alone. And we do it in partnership with both. So I think it's important to note that there really isn't a this or that. It's that we are doing this unique role, but we need everybody around us to be part of that. And it is always in partnership. So I think it's important to talk about the current state of affairs for this sector. And I do want to concentrate mostly here on what federal threats have been coming down in the last 18 months or so, because this is a unique, and I think unique gets thrown around a lot, but I don't think it's inappropriate to say this is really an unusual time. Not that any of these things have not happened before, but for all of these different attacks on the broader sector to come at once with this intensity and relentlessness, I think it really does affect the reality of being a nonprofit worker and volunteer and, frankly, being a community member that relies on nonprofits. So I'll divide this into a few sections. The first is the executive orders. So there have been 270 executive orders in this term from the Trump administration starting back on January 20th last year. And that number is as of last Friday. And I know this week there are a couple that have been added to that. So they are literally all over the map. But some of these, and especially some of the early ones, were directly aimed at the sector, trying to either disincentivize, block, or create a narrative that some core missions in the nonprofit sector were somehow wrong, illegal, troublesome, nefarious in some way. I would say all false narratives, but nonetheless, it did add a real challenge to getting this work done on the ground across the state. I think the first act that really got everyone's attention beyond just the executive orders, which are really statements of values from the administrations, not necessarily don't have the force of law. But we did start to see just a week later, as some will remember, the OMB memo that came out January 27th of last year, which was actually putting all federal funding on pause and attempting to rescind some of it. Now, that was challenged immediately by our colleagues around the state and country. And the good news is that the nonprofit sector has been winning on those issues in courts. But nonetheless, it takes incredible resources. It frankly frightens a lot of people, and it puts programs on hold while they're uncertain about their revenue. This has, of course, changed shape several times. So there has been new guidance issued. Most recently, OMB issued hundreds of pages of new rules and guidance that were seen by the public. We had over 500,000 comments on those, which is a record setter in what I'm aware of. And we don't know what's going to happen next. There's some legislation in the Senate that might actually put this rulemaking on pause, at least temporarily. But this would be another way of really restricting certain kinds of funding to certain kinds of nonprofit work. So everyone's got their eye on this, and it would largely politicize what historically is not a political process at the federal funding level. The other one that I think is important, and it's probably the wonkiest among these, but arguably one of the most foundational, and that's the Johnson Amendment. This is that firewall between politics, the partisan part of politics, and the nonprofit sector. This was put in place in 1954. It has been a bipartisan bulwark, nearly unanimously supported for those 70-plus years. But we are now really in the first time in history, and since it has been created, it is under attack directly. And there are those that want to get rid of that nonpartisan bulwark. I think that is dangerous for all sides, but particularly dangerous because nonprofits, one of the reasons we are so broadly and widely supported is we are known to not be partisan actors. You walk in the door, we don't ask what you believe in X, Y, and Z. We help. And that is really, especially in the human services, so important. So we have our eye on this. There are several angles here. There are things in federal tax court. There, again, are executive orders, and there are other things within the IRS moving forward that would theoretically and possibly undermine or even eliminate the Johnson Amendment. So this is another threat to the broader health of the sector. We then have the big legislation last year, H.R. 1, and I think everyone here probably in this hearing or listening knows that there are two big parts of this, And it really is a dismantling of two big pieces of our safety net, at least the federal part of that, having to do with health care and food security. The state, of course, and every state is asked to step up and do what it can to compensate and accommodate. But the fact is there is no state, even one as large and powerful as California, that can completely make up for the hole that is coming. And, of course, it's been parsed out over many years. So the full effect of this will not be felt for some time. But everybody working in health and food security right now in California is definitely making plans around how to deal with this big hole coming. And then finally, I'll just say, and these are just sort of the larger buckets that I've placed for today. There's more. But this is the sort of fourth angle that I think is important, which is just a series of hearings and investigations at the federal level, again, framing nonprofits as somehow doing something that is dangerous or undemocratic or counter to values of the American public. Again, I will say overwhelmingly false, yet those kind of narratives do take root and they lead to people asking questions or second thinking around their giving or whatever it may be. And we just have to be highly attuned to what is being said and where those narratives are. And when there is something that is in fact a scandal or wrongdoing it gets immediately blown up by these sorts of forums And we have a lot of folks that are then responding to that So all of those things are a lot to navigate And it why it so important especially right now to really bolster and support the nonprofit sector and do what we can to keep it strong. So what does all this mean to our sector? We ask, and we ask regularly at Cal Nonprofits what this all means and what effect it's having on nonprofits. And I'll give you a snapshot here of what we're being told. This was our last member survey, and we asked a series of questions. The two I'll share with you today are, what are the challenges that your organization is facing? And so in hierarchical order there, you see that funding uncertainty is top of mind. Nearly 80% of organizations are saying we just are not certain what's coming. And that is all types of funding. And, of course, the nonprofit sector, the revenue is very diverse, and we'll talk about that in a moment. But when such big pieces of it are in question, whether it's about donor behavior changing, whether it's about federal or state funding being withheld, or whether it's about rules changes of how funding gets used, all of those things are threats to the regular operating of a nonprofit. It's important to, I think, note that nonprofits, unlike for-profits, if you think about what a typical revenue model is in a for-profit, you're creating something, either a service or an item, and your customer is paying you for that directly. That is the transaction. In the nonprofit sector, it's a more complicated economics because you're providing something, but generally the person or entity to whom you're providing it is not the payer. You're having a third party help to pay for that so that that is then delivered to this other party, and that makes for a much more complicated set of players for that economy. So we are very concerned about that being the top one. You can see other things there, workforce stability and challenges, sustainability of systems. So there's just a lot there. None of these are brand new, but the intensity of some of these is certainly a response to the current moment that we're in. And then this is really the bigger existential question that we asked. And it was simply, how would you describe your organization's current situation? And you can see there that, you know, the majority said we are challenged, but we're finding ways. And there's, if you can say one thing about nonprofit leaders and workers and volunteers, they are some of the most creative and entrepreneurial people I have ever met. This is work of passion. People do this because they see a need and they believe a solution. And so they will find a way, but it's not easy. And I think it's important to note that a lot of energy and time gets wasted navigating some of these other issues that should and could be put into doing the good work. You'll see that second bar up there is actually that these are the folks that said we're actually growing. Now, this was a little bit of a surprise to us, but it's about a quarter of our membership base. And if you look a little bit deeper, it's the folks that were already connected to broad networks. They were already doing some sort of advocacy. And they were the ones being sought out in this moment where there are attacks coming at sectors. So if you step back and think about it, it makes sense that there's a significant portion. It's a minority, for sure, of nonprofits, though, that were kind of ready for the moment and are gaining some strength in this moment to try to demonstrate a different way forward. And then you have the roughly 17 percent who said, you know, we're not sure if we're going to be here next year. And that's really the bigger existential threat. And that's largely about funding, not exclusively, but overwhelmingly the folks that were in that position were about funding. Now, that seems like a small number, but if you think about the size of the sector in California, if we were to lose 17 percent of it suddenly, that would be catastrophic for a lot of our basic social infrastructure. So I do want to share, this is the research, some of the results of our current causes count. and these are the last full numbers at the end of 23 We know it about 110 now and you hear shortly from our Department of Justice folks Elizabeth Kim will be here to share a bit about the current realities but let say 110 in all That's about a 20, 22% increase over the decade. So the number of nonprofits in California continues to grow. People are creating new entities to solve problems, and that has been a fairly steady growth in recent years. This is the financial side. So if you look at the top line there, this is the assets in billions and just below that revenue in billions. And you can see well over $700 billion in assets in the nonprofit sector. This is just the 501c3 public charitable sector in California and approaching $450 billion in revenue. Now, that's bigger than the state budget, and I know I don't have to tell you that. But I think it's important for folks to know that in addition to doing all this work that is solid in service of our missions, We are a major economic factor and a major player in our state. And, of course, this being one of the world's largest economies, that's not a small number. Nonprofit revenue itself, and this is a slightly older donut graph, but I like it because it's brightly colored. You can see it from a distance, and it doesn't change that much. This is essentially what the revenue sources are within the sector in a typical year. And this is the entire sector across the United States. But roughly half is earned income, and that gets forgotten, that nonprofits is our businesses. Nonprofits are business entities. They do earn revenue. Think of the money you would pay for a summer camp or a co-pay at a clinic. It may not be the market price of what you're receiving, but it is still revenue for the entity, so fully half of that is earned revenue. That third that is orange, that's actually the public partnership, so that's the grants and contracts. So as we talk about this today, about the importance of making sure those systems work as well as they can, that is a full third of the revenue into the sector. The remainder is the private philanthropy of various types, so individuals being the largest to share and then foundations, corporate, and a handful of other sources. This graph I just show because it hurts your brain, but I do think it's important to show the complexity of the revenue within the sector. So this was something that was done by a colleague, John Pratt, and some other researchers some years ago. But it does show just how complicated it is where dollar flows come into and go out of the sector. And this is across all of the different subsectors and missions that are out there. So this does change year to year, but there is a pretty steady hierarchy of where the dollars come from and where they go. The take-home point is here. It's a very large economy, and it's very complex. So here's what we're learning, and I'll end on some of the really positive notes. First of all, you referenced earlier, as did Senator McNerney, you know, over 1.4 million, approaching 1.5 million Californians work for nonprofits. So we are a major employer in the state. This makes us about 9%, 9.1% of all private employment in California, roughly 1 in 12 jobs as of our latest measure. And that makes us the third largest private employer by sector in the state. So if you put all of those nonprofits together, we are the third largest employer in the state of California in the private sector. And it's important to note that 70 percent of the nonprofit sector has zero employees. We are all volunteer associations overwhelmingly. So it's even a small minority of those 110,000 that make up this third largest employment sector. So truly a statement about the economic power and importance of the sector throughout the state. And the really good news, and I will end here and say that the faith in the sector is strong. And we have seen this vary in a lot of what I mentioned earlier about the federal narratives attacking the sector in various ways. Or if a scandal happens and it sows doubt in someone mind overwhelmingly Californians support nonprofits They believe they important to their personal lives and communities You can see there 95 of nonprofits say they either very or somewhat important to their communities Broken down there I think 76 said very 19% said somewhat. But that is nearly everyone recognizes the importance. 82% are somewhat or very concerned about cuts to funding. So the people are aware of that. That narrative is penetrated. They hear it and they are concerned about that. And actually 87% said they benefited personally from a nonprofit service in the last 12 months. And this is why this is so important. Nonprofits truly are of, by, and for the communities we serve. They're usually born right there locally out of a need and an understanding of what's happening on the ground. And people of all types. So we're not just talking about those struggling the most at the margins. We're talking about all kinds of folks across the economic spectrum that take advantage of what nonprofits offer because that's the best choice for them for whatever reason, whatever the thing they may be seeking. And you can see there that 75% thought it was within their power to improve their own communities through personally supporting, giving, or working with nonprofits. So the good news is we enjoy the strongest support of any sector in our community. It's a major economic sector, and it is relied on across the system. I think it's important to note, too, that We are generally there when we're doing that partnership that I referenced at the top. That is at the invitation of the other partner. So oftentimes folks will reach out to the sector and say, hey, this is our mission that we're trying to accomplish. We understand you may be able to help. And certainly state government does that regularly. And so when we talk about what we want to do with the Office of Nonprofit Empowerment or we talk about improvements in grant systems, it's all toward that greater goal of making sure that we can execute and say yes to those invitations and improve communities across the state. So with that, I will say thank you.

Thank you. And good afternoon, Chair Hart. It's a pleasure to be here, right? As I was listening to Jeff, I was thinking of my own personal experiences with nonprofits, right, when he talked about the range, right? So mine started with a program that was helping women who were formerly incarcerated, right, to come back into the community. And then I went to work. I went to work. I was on a board of a large music organization, right, in the Bay Area. And after that, I sat on one of the largest women foundations boards of directors here in the United States. and I currently sit on the largest child welfare agency board of directors here in the state. And so the range is amazing, isn't it? And I'm just one person, and so you can imagine how many other people that are doing the same kinds of things. So anyway, it's a pleasure to be here, right? I want to thank you for inviting us today to discuss the Little Hoover Commission study, and thank you for acknowledging it in your remarks. I almost said to myself, I don't have to give all the remarks. He's got it already. But anyway, we really appreciate this. Nonprofit organizations play a critical role in service delivery in California, as you just heard. They provide essential services to communities and employ millions of workers and millions of volunteers, obviously, right? Yet many of these organizations are small and strained for resources, as you just heard. Given their critical role and the operational challenges many of these organizations face, we looked for opportunities to strengthen the way California administers grants and contracts with nonprofit organizations. We found that the challenges facing nonprofits are not the result of a single policy or agency. Rather, they stem from a collection of administrative practices that have developed over time and taken together create unnecessary burdens for both nonprofits and state agencies. Ultimately, these inefficiencies divert time and resources away from the delivery of services. So we made 12 recommendations in our last report on the nonprofits, and they're intended to address the challenges through practical and what we consider achievable returns. We learned that nonprofits often subsidize the delivery of state services in three ways, by providing services before receiving the funding to pay for those services, as I think you mentioned before, when the state is late in issuing reimbursements, and when the state does not allocate enough funding to cover overhead expenses. The state, not nonprofits, should fund the cost of delivering state services. We made three recommendations to rectify this. First, we recommended that the state provide an advance payment of at least 25 percent and 100 percent if the nonprofit has been in good standing for at least three years. State policy currently allows agencies to provide an advance payment of up to 25 percent on nonprofit grants, but it does not require them to do so. When a nonprofit receives an advance payment, it depends on the agencies administering the grant. Payment delays create significant financial strain for nonprofits. Some nonprofits use their own funds to provide services on behalf of the state, some even taking out loans to cover up these upfront costs. And the loans are not reimbursable by the state, by the way. The interest on them is not reimbursable. This means they pay interest to deliver state-funded services. Second, we recommended amending the Prompt Payment Act so its protections apply to all state contracts with nonprofits. Nearly one in four respondents to our survey of nonprofit organizations waited more than three months to receive reimbursement from the state. One nonprofit reported carrying $945,000 in accounts receivable from the state for more than seven months. Nearly three-quarters of nonprofits experiencing late payments reported moderate to severe operational impacts, causing them to reduce programs, take out loans, or cut staff. The Prompt Payment Act was meant to address these sorts of payments delays, but the law only applies to certain types of grants and contracts. The state should work with its nonprofit partners to establish realistic and equitable payment timelines to be incorporated into the Prompt Payment Act. And if an agreement is unreachable, we should expand the Prompt Payment Act protections to all nonprofit grants. Finally, we recommend requiring state agencies to match the federal government's allowance for overhead expenses. State agencies and nonprofits should be allowed to negotiate a higher overhead rate if it is justified. Indirect costs, such as rent, utilities, and administrative oversight are often overlooked in state grant funding. When these costs are not fully reimbursed, they are shifted to the nonprofit, forcing organizations to cover the difference with their own resources and, in effect, to subsidize state-funded programs. State agencies should match the federal government's minimum rate for indirect cost, which currently is 15%, while allowing higher negotiated rates when they are justified. This approach would reflect the true cost of delivering state-funded services and help ensure nonprofits can sustain the programs that Californians depend on Another topic we learned about during our study was the important work nonprofits do in serving Californians during wildfires and other disasters and emergencies Welcome back, Chair McNerney. Nice to see you. We heard how important it is to have a standardized process in place to quickly amend a contract in a declared state of emergency so that nonprofits may continue to deliver services in the face of rapidly changing conditions. I'd like to acknowledge Assemblymember Macedo's leadership in this space last year with her bill that proposed allowing nonprofits to alter a contract with the state in an emergency. Our recommendation reflects that proposal. We also learned that the state's approach to grant administration differs by agency. While some agencies have developed innovative and efficient practices, others take a more cautious approach. The legislature has already directed state agencies to expand partnerships with nonprofits, with limited financial reserves serving disadvantaged communities. As a result, many nonprofits that now work with the state have less experience navigating state processes than those in the past. We believe a nonprofit liaison could work with these less experienced nonprofits and help state agencies navigate the challenges of working with lower capacity organizations. This is why we are recommending establishing an Office of Nonprofit Empowerment. This office could also serve as a logical vehicle to implement several of our other recommendations. These include providing plain language guidance to state agencies, facilitating training and peer learning opportunities, and creating and running a uniform grant reporting portal. There are other ways to strengthen state nonprofit partnerships as well. I'd like to describe several additional opportunities we found to strengthen state nonprofit partnerships. First, we found that current grant administration requirements disproportionately emphasize compliance over outcomes. And nonprofits often are required to submit similar information to multiple state agencies, each using their own different formats, their own different reporting schedules, and their own different requirements. This duplication consumes valuable staff time that could otherwise be devoted to serving Californians. Californians. And when I talk about valuable staff time, I don't mean just at the nonprofit. I also mean at the state agency. As a state, we must optimize our reporting requirements. To do this, we recommend a full review of reporting requirements across grant programs to identify areas where we could harmonize requirements with federal standards without reducing oversight. We also recommend reducing the frequency of reporting when possible. I can't remember how many times sitting on boards I've heard the multiple audits that go on. Why can't we get to a single audit system? There must be a way. Next, we learned that the state's current paper-based payment processes contribute to funding delays. Paper checks can increase processing times. They create problems when checks are lost or delayed in the mail. They require additional tracking and documentation. And they introduce more opportunities for fraud than modern electronic payment systems. There are times, believe it or not, where we will send out paper checks that could be written for millions of dollars that get lost in the mail. I heard a story once where the United States Postal Service, right, the driver decided to go to Las Vegas and left the truck on the side of the road with checks in it I not joking And so it an incredibly important thing in this state that has the technological we are the technological center of the world right that we can't figure out a way to be able to electronically send checks to nonprofits. So we recommend that the state controller's office adopt electronic fund transfers as the standard method for dispersing grant payments. Electronic payments would be faster, more secure, and more efficient for both the state and its nonprofit partners. The SCO also could establish a specialized grant processing unit to troubleshoot payment issues and provide a direct point of contact when problems arise. Next, we learned that a few grant applicants receive substantive feedback when their applications are rejected. The lack of feedback is particularly challenging for smaller organizations that may not have had professional grant writers or experience working with the state agencies prior. When applicants understand why proposals are unsuccessful, they are better equipped to submit stronger applications in the future. Over time, they can improve the overall quality of the applicant pool. For these reasons, we recommend that state agencies provide meaningful feedback to unsuccessful applicants. Finally, we found that state agencies do not always use the full grant periods authorized by the legislature. Shorter grant cycles make it difficult for nonprofits to recruit and retain qualified staff and create uncertainty about future funding. They also require more time spent on grant applications and awards processes rather than service delivery and program monitoring. So we recommend that agencies issue grants for the maximum authorized period and adopt easier renewal processes for high-performing nonprofits to continue to receive funding. In closing, our recommendations are grounded in a simple principle. When the state makes it easier for nonprofits to partner with government, Californians receive better services. We believe there's an important opportunity to build on the progress already made and continuing to modernize California's grant and contract systems in a way that benefits nonprofits, its state agencies, and most importantly, the Californians who rely on these services. I'd like to thank the committee for the opportunity to present our findings and recommendations, and I'm now going to ask our commission staff, Crystal Beckham, who served as the primary researcher for our study, to discuss efforts to implement our recommendations. Thank you.

Thank you all. That was great. I want to introduce Assemblymember Heather Hadwick, who's a member of committee too, who just was able to join us while we're presenting. Senator? Well, thank you.

And I'll just add, I want to really recognize the work of the Little Huber Commission in highlighting these issues. We're fortunate to have Pedro Nave as the chair of the Little Huber Commission, a former member of the legislature and a member of my district. and he has been a great leader of the commission, and it is such important work to highlight issues in a meaningful, deep, systematic way, and to have your lens applied to the nonprofit's challenge in providing services in California has really helped to elevate the conversation, I think, in a substantive way. And I appreciate Senator McNerney's leadership on the Office of Nonprofit Empowerments. Cultural change is fundamentally what we need to do to make the most meaningful difference in the relationship between nonprofits and California state government. Having an office of nonprofit empowerment in the governor's office, having those interactive daily interactions between the state agencies, helping to coordinate, helping to cheerlead and advocate for this kind of change is critical. We can continue working through the legislature, bill by bill, and it's going to take too long to make the change that we need to make. We need to have it boiling up internally within the administration. And that's the intent of this legislation is to get that cultural change. And like Senator McNerney, I'm optimistic that we're going to get the bill through the legislature and that the governor will recognize that this would be a great legacy to the state of California in his final year in office to make that kind of cultural change. But thank you for all your information that you shared with us today.

It is amazing to hear these references. Well, the good news is it continues for all of you as well. Thank you.

Well, I thank Senator Hadwick. And I like that, that you have a vision for what could improve the program. So thank you for that Thank you for the first panel Appreciate your inputs Thank you Panel two is optimizing state systems for effective nonprofit partnerships Please approach the the dais.

And I should say I'm Anthony Liu from the DOJ's Office of Legislative Affairs. Just accompanying here, but not justifying.

I have no comments, but I guess we're available to answer questions at the end.

Yes. So the additional digital access and filing process that you're going to be rolling out will, as you described, reduce time savings or reduce time that is spent currently on processing those applications and streamline your operations. And that, I presume, will free up staff to be able to do more customer service oriented things, handling challenges and problems that come about. And what would you estimate is that additional staff resource that you're gaining by having this automation? And what will that mean for nonprofits in their interaction with the office?

Well, that's a great clarification. I didn't realize that both systems are going to continue to operate in parallel for a period of time.

But in time, it is a great transition, I think, that you're going to have to be able to deploy people in different ways. That will be a valuable benefit.

I have a couple of questions that are just for my own information. So what payments need to be made online by nonprofits? I mean, the previous speaker said that they were worried about paper checks and the paper checks are still. So are we talking about paper checks, payments that go from, in your case, payments that go from nonprofits to the state versus payments that go from the state to nonprofits? Is that the distinction I'm thinking about?

And then on the other case, there are paper checks going from the state to these different nonprofits. And that was the question in the prior panel. Okay, another question is, if the Office of Nonprofit Employment is established, will that relieve the AG's office of some of its responsibilities with respect to nonprofits?

Yeah, 1240, sorry.

I'll look forward to seeing that. Okay. The other question I have is, I suppose I have a nonprofit that I'm a little suspicious of. What does it take to get an investigation to determine if that's a legitimate operation?

So my question was, what does it take to get the DOJ to look into a nonprofit? And the answer sounds like they need to fill out a form. If that happens, that the DOJ, does that, did you act on all potential complaints?

Okay. Thank you. I guess I don't have any other questions.

Matt Gonzalez. Hello, can you all hear me? You're online. Yes, yes. I'm coming to you live from New York City. Okay, very good. I would love to share some slides. Okay, looks like you all are giving me access. One second. I'll be right with you. Okay, can you all see my screen? Yes, thank you. Wonderful. Thanks for having me. My name is Matt Gonzalez. I'm the Vice President of Policy and Advocacy for Nonprofit New York. Disclosure, though, I am a native of California, an Angeleno, who's residing in the mugginess of New York City. So really thankful to be here with you all and really excited to hear about the amazing work that you at the legislative level, as well as those in the nonprofit sector, are pursuing in California. And I'll say a lot of what I heard today in this hearing resonates that you could have switched out New York for California in a number of the comments that I heard from my colleagues. We faced a number of similar issues and challenges here in New York City and New York State. But I'll walk you through a little bit of the work that the Mayor's Office of Nonprofit Services has yielded over the past few years in New York City. I will also just note that this is a municipal structure, and I'll share a little bit more about some of our statewide efforts, which we may be looking to you all to help build some models for our state efforts too. So prior to the initiative around the Mayor's Office of Nonprofit Services, the contract backlog was over $6 billion. This was, again, as you heard from many folks today, at the New York State level, New York City level, we were seeing billions of delayed contracts. This ultimately led to delays in services this created registration backlogs And again as you heard this is not a news story right This required nonprofits in New York City who are providing critical services across our city to basically front the work for the state and for the city. And so human service providers provide critical services. We are not charities. and we provide critical services and operate as businesses and have advocated for our city and state to treat us such. Prior to this initiative, we were also seeing 80 plus percent of the contracts arriving late. Again, prior to this role that I have at Nonprofit New York, I was leading a nonprofit in New York City. And so I dealt firsthand with the delays, delayed contracts, delayed payments, and then just the kind of messiness of trying to navigate the procurement system, right? And so, you know, I've had to deal with this on the front end as a nonprofit leader and, you know, thankfully get to play this role in trying to change the legislative approach and the administrative approach that we're working on at the state level. So some of the core bottlenecks, again, none of this is going to sound incredibly surprising to all but the registration of contracts was probably the primary delay right and so this this meant that we were providing services prior to actually having a registered contract because we needed to continue serving our communities um the system in new york city is called passport that's where all the contracts run through this centralized system the system prior to that was um was an entire nightmare as well however we have still not quite figured out all the kinks through the the passport system. And so this has created an opportunity for the Mayor's Office of Nonprofit Services to help us think through how to navigate and provide the right kind of recommendations to continue improving the system. And then, of course, the cash flow and liquidity crisis, right? As many panelists have said, nonprofits are serving more need with less. We continue to be asked to do more, and we are happy to do that work for our communities. But we continue to do that with fewer resources. You know, there were references to a number of the federal attacks that have been levied against the sector. We are feeling that in New York City as well. It has led to reduces and reductions in funding, direct political attacks on particular organizations. And, you know, we serve a nonpartisan mission and continue to do that. And so while we're navigating the political attacks that we're facing, facing, you know, navigating the bureaucratic structures of registering a contract should not should not be part of the problem. Right. And so I'm glad you all are thinking about this conversation in California. So just a couple of highlights on what the mayor's office of nonprofit services does. Right. This serves as a really critical bridge between city agencies and the nonprofits that contract with the city to deliver those critical services prior to this office. It really opened up a relationship of kind of tension and kind of adversarialness because, you know, you have a nonprofit who's really struggling to get their money or to get their contract paid. And so it creates this tension with a contracting agency that ultimately really undermines the kind of delivery of services. right? So the mayor's office of nonprofit services has really served as an ombudsman to help be a liaison between agencies and the nonprofit sector. They do provide free trainings to help provide successfully to help providers successfully navigate the kind of procurement system While we have this office we have not corrected the kind of madness of the procurement system at the city and state level And so it really important to have free trainings and support and coaching from the mayor's office of nonprofit services to help folks navigate some of those systems. They also have appointed 18 chief nonprofit officers across several human service agencies. And those individuals help resolve some of the contract delays or issues in real time, right? Again, none of this is perfect, but having this entity has actually created a real kind of support system to help navigate some of the challenges at the bureaucratic level. And then, you know, they have actually, Mons has played a really huge role in helping collect data and share information, not just with providers, but also with the city. So we can know that our nonprofits are serving the role and the need that they are kind of paid to do. And so thus us as nonprofit leaders and organizers can help think about how to improve our work, our delivery, and also think about the way that the system is navigating and procuring contracts. So there are five pillars of reform that were introduced from the Mayor's Office of Nonprofit Services. And I think I might be getting the name wrong, but the the mini Hoover or the small Hoover Commission is very emblematic of a commission that was brought together in 2021 here in the city that led the reform here. It was really an initiative to improve the contracting structure in New York City. And so they identified these five key priorities. Clearing backlogs, right? That's the number one kind of structure that we're navigating. Making sure that submissions are timely, that we can enforce mandatory cutoffs and early submission targets ahead of the July 1st fiscal year. this was another critical piece that we're navigating is advancing funding to make sure that we are continuing to provide i know you uh members spoke about this on the panel but to provide advanced payments of up to 25 to 50 percent we you know that has been a critical lifeline for nonprofits who are providing important services and then making sure that we have multi-year awards right excuse me when I was serving a nonprofit as a leader we would get one year awards and then we'd have to go through a whole nightmare of procurement and payment delays and just for a one-year reward for a hundred thousand dollars right which of course it is a lot of money and really important but really extending those those contracts to multi-year awards can really help create stability and stabilization and then help consult consolidate annual discretionary awards into these three-year agency grants, I think really go a long way for us. Right. And then the lastly, and probably most importantly, building some structural accountability is really, is really necessary, right? Establishing these chief nonprofit officers within the agencies to provide, you know, kind of issue resolution has been really a really critical priority for us. And again, it removes the adversarial nature of the relationship between nonprofits and the contracting agency. It is not all perfect, of course, but having an ombudsman intermediary actually plays a huge role in kind of turning down some of the heat and helping actually create solutions instead of more problems and kind of undermining the relationships. So some of the kind of strategic actions, right, as I kind of talked about, right, The standardizing this multi-year based contracts has really been key. The contract allowance clause, right, which incorporates standard flexibility allowances into contracts to execute budget modifications and cola, right? When we're trying to make a cost of living increase or adjustment, Sometimes that caused a lot of delays and challenges within the contract structure, but this has kind of streamlined that process. The contract stat data oversight system, right, which institutes monthly interagency tracking of registration status, budget approvals and invoice turnaround under the leadership of Mons. This has really, again, helped create more transparency in the process, which has been a really huge challenge. And then really just creating the audit to audit and streamline and harmonizing the process, right? To shift the risk-based contract auditing and allow reliance on a single independent CPA audits to reduce administrative redundancy, right? We still, you know, are paying, you know, accountants sometimes, small nonprofits don't have an operations or a finance person, right? And so making sure that we streamline and harmonize some of these processes has really been really key and critical. And so just some kind of highlights on the impact of Mons, right? There are many more, and I'll happily share as much as I can after I finish this. But there's been a significant contract backlog reduction, right? This was kind of the primary goal of the Mayor's Office of Nonprofit Services. And this reduced that backlog from 11 billion to under 3 billion. 3 billion is still too much, but that has, again, played a really key role in helping reduce the backlog. And we have many more initiatives to continue getting that to zero. And then 88% of service contracts have been registered on time. That is a significant increase from 430 to 812 contracts. Again, the delays create barriers to providing services. They cause financial strain. And so on-time contract registration is a really key element of the Mayor's Office of Nonprofit Services. And then the advancement of payment standards has doubled right from 25 to 50 percent. This is totaled by $5 billion in fiscal year 26. Again, those those advanced payments mean that we don't have to front end any costs, any labor, any materials that need to be purchased. right we're able to purchase those and not go into you know into our pockets as small non-profits and organizations um and then 4.2 billion dollars has been cleared of delays right again this is a really significant um growth from the the system that we were operating before um you know this we've cleared over 2 600 retroactive contracts again there's still more to do here um and then lastly, right, the streamlining of these multi-year contracts has been really key. That creates sustainability, it creates consistency. And, you know, we're in a moment where, again, this is not a perfect system. And as I mentioned on the outset, right, this is a municipal structure. We're currently advocating for legislation to include some of these priorities at the state level we do not actually have a state entity that plays this particular role right and so it's really exciting to see you all in california thinking about like what what are the state structures uh and leverage points that can help streamline these processes and create a more productive relationship with the non-profit sector right and so as many of you know right we we just have a new mayoral administration um in their kind of first eight months of office we just got a new executive director of the mayor's office of non-profit services who comes out of much of the the work to support this this initiative so we have someone in that role who obviously needs to kind of get their you know get their feet under them but will be a really huge advocate for us and be a partner to us to ensure that we improving the system um so i believe that is the extent of my presentation I happy to answer any questions I can and I will be also submitting a memo to follow up on my comments. Thank you all for the time.

Well, just appreciate Mr. Gonzalez taking time to share the information about New York's It is strikingly familiar, the challenges you're facing, and it's nice to know that you are tackling them and have the track record that we can hopefully look forward to in California as we begin to make progress on the same issues. So thank you for your expertise and your time today.

So, Matt, again, thank you for – well, did you go away?

Okay. Thank you for the presentation. Hey, this is really interesting, and I sort of hope that we can duplicate the kind of success you've seen. A couple of questions, just out of curiosity. You pointed at a $6 million contracting backlog at the beginning. Is that money that's coming out of the New York City budget, or is that charitable money that's being lost? Where's that money coming from that's being lost? So the backlog is really, you know, again, and I think a couple of your panelists spoke about this, right? A number of the backlog is actually nonprofits having to take out high interest loans to kind of balance the backlog. And again, similarly, you know, when we take out these loans, the interest is not being reimbursed. We are currently on a state legislative battle right now to get some of those things changed because that would require some state policy change. So this is on the hook, you know, nonprofits are on the hook for this backlog. And we're working with the New York City Mayor's Office and the Mayor's Office of Nonprofit Services to see if there's an opportunity for them to, you know, kind of basically pay back the payments and the interest in particular. And some of those, you know, at the state level, less so at the city, can reach in the thousands of dollars and hundreds of thousands of dollars for some of the larger nonprofits. So you said the 88% of the contracts are late. Now, when some institution owes you money, like an insurance company, you often see them delay. And the reason in my mind they're delaying is they want to get that little extra interest. Is that kind of what's happening in your mind or is it just a bureaucracy that can't respond?

So one of the questions you have your five pillars which are good I name them clear the backlogs timely submissions advanced funding and multi awards Now I would be a little bit concerned about moving in that direction that could introduce opportunity for graft or corruption Could you address that Because you doing things quickly without as much oversight Sure. Well, I'll say that, and again, I suspect it's somewhat similar in California. In order to receive a contract and secure a contract with our city or with our state, there is an arduous journey that a nonprofit needs to navigate, right?

All right. Thank you. Any other comments? Well, thank you again, Matt. I appreciate the presentation. Take care, everybody. Come back to California. We need you here.

I guess that concludes the hearing. And that will conclude the hearing. Thank you all for participating and listening. Do we have any public comment before we adjourn? All right, thank you. Anybody wants to make any public comments? Briefly, if that would be great, just come on up to this microphone.

Thank you. Thank you. Good afternoon. Thank you for holding this hearing. Edgar Guetta here on behalf of SEIU, representing more than 750,000 workers across the state. As the state increasingly partners with nonprofits to deliver public services, it is critical that transparency and accountability remain central.

Thank you.

Well, thank you. Any other public comments? Well, again, I want to thank participants. I want to thank the Cal nonprofits and others that were here today. I want to thank my staff and the assembly members, Hart's staff for helping run this. We don't have a committee consultant, so to speak, on this committee. So it's all our office of staff that are organizing these hearings. So I want to thank them. And in addition to the folks that our Chair McNerney thanked, I want to thank Assemblymember Hadwick for joining us today, too. She is always here for our hearings. And her particular district and the part of California that she represents is so geographically unique and distinct. And the issues that you face are really important to highlight. And you do a great advocate for your communities and your experience with the nonprofit sector is really invaluable to what we're trying to do and accomplish. And just want to thank you for your consistent leadership and activism in this space. So thank you. And really appreciate the Department of Justice folks here to be engaged and to always be a good partner in working with our nonprofit sector and trying to modernize and systematize our systems and processes. There have been challenges in the past, and your commitment to making that work better is really impressive. and we appreciate that and look forward to the end of August rollout. There's going to be a lot of people who will be watching and participating, and fingers are crossed that it will all go smoothly. And also, too, thanks to the Little Hoover Commission for your great work on highlighting this issue. I think you created a small... that helped us in the legislature advance this issue, and it's really invaluable. And then, of course, Cal Nonprofits, that is the leadership voice for California nonprofits. The work you do is essential to everything that's being accomplished in the state of California. I appreciate Jeff and Jennifer, your advocacy, and the whole team. So thank you again. This has been a really successful hearing, and look forward to working together in the future. Thank you. Thank you Thank you. Thank you.