NYC’s initiative covering nonprofit overhead will fund less this year

New York City’s initiative covering overhead costs for human services nonprofits had a rough start during the first year of its implementation. Nonprofits contracting with the city were reimbursed for less than they expected to receive after budget cuts passed last year, aggravating funding shortfalls at local nonprofits already financially hurt by the COVID-19 pandemic. Now, many organizations are expected to receive as little as half that reduced amount for the current fiscal year.

“We’re completely frustrated,” said Wayne Ho, president and CEO of the Chinese-American Planning Council. “First, telling us two-thirds through the fiscal year how much money we’re going to have is obviously a challenge. And of course, this is after last fiscal year’s books closed and they told us we only have some partial money too.”

The Indirect Cost Rate initiative was created with the intention of covering indirect costs exceeding 10% of a city contract for nonprofits retroactively, in response to nonprofits reliant on government dollars complaining that city funding doesn’t sufficiently cover all their expenses, particularly administrative and overhead costs. Organizations submitted documentation requesting a certain amount of funding, with the expectation that they’d be reimbursed for it later once it was approved under the initiative. The initiative helps to cover costs that don’t explicitly fall under a city contract but may benefit it, such as information technology or rent. 

But the initiative’s promises have fallen short for many organizations. A $20 million cut to the effort last year resulted in funding reductions for nonprofits that sought an indirect cost rate exceeding 10% of a city contract. They saw just 60% of their funding request fulfilled. That change affected three-fourths of about 260 providers that were approved under the initiative, officials from the Mayor’s Office of Contract Services said during a City Council hearing in November.

The reimbursement will be halved for the current fiscal year, according to guidance the city sent out to providers. Nonprofits seeking an indirect cost rate exceeding 10% of a city contract will now only get 30% of their funding request. City officials have attributed the reduction to the fact that more organizations began to apply to participate in the initiative.

"We value the important work done by the city’s human services providers,” Laura Feyer, a spokeswoman at the mayor’s office, wrote in a statement. “Due to the COVID-driven financial crisis, the Administration and City Council agreed on an Adopted Budget that contained cuts to many programs and services that we supported, but couldn’t afford. We are reviewing what we can do for the sector in light of the recent federal stimulus bill.”

Many organizations were frustrated by last year’s announcement as they had to find philanthropic funds or make cuts to account for the additional costs they accrued under the assumption they would receive full reimbursement retroactively. The Chinese-American Planning Council lost one-quarter-of-a-million dollars during the last fiscal year. After this latest announcement, the social services nonprofit is set to lose more than $400,000. 

“Looking forward, this cut inhibits their ability to do things we know are needed, like do that extra phone call or outreach to a senior to make sure they have an appointment to get a COVID vaccine,” said Nora Moran, director of policy and advocacy of United Neighborhood Houses, which advocates for nonprofit settlement houses. 

City officials told United Neighborhood Houses and other organizations during a meeting held by the city’s Nonprofit Resiliency Committee that $91 million in total would be needed to fully fund organizations’ requests for the current fiscal year. The initiative has had $34 million budgeted.