Upstream City #9: Toward a Pro-Community Process of Government Funding

Upstream City” by FPP Director Nora McCarthy ran as a column in The Imprint from 2022-2023.

In February, the anti-trafficking organization Girls Educational and Mentoring Services (GEMS) announced that payment delays in city contracts might put it out of business. Two weeks later, it was the large social service agency Sheltering Arms going belly up, unable to pay its bills because of a similar reimbursement abyss. 

The business models of nonprofits may seem as distant from radical family policing reform as the banking collapse, but hear me out. The deep weeds of government funding structures have major implications for those seeking wholesale spending shifts from systems to communities. 

In New York City, $350 million dollars is spent on child welfare investigations each year. A great deal of hotline calls can drop through changes in law and policy, but the support side of “support, don’t report” needs to be funded, too. Child welfare involvement is highest in neighborhoods that have been disinvested in for decades. The many millions of dollars that communities deserve and need for this work can’t come through philanthropy and mutual aid alone.

Shifting funding to address inequitable neighborhood conditionsbuild up existing assets and community networks and seed innovativeemerging practices will take more than a change in mindset. It will require changing how money flows out of the government and into the community. 

The procurement process alone is a driver of inequity, a rocky shoal upon which an upstream agenda can founder. Both the state and city will need a wave of contracting innovation to address the challenges that lock grassroots groups out of growth. 

For groups in a position to draw on government funding, most federal and state money comes with so many strings attached that those wanting to use these dollars to build creative solutions often find themselves hamstrung. With political action, however, some federal and state funds could accommodate innovation. 

The contracting problems that landed GEMS and Sheltering Arms in dire straits reflect two of the major barriers to funding small groups. First, nonprofits are largely required to do the work first and get paid for it later — and the reimbursement can take months or even years. To cope, large agencies take out loans to cover payroll and rent — and pay interest on those loans — effectively subsidizing the government

Small groups can’t afford to get in that game. 

The result is that the majority of public dollars in New York City flow through large agencies — about 70% of all social services spending — not community groups that are more likely to be led by people of color and grounded in the neighborhoods where they are located. 

That’s a problem, because these large providers tend to be less trusted, and are less likely to site their services in the most disadvantaged neighborhoods. In fact, a 2013 study of nonprofit contracting in New York City found that in contracts focused on children and family services, there was a mismatch — funding was less likely to go to neighborhoods with the highest needs. Nationally, those patterns hold, too. Nonprofit agencies are more likely to be located in areas where poverty has trended downward than where it’s rising. 

In recent years, New York City has made a number of adjustments to steer funds toward smaller organizations. Any city contract under $100,000 no longer needs to go through an onerous request-for-proposal process. Still, these types of contracts make up less than half of one percent of all city contracts. Many small groups just do not have the staffing infrastructure to manage government contracts. Most come with paperwork, data entry and auditing burdens so high that they “cause the very waste they were meant to prevent.” That’s true even for small City Council and borough president discretionary dollars intended to finance small neighborhood groups.  

In the past year, a flurry of reports have come out documenting these problems and potential concrete solutions. Some came from the grassroots. The Downstate Coalition for Crime Victims’ report  Procurement Justice calls on New York City to develop procurement practices that would heavily weight contracts to groups rooted in the communities they serve; lengthen application deadlines so understaffed organizations have time to apply; and centralize program evaluation methods so that small organizations don’t need to develop outcome measurements and data systems on their own. 

report from Restorative Justice Initiative similarly called for a “complete restructuring of the relationship between the city and communities.” Regarding city funding for restorative justice work, it recommended large-scale changes: participatory grantmaking, an advisory committee to make allocation decisions, contracts that support “time, space and grace” in program design, and running contracts with small organizations through a fiscal conduit or “backbone” organization that can support groups struggling with fiscal and administrative burdens. 

All of these approaches require that procurement staff in city agencies themselves have “time, space and grace” to skill up in practices that have certainly been done but are not yet routine. Innovative contracts, outreach methods and collaborative contracting methods have been developed in New York City and in pockets around the country. But they’re still far from the norm. 

One simple way to free up contracting departments to get creative is for the city and state to stop routinely auditing all contracts — a heavy burden on these staff and on nonprofits — even though, in the majority of cases, audits are not required by law.

I haven’t forgotten the other issue: assuming that contracting structures begin to better ladder down dollars to the grassroots, where would this money actually come from? Federal procurement processes are even more unfriendly to a progressive agenda, and funding streams specific to child welfare, especially federal Title IV-E, are notoriously inflexible. 

Yet the majority of government dollars now entwined with the system in New York City have some flexibility and could be redirected. At the federal level, the city spends more than $200 million in TANF on child welfare, even though it is intended to enhance economic and community conditions for low-income families. And 70% of preventive services funding in New York City comes from the city and state, which means that it’s possible to carve out dollars for upstream investments. 

Conceivably, the city’s child welfare agency, ACS, might begin spending less on investigations as mandated reporter retraining and reforms take hold and differential response (called “CARES” in New York City) increasingly replaces time-intensive investigations. That cost savings should be captured and reinvested in communities to further reduce child welfare impacts. The city could initiate a review of these funding streams now to identify and plan for those that can be repurposed. 

It’s also possible to ramp up community family support as a path toward scaling down ACS preventive services. State and city tax revenues, which funded ACS’ Family Enrichment Centers, or possibly New York’s new Community Grants Reinvestment Fund, which will reinvest cannabis revenue in communities impacted by drug policy, are options for beginning to scale a broader investment in families.

All of this is to say that, when it comes to creating a new channel that routes significant public dollars to communities, New York City has a way, if there’s a will. It’s politics and stasis, not funding streams or procurement laws, pinioning families into the current system structure. 

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