LA County Moves Towards Full-Cost Funding for Nonprofits
When I was a nonprofit executive director, I was often frustrated by the fact that our grants and contracts rarely paid for the full costs of their intended work. We’ve long known that the failure to cover the full cost of work has been an ongoing and significant issue that limits nonprofit organizations’ ability to fulfill their missions and strengthen infrastructure.
On November 3, 2015, the Los Angeles County Board of Supervisors unanimously passed a motion that recognizes the “deficiency and the unfair burden” placed on nonprofits “when the government funding they receive fails to cover the full cost of their services.” Introduced by Supervisor Hilda Solis and Supervisor Sheila Kuehl, the motion supports the implementation of new federal rules regarding nonprofit indirect cost payments. The Office of Management & Budget (OMB) Uniform Guidance, which took effect on December 26, 2014, mandates that nonprofits must be allowed a minimum 10% indirect cost rate for all grants involving federal dollars. In addition, if a nonprofit has a negotiated indirect cost rate, all pass through entities must honor this negotiated rate.
The motion directs County staff to come back with recommendations on how the County should implement the indirect cost requirements of the Guidance, and instructs staff to consult with nonprofit organizations in developing those recommendations. Importantly, the motion also calls for the drafting of a letter signed by all of the Supervisors asking the state to play a leadership role in implementing the OMB Unifrom Guidance related to nonprofit organizations. Needless to say, Supervisors Solis and Kuehl deserve considerable credit for introducing this potentially groundbreaking motion.
The County’s commitment to ensuring greater full-cost recovery is an important win-win for both government and nonprofits, and most importantly, for the communities we all care about. The fact that Los Angeles County is home to more nonprofits than any municipality in the country makes this a particularly important step forward, and hopefully a model across the nation for effective public-private partnership.
The action by the Board of Supervisors comes on the heels of a new report by the Urban Institute, Nonprofit-Government Contracts and Grants: California Findings, that highlights the significant problems California nonprofits face when managing multiple government and private contracts and grants, including routine underpayment of the full cost of work. According to the report, roughly seven in 10 nonprofits in California say the government funding they receive fails to cover the full cost of their services. The scale of this issue is significant, with more than 5,000 nonprofits receiving an estimated $14 billion in government contracts and grants each year — more than the annual budgets of 18 states!
In partnership with CalNonprofits, Weingart Foundation will continue to work with the County on the implementation of the motion. In addition, we are in discussions with officials at the City of Los Angeles and in Sacramento about the OMB Uniform Guidance. Philanthropy, government and the nonprofit sector all share a common commitment to making the most of scarce resources to produce the best possible outcomes for the people and communities we serve. Moving toward, full-cost funding and implementation of the Guidance are goals we should all support.
President & CEO