Assembly Select Committee on Select Committee on Nonprofit Sector

All right, everyone, welcome to our Joint Hearing today for with the Senate and the Assembly Select Committees on the nonprofit sector. Today, our Joint Hearing is titled barriers and Solutions to nonprofit participation in state government.

Today's hearing continues on the work that our Select Committees in both houses have identified as areas that have posed some of the challenges to nonprofits on how our government processes can be modernized or and improved related to the outcomes both for nonprofits and the outcomes desired for our state.

Our goal is to begin this conversation on how we can all work together to support the critical work that nonprofits nonprofits do for our constituents and statewide. I want to thank all you know, special thanks to the nonprofits and state entities for engaging with us in this important conversation.

I do look forward to hearing from our panelists about ways that we can strengthen, improve and partner to move forward. I also would like to recognize that this Joint Hearing is being held just a few days before August 17. And August 17 is national nonprofit Day. So happy national nonprofit Day.

In advance to the nonprofit's presence, those that are listening, those that are following, and of course, to all nonprofits at the state generally for incredible work and commitment to our communities.

I have the really great honor and pleasure to have an incredible chair on the Assembly side, and I want to welcome Assemblymember Hart, who is going to say a few words and is also chairing this conversation and leading this conversation on the Assembly side.

Thank you, Chair Limon. I really appreciate our partnership in organizing this important hearing today. I also want to thank the panelists, the nonprofit stakeholders, and the Members that are going to be joining us today. Our district is home to over 2000 nonprofits. We have one of the highest concentrations of nonprofits per capita in the State of California.

I understand very well the impact and benefits that nonprofits have in our communities and across the world. The focus of this hearing is on the vital role nonprofits play in California and the challenges they face in partnering with state government. It's also an opportunity to discuss and find potential solutions to these barriers.

I look forward to learning from the panelists on how we can strengthen the partnership between the state and nonprofits and look forward to conversation today. Thank you.

Thank you. For our first panel, we are focusing on modernization and specifically modernization of the Department of Justice Charitable Trust Registry. So we have three panelists that will have just about 10 minutes each. We will time it, folks. But we have Elizabeth Kim, senior assistant Attorney General of Charitable Trust section with the California Department of Justice.

We have David Eller, registrar of the Registry of Charities and fundraisers with the California Department of Justice, and John Jones, Executive Director of Coco Kids. So we will begin with either one of you, or we can go in order, Miss Kim, if you'd like.

Thank you. Thank you. And I wanted to introduce over here, we have Anthony Liu here, but he's just here for support. He's not going to be speaking today. Okay. Thank you.

So I wanted to start with an overview of our presentation today. And these are the topics that we are planning to cover. And it's based on the questions that you posed to the Attorney General's Office about what you wanted to hear from us today. So the topics of that we have.

Sorry, we're having a little technical difficulties here. Okay. I'm not sure if the PowerPoint slides are being shown to the audience because. Are they? Okay.

All right, so I will cover the slides up to and including where we talk about AB 488, and then I will turn it over to David Eller to talk about the registry, the modernization that's happening right now and that's ongoing, and also to talk about the registry data. You do that for me. Yeah. Thank you.

So another overview is why does the Attorney General have supervisory and enforcement powers over the nonprofit sector? So I want to cover that just a little bit for the benefit of the audience that we have here today. And that is because the charitable benefits or charitable assets are meant for the people of the State of California.

The people are the ultimate beneficiaries of charitable assets.

And so because we are indefinite in number, and there's generally no one who's going to step up to the plate to represent the interests of the public, the Attorney General has been given the responsibility to oversee charitable enforcement powers to charitable operations and to the enforcement to protect for the integrity of the donations that come to the charities.

In the next slide here, you see the types of organizations and entities over which the Attorney General has jurisdiction. It's not just nonprofit organizations, but also for profit entities such as fundraisers. And we also, many times, go into probate courts to defend and to protect charitable assets that are given during the wills and estates process.

And so we go into court to protect them because those are for the people of State of California. So how does the Attorney General's Office oversee his jurisdiction or authority over the nonprofit sector? It's done through the registry of charities and Fundraisers. We do have a new name. It's not registry of charitable trusts anymore.

And the reason we changed the name was in response to comments from the public that we're not a trust. Why do we have to register? So to make it clear, we change it to registry of charities and fundraisers. They know the population that needs to register, report to us.

Another important program with the Attorney General's Office is the charitable trust section. That is the enforcement arm. That's the investigation enforcement arm of the DOJ. So back to the registry of which David Eller is the head. We have many programs within the registry. It's registration, renewals of registration.

For instance, there's a group of people that handle delinquency issues, want to dissolve. They're helping them to dissolve, or if they want to fundraise through raffles. We have people dedicated to the raffles program. So registration and reporting the renewals is not the only program within the registry.

We have other programs that are just as important, for which the registry staff dedicate a lot of resources to help the public. Okay, so this is the next few slides I'll share to answer your questions about, well, how do charities maintain and stay current in their registration requirements with the state?

So the first step towards that is to register with us. Okay, and how do charities know to register? Well, the first notice that they get is when they form the nonprofit with the Secretary of State.

After they form it, the Secretary of State tells them, by the way, you need to register with the attorney general's registry so they know to. To come to us. And secondly, we do a lot of outreach, education and outreach.

And we have information available on our website to give notice to the public, to charities that want to form, to how to operate properly. So, first step is to register.

And once you submit the documents that are required, that I list here, which is basically a registration form, plus you give us your founding documents, like your articles of incorporation. You pay the initial registration fee of $50.

And then you give us your documents that are coming from the IR's, such as your confirmation of your tax exempt status.

So once all of that is received at the registry and the staff reviews it for compliance, because one of the things that they will look to see is registration is required within 30 days of receipt of property.

So if the entity, when they're registering and said, we got property in 2020, and they're just registering in 2024, well, we need to catch and have them file back filings.

We'll register them and give them a registration number, but we also need to go and collect the data, like their financial picture, as to how they were fundraising and how they were spending those funds for the past four years. So once they're registered, they'll get a confirmation letter from the registry.

And in the letter they'll say, this is your registration number. And in the letter they also tell you, by the way, in addition to registering every year you need to renew your registration. And down here below I have information on the resources that are available to the public.

We have webinars on how to register, we have FAQ sections, and we have a very detailed webpage on how to register. So these are all of our outreach and education efforts because we want charities to succeed. And the more they know about the requirements, they're going to succeed.

So this is just the first page of the form that you would have to fill out to register. And the reason I brought that up, because I want to highlight there we on that form were asking for the email address. We're asking for you to check. Do you want to receive email notifications from the registry?

And when the entity checks that box, we can contact them with email. It's much faster. We have found that sometimes when we send them paper notices, they're somehow getting lost.

And so we're hoping that with this email address, we can have multiple ways of trying to reach the charities if we need additional information and to send them prior notices about when the renewal filings are due. So this is why I wanted to bring that out. So this page is about what happens then after you initially register.

Well, you have to renew it every year, and if you don't renew it, this is when you could fall into delinquency status. And how do you do it? Well, so my first couple of bullet points tell you how you're supposed to renew, and you basically file your renewal form.

You give us your 990 IR's 990 form that you filed with the registry and you pay a renewal fee. And the renewal fee is based, sliding scale. So for entities that have revenue below $50,000, it's $25 to renew. Up to those that have $500 million in revenue. They pay a little bit more than that.

So the first bullet point. First two are how do you do it? And the second, the next bullet point is when do you renew? When you renew, it depends on the charity's operating year. Are you on a calendar year or are you on a fiscal year that starts July 1 and goes until June 30?

So if you are on a calendar year, you renew by May 31. If you're on the other fiscal year, because most charities fall into other one. If you're on the fiscal year, then you renew by November 15. So those are the two main deadlines however, the registry will honor the IR's extensions of six months.

So if, for instance, I'm giving you an example.

If first charity is on a calendar registration year, their filings, where the renewal filings are due on May 15, but they get an IR's extension, or we actually assume they got it, because if nothing came in for the May 15 filing, we're going to assume they got an extension from the IR's of it takes them to November 15.

By the time the staff goes through 20,000 plus pieces of mail that came into process, the November 15 deadline, it takes us to the next year, by which we kind of have a notice as to which population of charities never filed anything for their May 15 deadline.

And it's at that point, which is the beginning of the year, like February or March, that we start issuing delinquency notices. These delinquency notices provide for 30 days to fix the delinquency status, we issue two of those letters. So then combined they give you 60 more days to file the renewal filings.

By the time all that period is done with, you're almost time to file another one. So the simple answer, one more minute. zero, I'm sorry, but one more minute. You're at nine minutes. Okay, so we don't have an evil equal division of the slides. Zero, we did divide them equally, yes.

So the answer is, when do they turn delinquent? If they don't register on time or renew registration on time almost a year after it was due. The filings were due. Okay, he's rushing me. All right, so let's go to the incomplete.

So I want to skip over because I'm just showing you the forms that are required to renew. And also we're collecting email addresses again, we're also asking for, do you have a new address? Do you check them out? Because we want to be able to communicate with the charities. Okay, so we are going to incomplete registration now.

So now this happens with both entities that are in good standing, that's current in their registration and those that are in delinquency status. So charities that are current and current, they don't have any delinquent filings.

They submit their renewal, but they forgot to submit something or they didn't sign it, or there's no check, or they didn't answer one of the nine questions on the renewal form, then their status stays current, incomplete reporting. It does not change to delinquency. When they get that status. The staff is working with them, sending them notices.

This is why it's incomplete. You must submit this document, and we give them a contact information. In addition, staff puts notes into the public database that securities could see in the public, too. They have notes in there. Incomplete submission, missing form 990, for instance. So incomplete submission could also be coming in from a delinquent charity.

When a delinquent charity is trying to cure their delinquency, they are sending documents in to cure it. But they forget something, or they're more than one year delinquent. So they say they're like three year delinquent. They send in paperwork for two years and forgot the third year. Their status does not change from delinquent to incomplete submission.

It stays delinquent until they fix the delinquency because they were already in the delinquency. See? Delinquent status. So in the incomplete, again, I want to emphasize, when you get an incomplete notice, it gives you contact information on how to reach us. It tells you what's missing.

And we put notes into the public database that you can see in case you missed our notice, in case you didn't get that letter from us. You can look it up, you can see what was missing.

Sorry, I just want to note we're over time. But you said you're sharing time with someone. I'm sharing time. So then I'll just stop you at 20 minutes.

Okay. Yes. And so this is the I want to show you, this is what the registry search page looks like. So the Members of the public and the charity could look up their status. They can see by going here, okay, this is the next page of what it looks like.

You can see all the filings that you submitted to the registry. You can click on it. You can see the 990 form, you can see the art form, and you can see the notes the staff put in, like, here. Note here says, so tiny. Okay. I think it says resubmission, like, accepted. Correction accepted. Yeah, correction. Thank you.

Correction, accepted. It says, there's a note so that you don't have to check back with the registry. You don't have to say, hey, did you accept my renewed resubmission? We told you it's been accepted. Okay, I'm picking up the pace. Okay. So I want to go into AB 488 before I hand it over to David.

So AB 488 is one of the new type of fundraising professionals that are in California, okay? They fundraise on platforms on behalf of charities. So some of the details are here. When did it become law? Where is it in the government code section? When did the regulations that are implementing these sections go into effect.

And when did registration start? So registration started on June 12. We have almost 60 entities, platforms that have submitted their registration documents and they have until October 12 to actually register. And so these are the early filers that are getting their paperwork on time.

And this has more information about what forms are required and everything about platforms is done electronically. And this is one of the modernization projects that Dave would discuss. We built a system so that now platforms can register and file all their reports electronically, and we are moving towards all charities being able to do that. Okay, thank you.

I will now turn it over to David Eller.

Thank you, Elizabeth. And thank you for this opportunity to share what we're up to. So as Elizabeth mentioned, there's really three main themes of what we're doing, what our goals are, and really the direction of the Department. One is communication, both passive and active.

As Elizabeth mentioned, some of the passive communications are with website enhancement, webinars, FAQ content, etcetera, and then with direct communications, either through notifications or through reminders. And we're hoping to leverage more with email in addition to just more traditional letters and so forth.

The second is just compliance, making sure that we're managing what the charities are responsible for, submitting and providing to us and to the public, and being consistent with that as far as status maintenance and taking any actions that are required due to noncompliance.

And the third, really, and I'm sure this is what you're interested in, is process enhancements. What are we doing to improve our workflow, improve the timeliness of what we do, make submission requirements more easy to convey to us from the public. And so those are some of the things that I will be touching on in brief here.

What we have in front of you for the slide just identifies our key goals. They're very streamlined and really reinforce what I've just mentioned. First and foremost is to complete the business modernization project. And I'll be going over that in a little more detail in the following slide.

We've broken that up into two phases, and again, I will go over that in more detail just in a second. Secondly, to continue to improve current to delinquent status ratios.

And that's really the heart of our compliance, making sure that we maximize the compliance with our charities, that they're registered and current, and that we're really able to have more time to focus on organizations, the remainder, which are the delinquent organizations, the non performing organizations.

Third is to restore the import of data that we received from the Secretary of State and to also get the enhanced email information as well.

Obviously, we're very much data driven, and so the more good data we can get in a timely manner, the more proactive we can be with our communications as far as registration, and also with the reminders as well once we have that email address. Fourth is to leverage and apply enhanced automation and data to improve analytics and compliance.

So again, right now we have about 107,000 registered charities. We have probably more than that, that are unregistered. And so it's a very large population and we really want to understand the entire population and segment it appropriately, to really take, to have strategies that are effective for each population.

And so by getting the data, analyzing it, understanding it, we can develop strategies against those populations and finally, to leverage automation to improve service delivery and communication with the public.

So we're hearing a lot, I'm sure we'll hear a lot of it through today, and we've heard it continually, every day, that communication about what our requirements are, what our process is, what we expect is really important for the public and for the charities to be able to act and to comply.

So we understand our responsibility and we know that we need to do a better job to improve service delivery and communication in support of that.

Okay. So, this next slide goes into a little more detail relative to our automation project, what we call business modernization.

And in a nutshell, the goal is to upgrade the registry's technical platform to improve efficiency, service and delivery standards, enhance data management for purposes of advanced analytics, quality control, retention, compliance, and to integrate and broaden payment processing with electronic transaction submissions. That's both for forms, fees and data. One other thing I wanted to bring up.

I did tell you that we have about 107,000 registered charities. We have in our database about 4 million PDF artifacts. Probably about 3.5 million of those are public. And so, as Elizabeth showed you through the inquiry tool, the verification tool available to the public, all of those 3.5 million records are available for inspection by the public.

And part of our responsibility is to make sure that those are available again so that the public can make good giving decisions and can really look at firsthand what the charities are reporting and what they're doing with charitable funds. The following elements define the key components of the automation project.

One, we want submission workflows for platform fundraising. That's gone into place that was effective in June of this year. And as a result of that effort, platform application forms are now submitted online with online payments, which is great with charities right now you can only do renewal fee submission online, you can't do registration.

The second goal is payment expansion. So, we want to be able to have all payment types be able to be submitted online along with the corresponding forms. And again, like I mentioned, right now, for charities, renewals is the only avenue for online payment. We want to broaden that for registration, for raffle, for professional fundraising, all fee types.

Next, we want automation and workflow and notifications. So, we want the ability to have triggered scenarios that will allow us to remind you, hey, your renewal forms are due next month, or hey, you're out of compliance and this is your first or your second notice.

So, these are proactive communication measures that we'd like to put into place and hopefully utilizing electronic notifications email, so that they can be more timely and hopefully more noticeable.

Because we do know that email addresses seem to have greater longevity than, let's say, a PTA's address because that may be tied to a treasurer who is a volunteer whose child is now moved on to another school.

And so, boom, they have to reset, they have a new address, whereas an email address, hopefully if it's tied to the organization, will remain ongoing. That's our hope. Next is to replace our database software. So as I mentioned again, we've got about 4 million records.

We need to automate that so that we can really do analysis, purge maintenance and able to be responsive to PRA requests or -

Just going to ask you to wrap up. You're just over here.

Absolutely. So, our phase one is in, and phase two is targeted for July of next year. Okay, just the next slide.

I won't go over those things. They're just some statistics relative to the, some of the notices we sent out, registrations and renewals. So, in summary, charities have a longstanding responsibility to register and remain in good standing to operate and receive donations.

So that's really a core responsibility for charities and for us to ensure that is happening through compliance activities. Secondly, DOJ places a strong emphasis and devotes resources to prevent charities from becoming delinquent in the first place.

We're really trying to take the upstream approach with proactive communications and trying to avoid the situation where they're having to get out of the delinquency hole. That's our goal. And again, with respect to curing delinquencies, resolving a delinquency involves a legal compliance review. It's usually not as simple as just accepting a fee that hasn't been paid.

There's a lot of attention to making sure that information is correct, and it makes sense and that it really is consistent with reporting responsibilities and the law. And finally, to prioritize our resources to ensure fairness to all. And in general, we process filings in the order that they're received.

So, thank you for the time and opportunity to present this information.

We'll move to our next panelist, John Jones from CocoKids.

Hi, good afternoon. Senator Limon and Assemblymember Hart and committee members. My name is John Jones and I'm the Executive Director of CocoKids, a childcare resource and referral agency. And we also do an alternative payment program in Contra Costa County. We provide access to childcare for over 5000 children and make payments for those services.

On behalf of the State of California, I am honored to share our experience with the registry of charitable trusts, fill in the new name there. It is not my intent to illustrate a broken system of transparency in a government office. My example is one where improved communication will result in a benefit to service delivery for California citizens.

According to the Attorney General's Office, charities represent an important economic sector in California and significantly impact the communities they serve. In January 2021, there were over 118,000 charitable organizations registered with the Attorney General's Registry of Charitable Trust. As of June 2019, these registered charities reported total revenues of over 293 billion and total assets of over 854 billion.

As a charitable organization for over 45 years, CocoKids has maintained our 501 status, conducted annual financial audits and file our IR's 990 tax form. All documents are available to the state, county and local governments, foundations, donors and the public.

On October 22, 2022, we were notified by the Department of Social Services that our status with the registry of Charitable Trust was marked delinquent. As a result, they would not pay the next installment of funds for childcare in the middle of a contract year that this would result in childcare providers not being paid for services.

We quickly set out to correct the situation. Going to the registry website, we found it challenging to identify the missing documents as well as find a contact to assist us in correcting the problem. We finally did receive an email without a contact name from the registry office identifying the missing documents.

We were missing our 990-tax form from 2018-2021 and with the renewal forms from 2018 and 2019. All documents and fees were submitted on November 17. On December 1, we were notified that all forms were received, but a renewal form created in 2022 was needed for 2018 and 2019.

These documents were submitted on December 15 along with another check to cover any filing fees. We were also approached - we were also approaching our January 2023 deadline to file for continued funding application with the Department of Social Services.

It's important to note that they will not accept the a continued application if you have a delinquent status with the registry, and we were also waiting for our next scheduled contract payment. We waited patiently for a change in our status online so we can continue to do business. Our calls and emails regarding our status were not returned.

On January 12, 2023, I drove to Sacramento to visit the DOJ office and to speak with anyone who could help resolve the issue.

At that time, the building was closed to the public and I was not permitted to go upstairs to the registry of charitable trust, but a security guard was willing to go upstairs and ask for someone to come down and talk with me in the lobby. After about 15 minutes, a staff member came down. I explained my situation.

He went back upstairs and was able to find the documents and payment we sent. Our status was changed that day and we received our next payment and submitted for a continued application for the next fiscal year.

I found out later that many of my partner nonprofit organizations were in a similar situation with no immediate response from the office. For a nonprofit organization to continue to partner and collaborate with the government, there needs to be an important level of transparency and an elevated level of communication.

Our situation could have been avoided if we had had someone to speak with directly to resolve the situation. For us, the delivery of services is time sensitive. Childcare providers cannot be left without the ability to pay their bills, purchase food and supplies so they could care for the most vulnerable.

I do believe in the registry of charitable trusts. Responsibilities protect the public from fraudulent nonprofit act and deceptive online fundraising. Those who seek to mislead the public do not register with the trust. Organizations listed with the registry can improve transparency, if an improved method of communications were in place, the registry of charitable trust could also benefit from increased resources. It is in the public's best interest that the 118,000 registered organizations continue to provide services without interruptions as effectively as possible. Thank you for your time and attention. That's what I wrote out.

I just wanted to add in response, I know they've made some gains, so it's been a couple of years, so I applaud those gains being made.

But I think for us, what was real critical is the communication to other government departments because we weren't notified by the trust, we were notified by the Department of Social Services, and they had their rules that they couldn't move forward without these rules being settled.

So, what was missing is not just the communication to nonprofits, it's the communication within government departments so that we continue to do these services without interruption, because that's what we really fear is the impact it will have on our communities. Thank you.

Thank you. And on that note, we'll take questions.

But colleagues, I'm wondering if it's just okay, since I feel like Mister Jones comments raised initial questions, if you could just respond to some of the challenges that Mister Jones experienced and what the communication is with other departments, but also, you know, how do we navigate a situation where Mister Jones himself had to physically come to get an answer?

I'm just wondering if you can respond and give us feedback, and then if it's okay with you all, then we'll kick it off for questions. I just feel like Mister Jones posed a series of questions that are, you know, merit an answer, I think, without.

Having the benefit of having gone through his registration filings for issues related to renewals. I'll just briefly touch upon. I want to emphasize the approach that we have taken to, to upstream and educate the public about the renewal process.

This is so that we could, it could be preventative, so that we don't want charities to fall into delinquency, because I discussed that charities don't fall into delinquency unless until almost a year after the document was due. So, it sounded like, to me, the entity was more than one year delinquent.

So, I think there should be, I encourage a process of maybe having a binder that could be passed, that could be maybe present and taken to every board meeting to talk about when are some of these due dates for the DOJ, for the SOS, for the IRS and FTP.

So, I think that that would be a very good governance practice for the charity. But secondly, I want to talk about review. When you have multiple years of delinquency, review isn't just, "Oh, let's check the box. This came in. That came in. That came in." DOJ is a law enforcement agency.

The review has to be done for legal compliance issues. There are questions that get answered. For instance, I want to just point out that if you have revenue noted on the R-form, the RRF renewal form is one number, but when we look at the IRS 990, it's a different number, or the expenses don't light up.

That is a concern to us because they should be lining up. And if they don't line up, you should have an explanation to us as to why.

Or maybe the R-form was not signed because you have to sign it under penalty of perjury, and you have to attest that you have authority to submit the document on behalf of the charity. And some of the questions that we're asking for are calling for some narrative responses.

For instance, we ask, was there embezzlement during the reporting period? If you check that, yes, we want an answer. We want you to explain, did you have any loans given to an entity from the charity to a director? We want an answer. So, these are some of the things that we're reviewing for compliance.

It's not just check the box. Our analysts are doing a lot more than just checking the box. So, in addition to legal compliance, I don't want charities to get there. We've made resources available to them. We spend a lot of time trying to educate the public about it. And in addition to that, thank you for coming up.

I mean, during COVID you came to the registry and I'm glad that we were able to help you, but so we wanted to. So, when we identify, I want to teach them how to go to that search tool. I want charities to know about it.

I want them to see what notes we put in there about what's missing. And we do provide contact information, and there is emails back and forth between the entity and the registry staff to get the issues resolved. But it just takes longer if it's more than one year of delinquency.

And so there's - and I also want to point out that during what filing period was this brought up? Because it could take longer. If, for instance, did this issue come up in May or November? Sometimes we get charities saying, I submitted the documents a few days ago, I haven't heard anything.

It's a rush because we have a grant pending. We try not to have charities lose their grant. What do we have to do? We are going through those 20,000 pieces of documents, trying to categorize it by which week did it come in?

And to the extent that we could help them, we're searching through those documents because right now it's not automated, although we're trying to move towards that. We are physically going through each document to try to locate it so that we could give it to an analyst to review it for compliance issues. Right.

So, if you could picture 20,000 or 22,000 pieces of hard mail coming in, gets open, checks are attached to the filing. Then once the checks are accounted for, we have to check out all the staplers. We have to make sure there's no confidential document they weren't supposed to give us is in there.

Then they're scanned, then they're uploaded, and they're separated into different programs. Then analysts are looking at it for compliance review. So, this is the process that goes through, and it takes that much longer if you're submitting something during May and November. So, this is why I was encouraging entities to please file sooner. Or this is even better.

The IRS has the same filing deadline as us. If you're on a calendar year, it's May 15. When you file that IRS form 990 with the IRS turn around, put a form, our form, the renewal form for the registry, put that on top, renew with us at the same time. I think that, you know, we are trying our best, given the number of staff we have at the registry and the volume of entities that are operating in California and, you know, any given time, entities still volume to delinquency, but we're still doing customer services for the ones.

Majority of them are not delinquent. We're still providing customer service for them to process their paperwork so they stay current in their registration. We're helping the ones that want to fundraise through raffle. It's a different registration process. So, we have this whole wide program, each program doing different things.

And so, although we do devote most number of registry staff towards fixing delinquencies, 35% of the registered staff is trying to help them fix delinquency and renewal. It does take time because it is not a checkbox review, it is a compliance review. DOJ is a law enforcement office. We need to do law violation checks.

And so, we are happy to work with charities and we work with charities. We're trying to upstream to educate. In fact, I was educating, doing a presentation this morning with the secretary state's office, and I heard that over 700 participants RSBP for that event. So, I'm hoping that today, like more message was sent to charities.

We partner with Cal-nonprofits to spread the word. I speak at bar associations, at different conferences. We're trying to spread the word on compliance so that you don't fall into delinquency.

Thank you. And now we're going to go to Chair Hart.

I'm trying to get a handle on the percentages of charities that are delinquent regularly or the workflow of what you're doing, because the numbers are confusing to me. You have 109,000 approximately charities total operations. And then you mentioned 20,000 renewals happening in May and then another 24,000 happening in November.

But some of those are delinquent folks who should have filed in May. So, I can't add up all these numbers to get an understanding of how many folks regularly are delinquent in the system on a given year. Sure.

Okay, so all charities need to file annual renewals once -

Once they're registered, you have to file and renew every year.?

That's correct. Okay, so the 20,000 number that Elizabeth Washington talking about was the inflow of mail for those for our busiest months, which are November and May.

So, the materials we're receiving runs 20202000 whereas on a normal month it's around 9000. So, what she's indicating is that if someone is submitting delinquency materials during those two busy months, it's going to be, it's going to be contending with a lot of other materials coming in at the same time.

I see it's a surge of a regular amount that happens every month. So, on any given year, what percentage of charities are delinquent?

So again, you know, these numbers are dynamic, but so let's just use for conversation sake that our current register population is 107,000. Right now. Approximately 31% or 34,000 are delinquent. And that's a dynamic number. It goes up and down, but approximately 67 are - 67% are current. And there's a small segment which we call other, and that's pending.

Organizations that are pending to dissolve or their trust accounts. So, they're kind of in that gray area and we just categorize them as other. But the core population, it's about a 67-31 concentration, 31 being delinquent.

Okay, so about two thirds. Everything works smoothly online, more or less.

And to some degree, I like to use this analogy, in some ways, you can look at it as a debt portfolio. So, you have your debtors who are in deep trouble, or you have your charities that are in deep trouble. Maybe they're four years delinquent, but then you have some that are just maybe not as tight on their submission.

And so they'll be delinquent and then they'll cure. So, you know, all of this population runs the spectrum of number of years delinquent. But as Elizabeth mentioned, when we get into multi year, it becomes, you know, it does really create a lot of extra time to do the full review and to get them back on track.

And I imagine handling all that paperwork is challenging, and there's a certain percentage of things that just get lost because of that human element of opening mail and filing things. And that's, I think, why you're hoping to move more online. Right. So that you don't have physical, as much physical volume of mail.

Right. So, one good thing about COVID is that we were doing all our imaging backend with COVID We were, you know, forced by necessity to do the imaging upfront. And so, it is a good model.

And through our technology project, we will definitely want to get everything on the front end, but we're not going to be imaging it. It will be delivered to us from the charity as an imaged document and not a paper document. So that really is the.

The ideal scenario in the sense that it's ideal for the public, in the sense it'll expedite their submission. They can actually track it better because, you know, they'll have their email receipt and so forth versus the U.S. mail. So, we'll address some of the issues you brought out as far as lost materials.

It'll accelerate the timeline as far as the end to end when we get it, and then when we can get working on it. And then it also accelerates the workflow in the sense that we're not having to open an envelope and post a check and QC a document and then upload it. So that's where we're headed.

And when are you hoping to have that fully operational? What is the timetable for that?

Phase two is targeted for summer of next year.

Okay, thank you.

Assemblymember Hart, I wanted to go back to the point about maybe mail getting lost. We have not heard of any, like, once it gets to the register, once it comes to the Department of Justice, it's not lost within the Department. But sometimes we'll ask them, and they say we sent it in.

I say, "What address did you use?" And sometimes it ends up going to the Secretary of State or FTB. It goes to different government offices. So, we are hopeful that the modernization will help fix that. But we also want to be mindful of those smaller charities that maybe are not savvy enough to do filing online.

We want to be able to make it available for them to still file paperwork, paper renewals with us.

Thank you.

Thank you, colleagues. Doctor Jackson?

Thank you very much, and thank you both Senator and Assemblymember, for having this hearing. You know, I came directly as a CEO from a nonprofit straight from right to here to Sacramento. So, I'm familiar with your forms. I personally filled them all out.

I think the issue is, and I'm not sure if it's just, it's not your fault because you're doing your job and what you have been called to do, but I think when we look at the entire nonprofit ecosystem in terms of what has to be done with the IRS, what has to be done with the Franchise Tax Board, what has to be done with the Secretary of State, and now what has to be done with you and the fact that, you know, nonprofits are having to navigate all of that, I think it's incumbent upon maybe probably us as a legislature to simplify a lot of all those processes because, for instance, sense if when we send it to the IRS, I mean, those are public documents too.

Correct? So why couldn't you get those documents from the IRS as opposed to having the nonprofit, having to do all of that? Because now my nonprofit, I had a whole finance team, they could do that easily and all that stuff.

But if I'm still a one person, I'm just trying to collect some toys and give it to some kids. Right? That's a lot. And I have a full time job while I'm at it, and I'm doing all this type of things.

And, you know, so the same documents you're requesting, even other state, state departments already have those documents. But it doesn't seem like you all are talking to each other because we also have to fill out, I think it's every two years with the Secretary of State in terms of updating our officers and those type of things.

And so, the idea is IRS says we are active and in compliance. Secretary of State says we are active and in compliance. Franchise Tax Board says we are in compliance because we're doing everything.

But because you don't say we're in compliance, which is technically, well, anyway, because you guys say they're not in compliance, now they don't have access to receiving that contract. Now they don't have access to doing those things.

And so it just seems to me that there's some redundancies that should be worked out so that we make it actually easier is one thing we learned from the pandemic, which is why it's so important to understand kind of the all the hoops that are being jumped through to be able to stay in compliance is that in many cases, one thing we've learned is that we need more nonprofits, and we actually need to make the process easier, not harder because IRS does their audits from time to time as well.

Right? I mean, Franchise Tax Board. Right? I mean, I remember one time as I was renewing a nonprofit that had become delinquent. Right, I mean, the work that you have to do to get that baby out of delinquency with the IRS is just something terrible. Right?

So all I'm saying is, is that, number one, I think we probably need to work on how do we really simplify the process for a nonprofit in California? Understand what your legal response. I know y'all some lawyers. I ain't trying to tell you.

I know what y'all just trying to do the best you can in terms of making sure you're doing your job and all those type of things.

But when you look at the total ecosystem, and I'm wondering, do you have an advisory board of nonprofits that advise you all on their experiences and all the different things that they have to do with, and by you creating one requirement or something like that, how that would affect folks, particularly if you're a nonprofit under $50,000. Right?

That is, that's some serious, serious work that have to be done.

No, we don't have an advisory board, but we do have a group of stakeholders, including Cal-nonprofits, from which we receive feedback and for which we seek feedback for various important issues that come up. And I do understand what you're saying. There is a lot that charities have to do, and they do important work in our state.

We want more charities to operate successfully and to flourish in this environment. I do want to point out though, when smaller charities are filing form 990-n, which is the e postcard with the IRS, we get no data from that.

And so even though you think it's only $50,000 charity, many of the smaller charities are not operating properly. And I think that they need help. And so maybe if we spot issue, spot some of these, you know, legal violations, we could work with them to correct it and put better processes.

What do you mean by legal violations? Those are not legal violations.

No, no. What I'm saying, if we, for instance, like, so we require the ones that file 990-n to do a CT-TR-1, so we just get a broader picture of their files, finances.

So if, for instance, we get a complaint coming and we saw, "Oh, it's a smaller charity," but we see that where they could improve their process, we can say, zero, I think we could recommend this corrective action for you. So that's something that put them, but -

If they don't, they're penalized for it.

No, we don't file, we're not filing a lawsuit against that. We're giving them a guidance as to how to make your process better. So, on the legal side, it's not always penalizing. We do work with them too. We don't want to harm their reputation.

We work with them to correct their management, their operations so that they stay in compliance. Maybe we're saying you maybe have a better policy in place about when you hold board meetings, have that binder that I talked about. Have a binder that goes to every board meeting and people look at it when are filings due.

So, some of the processes that may be missing from a smaller charity because they went into it, they started a charity with good intentions. They want to go out and help, but there are all these obligations in addition to getting tax exempt status and forming a nonprofit, for instance, you do have to operate with transparency, right?

That's what the authority, that's what the legislator told the agent to do. Make sure you make these filings available to the public. You get it from them and give it to make it available to the public so that the donors could make informed decisions and see what that charity is doing. So, we want to help them.

And part of helping them is also we need to see how they're operating. We need to see some transparency with the filings that they do.

Yeah. I mean, again, I'm not faulting you for you doing the best you can with your work and what you see as your legal obligation and all those type of things. I think it's even more just incumbent upon us, even as a Legislature, to think about how we can simplify the process.

What are some duplications that we're seeing happening? Because more than ever we need more nonprofits. I do agree.

They need more assistance to help them turn those ideas into programs, those programs into organizations and those organizations and the institutions in our community to help with the heavy lifting that exists with our constituents and all those type of things, too. But definitely appreciate it. Thanks.

Alright, seeing no other questions, I want to thank you all as panelists, as experts to help us understand this. And this is exactly what we're hoping really to engage and try to figure out how to improve. Right.

Both improve for you all, serve a role in making sure that folks are compliant, that when we place trust in giving a dollar, it's going to where it's going and that folks are doing, but also to ensure that we're able to deliver the outcomes that make our communities move in the way and advance in the way that I think is important.

So very helpful. I think very creative ideas have come up just in the first panel. So, thank you very much. Thank you. And now we're going to welcome our second panel.

We have Amar Azucena Cid, Deputy Director of community investments and planning for California Strategic Growth Council Susan Gomez, Chief Executive Officer of the Inland Empire Community Collaborative and Sandra Celledon, President and Chief Executive Officer of Fresno Building Healthy communities.

So I will say that you each have five minutes, with the exception of Amar, who I think we're going to give just a little bit of time to. So we'll kick it off with Jeff Green.

Great. Thank you so much. Thank you, Chairman Limon and Chairman Hart and Committee Members. So I'm honored to be here as part of this hearing today to represent the voice of the nonprofit sector throughout the State of California. I have the privilege of serving as CEO of the Association and also better known as Cal Non profits.

And I get to work alongside some 10,000 nonprofit Members and partners throughout the state as we strive to protect and enhance the ability of California's nonprofits to serve our communities and our state, and especially through our public policy and advocacy work.

Throughout all of our policy efforts, we're really focused on addressing inequalities, inequities, and supporting efforts to bring more equitable distribution of resources to our communities and to the sector as a whole. And with that lens, we're particularly proud to be chief proponent of and your collaborator on what we deem the term the nonprofit equity initiative.

And this was to improve state government contracting practices with a focus on fairness, efficiency, and stability for the sector itself. More than 550 nonprofit community leaders across the state signed on to support this effort, and a group of about two dozen nonprofits organized as a loosely affiliated contracting coalition to develop and advance a package of bills.

And these were the first seven, which were introduced last year at the beginning of 2023. The initiative and the work we've done since is a testament to the value of your Select Committees.

For one, the recommendations that emerged from the February 2022 Joint Hearing actually led directly to the launch of the nonprofit Equity initiative, and the testimony in that hearing shined a very bright light on the need to collectively address contracting practices through legislative interventions, as the status quo has long created costs and iniquities for nonprofits trying to partner with the state to meet all kinds of community needs.

Today, we're here to build on the initiative's success in passing Assembly Bill 590, which was authored by chair Hart, passed unanimously by the Legislature and signed into law just last year. AB 590 improves and expands the critical practice of providing nonprofits with startup funds, also known as advance payment, on all state grants and contracts.

By authorizing up to 25% advance pay, the legislation ensures that nonprofits did not have to front significant expenses and then wait to be reimbursed, be forced to take on high interest loans, which is one strategy of dealing with that in order to launch new programs or be excluded from contracts and grants because of a lack of access to the upfront capital necessary.

And it's made necessary by that reimbursement only model.

AB 500 and 90's clarity that advance payments up to 25% are not only permissible but an expected norm creates the potential to enable more nonprofits, particularly those with less cash on hand and those led by or serving poor, rural, majority people of color communities across the state, to partner with state government.

That's why the way in which the state agencies contract with nonprofits is a question of equity for us, and not only for nonprofit contractors, but also for, of course, the vulnerable communities that they serve. The objective of this panel discussion today is to ensure broad, statewide implementation of AB 590.

The bill's permissive nature, as you're all aware, make it possible for all to make use of the advance payment model, but none are required to do so.

So the question is, how do we spread the word across state government about the benefits, both to the state and the contractors and the grantees, so that advance pay actually becomes the norm in California?

You approve the legislation because you recognize that advance pay addresses longstanding contracting practices that often make partnership too expensive for many nonprofit organizations, especially smaller ones, and that should not deter our mutual efforts to deliver the highest quality service to the people across the State of California.

Without widespread implementation of advance pay across the state, we risk unnecessary capacity and resource limitations continuing to be a strain on nonprofits abilities to serve our communities, especially those in more under resourced areas.

The reality that many nonprofits partnering with government must fundraise to subsidize the true cost of these much needed grant programs because government dollars simply do not go far enough relative to the it's also important to note that passage of AB 590 generated national recognition of the state's leadership on this issue.

Other nonprofit associations across the country, and I get those phone calls, are pursuing opportunities to emulate AB 590, and there currently are exploratory conversations around potential national legislation as well. So true to the familiar saying, as goes California, so goes the nation. Obviously, all eyes are on us to ensure that AB 50090's full potential is met.

And how will we meet the moment and rise to that occasion so that the model we've created for others to follow is successful from start to to finish. It's worth adding that the state already has many successful, proven examples of the benefits associated with advance pay. It is not a new or radical idea.

For example, in 2017, AB 1530, Assembly Member Gonzalez authorized CAL FIRE to provide advance payments under its Urban Community forestry program, and this allowed 214 grantees to access the necessary resources to complete wildfire prevention and or forest health projects.

A report analyzing the impact of using advance pay for CAL FIRE stated the grantees would not have been able to operate without grant payment advances, as they could not afford to Fund the work without those very advances.

Clearly, advance pay expands the playing field for nonprofits in this program, allowing committed community groups with Low or no budget to improve quality of life in their regions. Another example is in the domestic violence field.

Services are overwhelmingly performed in California by nonprofits, and like many, they face financial hardships through the standard reimbursement model, which impacted service delivery. Assembly Bill 673 from Assemblymember solace was adopted to ensure that these service providers actually receive the entirety of their state grants up front.

And these two examples, they're just two, but they show that while advance pay is clearly successful, when implemented, a piecemeal approach is simply going to be inefficient and insufficient. AB 590 enables large scale adoption so that we can have comprehensive and uniform processes, avoid government waste, and enhance nonprofit stability.

And if we know advance pay produces strong results from these two examples and the many others across the agency over the years. And it's incumbent upon us as leaders to do what it takes to move past the status quo.

So at Cal, non profits were willing able, committed to work alongside you making advance payments, the default on government contracting rather than the exception.

We would propose a few tools to assist in this effort that would include facilitating a training program for all state agencies through various webinars, roundtable of relevant stakeholders on implementation strategies, etcetera, the creation of standardized language and advanced pay for easier adoption, and regularly touting the successes achieved by existing and new advance pay contracting to bring more attention to the benefits.

Obviously, it's going to take all of us working together to make a 500 and 90's promise a reality. We look forward to bringing further attention to this matter, and we obviously welcome your ideas, the hands on involvement in how we do this.

So I want to thank you again for providing this platform to consider our perspective and making further progress on the implementation of advanced pay so that nonprofits and state agencies working in partnership are well positioned to thrive and meet the needs of our communities throughout California. Thank you very much.

Thank you. Next we'll have Amar Azucena Cid.

Hello. Okay. All right. Thank you. So I'm going to lead with how we operate right now at the Strategic Growth Council. Communities facing existing inequities are often most vulnerable to climate change and other disasters and least equipped to respond.

The state, like the Strategic Growth Council and our partnering agencies, offer programs and provide program opportunities to reduce local pollution, greenhouse gas emissions, and increase equity resilience across the state. This is including addressing our most vulnerable communities and the California Native American tribes.

States are also looking at and providing technical assistance that are essential and foundational to ensuring under resourced communities can access and will access tools, resources and funding necessary for ongoing transformation. The Strategic Growth Council moved to council priority two in 2022, which is advancing capacity building as a key equity strategy.

The Strategic Growth Council adopted a resolution to further promote and integrate capacity building across the strategic growth Council and our Member agencies and our initiatives.

The resolution builds on the leadership of the council by expanding and extending our commitment to advancing capacity building across the state and in order to support more communities accessing funds that are critical for implementation, especially around climate policy. The Strategic Growth Council has incorporated technical assistance as a key strategy across many of our programs since 2016.

We piloted this back in 2016 and 2017 with affordable housing and sustainable Communities program, as well as partnering with our agencies such as CaLsTA, the California Transportation Agency and its Member agencies Caltrans, on their California climate investments with the LC top, which is the Low Carbon Transit Operations program, and the transintersated Real Capital program.

The Strategic Growth Council released our technical Assistance guidance back in 2020, updated that guidance in 2023. In this guidance, we expanded on areas where state agencies agencies can improve capacity building through the technical assistance development across their programs. This includes many initiatives that expand and enhance resources for communities and ability to access capital.

I lead with capacity building as that is a mainstay for our work.

Our early investments in our work taken by these actions has led our council to champion priorities on expanding community voice research taken through our partners and our institutions that supported advanced payment as a strategy to increase access to funding that support Low resource communities and organizations across the state.

The Strategic Growth Council analysis shows that grant applications who do not already have technical assistance and capacity building support or strategies do not compete well for funding. Our strategic support in these areas help align and support applications to get to the needed areas and resources.

By providing these pathways and strategic support, applicants are able to align with our priorities, such as our racial equity Action plan and our strategic plan. Some of our early awardees within their transformative climate communities program expressed the complications of implementing intersectional projects and high cost infrastructure without upfront funding or down payments for collateral.

This caused some partners to take out loans to advance their projects until they could be reimbursed. The advance pay legislation intent here is for alignment the way we see it in our capacity building work to assist California tribes and under resourced communities by reducing administrative barriers and providing targeted support structures to improve access to that state funding.

Some of our examples that we've undergone over the last couple years and more recently are looking at how we implement the legislation for advance pay. Right now we're also understanding, as partner panel Members mentioned, there are state agencies that have operated advance pay outside of this legislation.

One other example is Caltrans operating the Low carbon transit operation program. So with these examples, we've been able to look at our own programming and figure out a way to move our strategic areas with capacity building and advance pay. We have legislation that has enabled us to pilot this through the transformative climate communities.

We updated our guidelines for our round four and for a recent round in round five last year, we were able to currently document an advance payment to the Native American Environmental Protection Coalition under transformative climate communities.

Our regional climate communities has offered two advance payments, one particularly to the San Joaquin Council of Governments that is supporting over six nonprofits and our community resilience centers, which was just awarded in the spring, is signing contracts right now and working on workshops for expanding advance pay in that project or that program.

Some of our lessons learned right now are looking and managing the different legislative pieces so that we have the best information moving forward for our programs. Certain things that come up are eligibility across our programs, whether it be for nonprofits, local governments and tribes. Currently, we are administering advance pay to nonprofits and to local governments.

We do have a tribal led nonprofit that is receiving advance payment. With our experience over the last year, we also underwent a DOF audit on our pilot for advance pay. We are responding to some of our findings which has helped the strategic Growth Council really refine our procedures and really refine our administrating overhead.

We have successfully released some of our workshops and our tools to our applicants over the last couple of weeks. More recently this week we held an advance pay workshop with over 120 participants to go through how to receive advance pay. What are the tools and resources to do so.

Where we're at right now is further refining our process and procedures so that we can adhere to the legislation and be accountable to our funding mechanisms.

Again, we are holding workshops across all of our programs that are utilizing advance pay and providing opportunity to continue to hear from the public Members on what is working, what is not working. California is also again making headway as taking a stance to root out historic inequities embedded in our government processes and institutions.

And we are supporting communities who are working hard to build climate resilience, like enacting programs to clean up our air, our water, our soil. And we need to do this by mobilizing some of that work.

They are doing this by sustainable mobility option improvements, updating building with solar, and doing so to reduce burden on communities across the state.

And we know now that some of this work is difficult and we need to make sure that we are hearing community voice and community led organizations and that they are at the table to help develop these projects so that when we have shovel ready projects and programs that are required, we know that they can be ready to do so and implement faster.

How SGC is designing our programs, leading through capacity building strategies is improving our federal funding leverage. More recently, with our programming, we have been able to leverage federal funds like the California CCG, which is the connecting, sorry.

It is the community change grant that is really replicated after TCC to further extend how we do capacity building and partnership throughout the state. And so we are excited to continue to work in deepening our investment, deepening our investments across the state. Thank you.

Thank you. Next we will go to Susan Gomez.

Good afternoon. Good afternoon. Esteemed Chairwoman Limon, Chairman Hart, and Members of the nonprofit Committee on the nonprofit sector. I am deeply honored to provide testimony today as the CEO of the Inland Empire Community Collaborative. We are a group of 109 nonprofits, both in Riverside and San Bernardino. county.

And IECC supports nonprofits in collectively advocating and making the region more equitable, diverse and just through capacity building. Our strategies are really around advocacy and policy work. And today, though, I'd like to share our experiences as relates to advance payments and their impact on our organizational operations, our financial management, on our program delivery.

And I speak on behalf of a coalition of not just 109, but almost 672 nonprofits also that work alongside the ICC. Advance payments have significantly benefited our organizations and our partners.

They've elevated our financial pressures, enhanced our predictability in financial management, enabled immediate implementation of our programs and services in communities, and despite these benefits, continues to be challenges associated with the implementation, the need for training, coordination within the government agencies and nonprofits.

I truly believe that AB 590, if fully realized, will greatly benefit all nonprofits small and large anchor organization. But it does require concerted efforts to prioritize education or capacity building and equitable implementation of these policies. The critical role of advance payments is really the maximizing of the effectiveness of our administrative states and contracts.

They provide the necessary capital, and I know Jeff covered that to cover expenses in real time, reducing the need for nonprofits, delayed payments to contractors and vendors, and to seek interest and to eliminate having to seek interest loans or credit card advances.

I have several colleagues of mine that because of not having advance payments, have had multiple loans and credit that they have to do in order to pay their staff or themselves to keep their programs and their doors open. In the Inland Empire, there are approximately 14,331 nonprofits. Of those, 67% of them have budgets of under $100,000.

So the majority of us are small out there in the IE. And for these smaller nonprofits, especially those working in underserved communities, advance payments are vital. It creates us to have an equitable opportunity to come after these federal and state dollars that we didn't have before.

And I'd just like to pay three priorities for us in terms of demonstrating the benefits. Again, it's the advance payments help us to maintain steady operations without delays, which is crucial for smaller nonprofits. Again operating with tighter budgets, the predictability of financial management.

We can plan our budgets and be more accurate about allocating funds without delay and invest in the capacity building activities that we've discussed as well in this table of my colleagues. But again, I think the biggest advantage is smaller nonprofits and leaders of color will have more equitable access to these state grants and funds.

Most recently, IECC applied for our first state grant through the Office of Community Partners and Strategic Communication, the governor's trusted Messenger Grant. We did our first collaborative application of over eight nonprofits, altogether, an organization helping with children with autism and adults, a Muslim organization providing basic needs.

We have an organization up in Big Bear doing parenting for children. It was the diversity amongst the region, but collectively, because of advance payments, all the participating agencies could immediately start the project on day one, including hiring and paying our staff.

And without these advance payments, at least three of the partner organizations, due to their smaller budgets, would never have been able to participate. So we thank you for that. The challenge is, again, is the complexity of the implementation, and we realize this new legislation will require it is complex and requires significant administrative changes.

Organizations struggle to interpret and apply for these new regulations. I will give an example. This County of Riverside county does have a nonprofit roundtable. They've agreed to offer the 25%, but only if nonprofits ask for it. So it's available.

But if you don't ask, you don't get in San Bernardino, county, we have not had any feedback or policies as it relates to San Bernardino. county.

The coordination for navigating this new process and relationships with state agencies can be challenging, particularly if there's a lack of clarity of support and nonprofits that have had no prior history working with government agencies or public entities. Again, the disparities and the inequities around the smaller nonprofits.

In closing, I would just say advance payments from state grants and contracts have proven invaluable for enhancing our organizational efficiency and effectiveness. They support stable operations, improve financial management, and ensure that our programs are delivered effectively and without interruptions.

To fully realize the potential of AB 590, it is essential that we address the implementation challenges, challenges particularly through education and support, both for state agencies and our nonprofit partners. Thank you for considering these insights, and I'm happy to answer any questions.

Thank you, thank you and our final panelist, Sandra Celedon. Feel free to begin.

Thank you Chair Limon, chair Hart and Committee Members, I am honored to be here with you today representing Fresno, building healthy communities and our growing network of community based organizations in the Santa roster. Encourage thriving communities where all children and families can live healthy, safe and productive lives.

Fresno BHC serves as a central table, bringing people, community and faith based organizations together to share knowledge, skills and resources to collectively address and respond to issues that are important to our community while developing the capacity of everyone involved to build a long term foundation to ensure that the people of the Central Valley have access to the resources necessary to to live healthy and thrive.

It's no secret that the Central Valley is one of the most productive agricultural regions in the world, with nearly 2 million acres producing more than 350 crops and contributing over 5 billion annually to California SGDP. Yet 50% of residents living in the valley struggle to make ends meet.

Safety net programs and services provided by the nonprofit sector play a major role in helping to shift the stark reality. During the height of the pandemic, community based organizations, specifically small grassroots organizations, rose to what seemed to be an insurmountable challenge and distributed prevention information, testing kids and vaccinated over 25,000 people in Fresno county.

These efforts were made possible via contracts with Fresno county and the City of Fresno that included advance payment provisions to enable a network of over 17 community based organizations to very quickly hire and deploy 125 community health workers. That happened within 30 days.

Beyond rapid response services, nonprofit organizations provide a significant portion of California's environmental stewardship, religious services, arts and culture, and other vital services essential to thriving communities, making them one of the most trusted sectors in our communities.

Nonprofits, as you know, are largely funded by government payments for services and philanthropy, and that is why I'm encouraged by the passage of AB 590, which prioritizes advance payments for nonprofit serving disadvantaged, Low income and under resourced communities to ensure that these same communities have fair and equitable access to state contracts and grants. In 2020.

Fresno building health the community successfully secured a $6.6 million grant from the California Department of Parks and Recreation to renovate Cowell park, my park that I grew up in, that is located within a small unincorporated community in Fresno county that is home to working class people living on one of the most polluted census tracts in the whole state.

This park renovation is currently underway, and we anticipate its full completion in 2025. The project has been made possible by the California drought, water parks, climate, coastal protection and outdoor access for All act of 2018, known as Prop 68, and a very specific provision within that program. Advance payments.

While Fresno BHC has a big presence, we do not have a big wallet. Like many of our sister organizations, we spend dollars as we raise them, and we cannot afford to subsidize programs that pay us in arrears.

The common practice among state agencies to pay contracts after expenses have been incurred has prevented us from pursuing state and other government grants. The Kalawa renovation project was the first time Fresno BHC pursued a multi $1.0 million grant from the state.

We would not have pursued this opportunity without advance payments, meaning that our community would have missed out on securing its fair share of Prop. 68 funding. In fact, our application was the only project selected in Fresno county during that grant cycle.

I encourage this Committee to review the procedures for advance payments within that program to glean its best practices and replicate them appropriately.

In the implementation of AB 590, the Department of Parks and Recreation has developed user friendly forms and reporting requirements that enable efficiency, and similarly, we have experience with other state agencies that have developed cumbersome forms and reporting requirements that are often duplicative and divert time and energy from the actual work.

Nonprofits carrying out good work in their communities should not be overburdened by unnecessarily complex administrative processes.

I offer the following encourage widespread and consistent adoption of advance payments across agencies grants and programs streamline policies and procedures across agencies grants and programs to avoid duplication and waste, develop standardized definitions for contracting and grant language, and ensure that advance payments to nonprofit organizations are sufficient to cover the cost of providing services.

Recognizing the important role of nonprofits in our state, it is imperative that policymakers have a complete understanding of how nonprofits are faring and what steps need to be taken to strengthen this important sector. A healthy nonprofit sector is essential to ensure all people can thrive. Thank you for allowing me to share our experience.

We look forward to continued collaboration to ensure public dollars reach the people in the Central Valley and other working class communities throughout the state.

Thank you. Thank you to all of our panelists. I'm going to turn it to my colleagues to see if there's any questions or comments. Senator Ochoa Bogh.

Good afternoon and thank you for all our panelists for being here today. I understand the need for advance payments, and I think it's important for many of them in ensuring that they are able to procure other funding, especially at the federal level.

One of the questions I have for you is, within the consideration of the advance payments, has there been any consideration or requirements that cater to financial financial planning, financial literacy by our nonprofits, as they consider or apply for prepayments or advance payments? I know, and let me put a little context.

I should have put a little context in there. So I understand there's schools that are popping up with regard to training and how to do nonprofit profits, but not, I don't believe we've had be prior to these schools coming forward, and I'm not sure what.

I've never really looked into the training for our nonprofits, but I'm pretty sure that they do have a component when it comes to financial planning or financial literacy.

But for those that come up without that type of training or formal training, is there any requirement or any expectation when applying for these types of payments or funding to have a requirement of financial literacy planning as they move forward with their nonprofits.

So in our experience, those two things aren't tied together. It is certainly true that there is an emergence of more training programs, schools, certifications, credentials of all various types, some of them seated in academic institutions, most of them actually still seated in other nonprofits.

Funders are certainly doing this as well and offering those resources, but that, to my knowledge, has not been tied to something like advance payment.

So just as a General need for the sector to do good financial management, that's certainly out there, and those resources are available, but that hasn't been tied to grants, even more traditional grants, that's usually not part of a requirement, per se.

Say, is there a need to ensure that there is some sort of level of financial planning or financial literacy as a requirement as applicants apply for funding or prepayment?

I mean, my off the cuff answer would be, I don't think so. I don't see that that is a particular need in the nonprofit sector. I think that, as we heard in the prior panel, the oversight and the transparency requirements around how every dollar is used in the sector is certainly robust, to say the least.

So there's a good deal of reporting and planning for how every dollar gets used. And, of course, for any grant or contract, there's always some reporting requirement, with a very few rare exceptions.

So I think that if you're talking about capacity internal to a nonprofit, to do that, again, most nonprofit leaders are seeking that anyway, and there's a lot of peer learning as well within the sector. That happens very often. I don't.

I think I wouldn't recommend adding one more requirement to, for example, before you seek this grant, you have to have that credential. But there's a lot of incentive to have good planning and good reporting, because, you know, the consequence if you don't is that that revenue doesn't come.

Doesn't come as a second opportunity or.

Or in some cases, can be revoked. I mean, it depends on the arrangement. If you look at the overall revenue streams in the sector, the actual largest revenue stream in the sector, if you count all of it together, is earned income.

The second largest is government contracts and grants, and then the third is philanthropy, but the majority of that is individual donors. So each of those potential revenue sources are doing their own due diligence on do I have faith and confidence in this nonprofit to manage the dollars that I give?

There's a handful of standardized reporting, like functional expense reports. How much of this is going to core program, how much of this is going to administrative effort, how much of this is going to fundraising? But there's a lot greater detail that is often asked by individuals, and it just depends on who the revenue source is.

But we don't have a standard requirement.

There's not a single standard. No.

For the state?

No.

Okay. If I can just say, so, I'm a capacity building organization. So that's what we've been doing for 10 years. We recognize that, you know, the Inland Empire specifically had kind of been known as an area that we lacked capacity to come after dollars. And we're completely. And we're also demonstrated that we're underfunded in the region.

Both in private foundations and in state funding. So we've recognized that we had to change the narrative around nonprofits and having capacity or not, and most notably, nonprofit leaders of color.

So we provide year long capacity building academies for smaller nonprofits, leaders of color to come through projects, and we have to go find funding for that to happen for us to be able to strengthen and build sustainability within our sector. Jeff's point, some foundations offer capacity building, but the majority do not.

And it's been incumbent on our own sector and ourselves. Our resilience, or I'll say our tenacity, is that we recognize we graduate a group of 10 nonprofits every year, and those 10 come back and help the next 10. That's our model.

But there is a lot of other capacity building opportunities, but not generally tied to specific funding streams.

I do want to add that I think. I don't think the issue, from my experience is financial planning from the nonprofit sector. It's really hard to plan when you're working with the state agency that does not provide timely payments.

So we've had experiences with contracts that we have entered into arrears where the expectation is that we will receive payments within 90 days, and we actually do not receive payments after six months or longer.

And so that, you know, no matter how good I am at my cash flow projections, if the dollars don't actually come in, it really puts a strain on our organization when we are responsible for making sure that we pay our vendors and our employees right within a 30 day period.

And so those are some of the challenges that I think are systematic, that I would actually encourage the, we find systemic solutions to. Because by the time nonprofits are going after state dollars, they will have already been in existence. Right.

And have gone through a couple of cycles of making sure that they have their 990s completed, that they've gone through audits, because all of those are parts of, or requirements of most grant applications, whether they're through government or private sectors.

So I think the challenge really is on reimbursement reimbursements, and when can we actually realistically expect those, and more importantly, that they're timely.

That's right. On getting them.

And I will add, I'm looking at text right now of AB 590, that in addition, there's a basic minimum requirement in order to be eligible for advance payment, which is, one, you have to have a budget. Two, you have to support documentation for the need for an advance payment.

Three is to, of course, be in good standing, which was our first panel. And then four is, you know, insurance. And so there are, it's not, if a nonprofit weren't, they could not be eligible if they didn't meet these minimum requirements to safeguard some of, I think what you've raised about, you know, do they have the information?

Are they, you know, set, ready, set, go right for. So I just wanted to add that. Thank you, and I'm going to turn it to our co chair.

Yeah, I just want to thank the panelists. This has been so important to share the information that you have. The strategic Growth Council, you know, leading within the state government to try and encourage advanced payments and using the experience that you've had and the training to expand that information to other state agencies.

Both of the nonprofit leaders here, you know, really made the case so strongly that, you know, the equity that's required to make sure that the agencies and the organizations that you're working with are able to do the work that they're trying to do to serve our community Members, the very small nonprofits that you spoke about in the Inland Empire, 67%.

To Doctor Jackson's point that, you know, we should be really getting out of the way of the organizations that are trying to do the work and supporting that work through our state processes, rather than making it more difficult to access funding and to do the work that you're doing so well on a daily basis.

I'm really inspired, and I'm reminded by Mister Green's comments at the beginning about the nonprofit equity initiative and all the other legislation that did not unfortunately, make its way through the process.

But we need to redouble our efforts and make sure that the contracting reforms that were part of that package are passed into law and that the advance payment legislation is equitably and aggressively integrated to all state agencies and processes. There's a lot of work to do.

And I'm curious, are there state communication tools that we could be better utilizing to spread the success stories? You mentioned the examples of the agencies that are using advance payment and having them work successfully, using being cheerleaders for that effort and spreading the word, I, agency by agency, about success stories.

You know, what strategies do you think would be effective for us to engage in to try and get the Administration to help spread the word that this is a great idea that we should only be doing more of?

I would look to our agency leadership to advise on that. I don't claim to be the expert there, but I certainly know that there's infrastructure in the state to use as platforms for that. So we would certainly be supportive of it.

Yeah, I can't speak for all of our state agencies. I can speak for what the strategic growth Council is doing and how we integrate capacity building across the council Members. So there's definitely ways to continue to communicate what's working, what's not working.

We do that regularly with at least one of our council meetings in a public forum to discuss how our capacity building is, what are the strategies that have been implemented, success, non success, and bringing in some of our grantees.

So again, like, that's a, that's a public forum that can be done and we can definitely share what other agencies are doing in that space.

Well, I think you are leading the effort from within, and I think we want to amplify the work that you're doing to encourage other state agencies to recognize the benefits of advance pay and also to be advocates themselves for the things that Miss Cilladon mentioned, the streamlining of the processes, the standardized definitions, you know, all the things that just make this more practical and effective and help to leverage the dollars that we have available for the services that you're providing to our communities.

Thank you.

Well, thank you. Thank you to the panel. I appreciate this. I think that this is a very meaningful piece of legislation, but I think the rollout of it also is important to understand what is, what is not happening. It's very new.

So I also expect that the rollout will improve with time as we're able to, I think, identify this.

And I think what I, you know, what I'm hearing our coachers say and just Members say is one that even while it's new legislation, we're really interested in hearing the feedback to help us ensure that the departments that the agencies involved also have the information, because that then gets shared with, of course, our nonprofits themselves.

In both the first panel and the second panel, I think that there were strong themes of, you know, what happened with the laws that are here and how they are felt and interpreted and received on the ground, there's also a recognition that capacity is super different between, Doctor Jackson said, what a nonprofit, if one person working there with a $50,000 budget can do to, you know, really huge nonprofits.

And so I think we still have some work to do in that space as a Legislature to actually figure out how to craft laws and legislation that account for, like, the huge difference in nonprofits in our state. We have a lot of them. We constantly talk about that.

But what a nonprofit of one can do is really different than what a nonprofit of 100 can do. Right. And I think in the spaces we navigate we don't actually oftentimes interact with nonprofits.

You know, we do interact with nonprofits of 100, but we tend to interact with nonprofits that are smaller, that, you know, are a handful of people that are trying to be the Executive Director, the compliance person, the tax person, the volunteer organizer, you know, the web person, the it person.

And so that is where I think it gets hard. And I just want to recognize that, you know, you're doing this work, but this type of feedback is really helpful to us. So I appreciate all of you traveling from all parts of the state to be able to better inform us. So thank you.

And now we will open it up for a public comment. And so I invite any folks that have public comment to. So please come forward, state your name, affiliation, and just, you know, your comment altogether.

Thank you. Sandra Barreiro on behalf of SEIU California, we would support providing DOJ with more resources to streamline and update their process. Maybe they need more staff support to support compliance. We would also like to see nonprofit employee pay data available online. SEIU represents nonprofit workers, and we have some concerns with the industry overall.

And we would think that providing this pay transparency would help to raise the standards, and it would also allow us to monitor whether or not the wages of nonprofit employees are undercutting public sector workers, which lowers the standards for everyone. And I just want to add that, you know, we're very appreciative of nonprofits works.

They do some work that government cannot do. Right. But there's also often times when government should be doing some of this work. And we want to look for ways to encourage governments to take these services in house. Thank you.

Thank you. Good afternoon. Co-chairs Limon and Hart. I'm Elizabeth Espinoza, speaking today on behalf of a nonprofit based in Los Angeles County called Happy Trails for Kids.

The mission of that organization is to provide enrichment for children who are experiencing foster care care by offering cost free outdoor, educational, and overnight camping experiences that really promote the importance of permanency, happiness, friendship, and role models.

And I wanted to share an experience that the nonprofit experienced this year with the topic that was discussed under panel one.

And not unlike the story that you heard from Mister Jones, I think I certainly have a better understanding of the workload and the challenges that are faced at the charity, just in terms of, particularly during these periods of surges. But I think it's important that the panel hear from another nonprofit about their experience.

Happy trails did experience a lapse in compliance earlier in this year, and it came at a time when we were very close to having grant solicitations come to fruition. So it was at this precise time when the delinquent status was discovered. Of course, happy trails responded immediately.

Once they were informed of the problem, they submitted the needed payment and documentation, but it was difficult to ascertain and our engagement with the registry about what was missing. And it took nearly three months that lapsed between the time we were notified and the public facing website being updated.

And of course grantors require an updated and compliance status before they are willing to provide funding and donations. I'm going to ask you just to wrap up your comments. Certainly. I think it's important just to focus on the modernization, enhanced communication and process simplification.

We found it very difficult to find a live person to speak to to get updates during this process and it would have really relieved a lot of stress and discomfort during this period of delinquency. Thank you so much. Thank you.

Good afternoon. Yvonne Fernandez with the California Federation of Labor Unions. We appreciate the work done by nonprofits. We understand that their trusted community partners, as stated by my colleague representing SEIU, we urge Members to work towards increasing transparency from employee salary information to contract information.

This will lead to greater accountability for all Members of the service delivery process. As foundational service providers, state public sector workers make up the backbone of California and the economy. We are open to partnering with the state to focus on government efficiency, effectiveness and worker equity. Thank you.

Thank you.

I'm Abigail Jai Shern and I'm one of those small organization who does everything. So my nonprofit is the servant's ministries work in a sector of homelessness, helping the homeless, feeding them, blah, blah blah and so forth.

Just try to remind them that they're still human, that we see them, that we and also at the same time, in 2023, I opened a legal aid clinic that serves the undocumented. So we offer pro Bono and Low bonus services.

However, sometimes with tears in my eyes, I have to charge my client because if I don't charge them, we're gonna close office. And so today I want to address the area of communication to the agencies that supposed to support the nonprofit, especially the small ones.

We don't get information at all and we need to create better tools so that we are well informed of resources that out there that we can get and people that are supposed to support the small organization. So it's very hard to get resources.

It's almost like resources are distributed within the people that have been exercising as a nonprofit for decades. So forth grants the same thing because they are well versed in writing grants. Of course they're going to get them.

And we that just started, which we don't even know how to write a grant, so we just write whatever what we can. We never gotten them. I never even gotten one grant ever. So it's very, very, very hard. I'm surprised.

There is agencies that supposedly support organizations such as ours, but they do not inform us of what they do or what they can offer. So the Secretary of State database is very robust and effective.

Why not use those information to spread out the word of what's out there or trainings or so forth or support or grants or opportunities to support small organizations. I think communication area needs to be improved and also so where to find resources and so forth. So that's all I wanted to contribute.

Thank you. Thank you. All right. Seeing no further public comment, I want to thank all of those who have taken their time to come to present to us on the panel, but also to give us public comment. I want to offer some closing remarks to our co chair.

Well, I just want to express my thanks and gratitude for everybody who came to and testified today. The highlighting of the nonprofit sector through the Select Committee in both houses, I think is extremely valuable.

It helps advance the communication issues that we were talking about earlier and brings together the shared experiences that agencies and individuals and people who are trying to serve our communities experience, trying to work with state agencies to be more effective, and that will help sharpen our ability to create legislation to address those issues.

The exact reason we have this Committee and really just appreciate everybody who's participating in that process. Thank you.

Thank you. And with that, we are going to go ahead and adjourn our sub hearing or nonprofit hearing, our Select Committee hearing. There you go. Take care.