Senate Select Committee on Select Committee on the Nonprofit Sector

Oh, the joint nonprofit committees will come to order in about thirty seconds. The joint hearing on the California Assembly and Senate Select Committees on nonprofit sector is now in order. Good afternoon, everyone. Good to see you all here. I'm pleased to call this meeting to order of the Senate and Assembly Select Committee on nonprofit sector with my cochair, Assembly member Greg Hart.

Welcome to all members and witnesses and community partners. Today's hearing, is focused on the fact that California cannot meet its goals without a thriving nonprofit sector. As I always like to point out, I think one out of 12 or 13 jobs in California is in the nonprofit sector, and it's a very, very critical to my district. We've got a a lot of very, vibrant, and vital nonprofit organizations, in both the Valley and in the Bay Area. They are coordinated activities.

They're very effective. And I'm proud to be a Chair of this committee because I am so proud of their work. They contribute bill the nonprofit sector contributes billions of dollars each year to our economy, and they produce millions of jobs across the state.

They organize food banks, community clinics, distribute grants, and all the work of the that the government cannot do by itself without their help, with severe federal cuts at the programs like Medi Cal and and CalFresh, The nonprofits have stepped up at the most crucial time to assist, as many with as many possible, dealings as possible, with fewer resources and more obstacles than before. Our purpose today is to examine how the state of California can organize its system of nonprofits with the nonprofit industry, and partnerships.

We look at the challenges and solutions that will best serve all Californians. And now I'm gonna be yielding to my co Chair, and I'm gonna have to step out for about twenty minutes. So co Chair, it's all in your capable hands.

Well, thank you, Thank you. There we go. That's blocking me out. Well, I'm not gonna go back and start over. So so you guys you guys all heard me.

Together, they account for 15% of California's gross state product. The sector is also California's third largest private employer, providing high quality jobs while delivering essential services in every legislative district in the state. In every city and county across California, nonprofits step in where the private sector cannot and where government was never designed to meet every need. They shelter people here experiencing homelessness. They feed families.

They respond to disasters. They expand access to health care, and they enrich the quality of life in communities throughout the state. Recent polling found that 94% of California's considers nonprofits essential to their communities. Today's hearing is built around a simple truth. California cannot achieve its goals without a strong and thriving nonprofit sector.

Our purpose is to examine how the state of California can better align its policies and systems with the economic and social importance of the sector. Today is also an opportunity to highlight both the challenges and the solutions so non nonprofits have the modern, resilient partnership they need to serve California's effectively. Despite the sector's enormous economic impact, many nonprofits are under growing strain. They're being squeezed from both directions. On one side, they face face deep federal spending cuts.

On the other, they must navigate burdensome administrative processes here in the state of California. At the federal level, recent policy changes and significant funding restrictions, including cuts affecting Medi Cal and CalFresh, threatened to remove billions of dollars from the local safety net. When those federal safety nets weaken, local nonprofits are asked to fill the gap. They're expected to serve more people often with fewer resources and greater administrative burdens.

But we also need to look inward as the Little Hoover Commission has documented delays in state grants and contracts often force nonprofits to finance state services with their own limited resources.

Nearly one in four nonprofits waits more than three months for reimbursement from the state of California. Nearly 60 report 60% report that state funding does not adequately cover basic administrative costs. When payments are delayed, organizations are forced to dip into reserves, reduce services, or postpone payroll. I authored legislation to expand access to advance payments. While that was an important step, implementation has honestly been uneven across state agencies.

Today, we'll explore practical ways to modernize the partnership between California and its nonprofit sector. This matters because when we improve contracting, streamline procurement, and make state government a more reliable partner, we protect the services our constituents depend on every single day. I look forward to today's testimony and to working with all of you to build a stronger or modern partnership that better serves Californians. With that, let's have our first panel come on up to the the dais. Welcome.

Thank you. We have Jeff Green and Dionne Erner. And, Jeff, are you going first?

I believe I am. Yes. Start whenever you are ready. Thank you, Chair Hart. I do have some slides here, so I'm gonna just direct everyone over there.

First of all, thank you for the opportunity to talk about the importance of the sectors or the certain current challenges that we're facing collectively as a nonprofit sector here in California, and some of the data that we've gathered in our most recent research for causes count. And I'll I'll sort of lay that groundwork just to reinforce the notion as as you've just stated that nonprofits are a critical sector of our economy, our social fabric, our infrastructure throughout the state.

So I wanna start, however, just making sure folks understand a little bit about Cal Nonprofits, the organization which I have the pleasure of serving as CEO. Cal Nonprofits is a forty one year old organization. Trying to get these slides to advance here.

Let's see if we can get it to work. And as I was warned, they sometimes go fast. Alright. There we go. So we are essentially three things.

So we are a membership organization with thousands of formal members representing the full broad swath of the five zero one c three public charitable sector here in California, which actually is roughly a 110,000 organizations in California alone. We do policy and advocacy work. We do education work for the sector and partners, and we do research and data work. Mostly in finding good data and pushing it out into the broader sector, it's sometimes very hard, as you may know, to find good data on nonprofits.

Though when we see it, we make sure everyone has access to it.

And when we don't see it, we often will partner with research organizations and and collect that data. Our policy and advocacy work is largely focused on that structural piece. So how does the nonprofit sector work and interact within society, within community, in particular with the state of California? So we do sponsor bills. We do advocate for bills.

We do weigh in on rules changes. We do oppose bills that we think would be harmful, etcetera. When it comes to the educational work, it's really taking a look at those things that cut across the entirety of the sector. So we don't generally focus on the mission or a particular submission. If we think about what nonprofits are and what they covered is quite literally anything and everything.

So what we try to do is what's the common experience of being a not for profit organization in California, whether it be the HR, the policy, the grants and fundraising work, the tax policy insurance, those sorts of things. And as things change, we wanna make sure that our our sector is as up to date as possible to adapt to those, changes. And we'll talk about some of those changes, especially the federal ones here in a moment.

With data and research, these are just some examples, of who we partner with. Independent sector does a lot of regular research about the broader health of the sector.

Nonprofit compensation associates, we do an annual survey of compensation to try to make sure that nonprofits be are and and remain competitive, and then causes count there as the research that we do ourselves that we are sharing a bit of today. But I do think it's important to just say that what is probably the obvious to those in the room, but why nonprofits? Why am I and we are so passionate about this?

And that is simply as as you stated earlier, nonprofits do what the private sectors simply won't do because there's not a profit motive or not a profit mechanism, and the public sector simply can't do alone. And we do it in in partnership with both.

So I think it's it's, important to note that there really isn't a this or that. It's that we are doing this unique role, but we need everybody around us to be part of that. And it's it is always in partnership.

So I I think it's important to talk about the the current state of affairs for this sector, and I I do wanna concentrate mostly here on what federal threats have been coming down in the last eighteen months or so because this is a unique and I I think unique gets thrown around a lot, but I don't think it's inappropriate to say this is really an unusual time.

Not that any of these things have not happened before, but for all of these different attacks on the broader sector to come at once with this intensity and relentlessness.

I think it really does affect the the reality of of being a nonprofit worker and volunteer and, frankly, being a community member that relies on nonprofits. So I'll I'll divide this into a few sections. The first is the executive order. So there have been 270 executive orders in this term, from the Trump administration starting back on January twentieth last year, and that's that number is as of last Friday. And I know this week there are couple that have been added to that.

So they are literally all over the map, but some of these and especially some of the early ones were directly aimed at the sector, trying to either disincentivize, block, or or create a narrative that some core missions in the nonprofit sector were somehow wrong, illegal, troublesome, nefarious in some way. I would say all false narratives, but nonetheless, it did add a a real challenge to getting this work done on the ground across the state.

I think the first act that really got everyone's attention beyond just the the the executive orders, which are really statements of values from the administration. They're not necessarily don't have the force of law. But we did start to see, just a week later, as some will remember, the OMB memo that came out January 27, which was actually putting all federal funding on pause, and and attempting to rescind some of it.

Now that was challenged immediately by our colleagues around the state and country, and the good news is the the nonprofit sector has been winning on those issues in courts. But nonetheless, it takes incredible resources. It it frankly frightens a lot of people, and it puts programs on hold while they're uncertain about their revenue. This has, of course, changed shape several times, so there has been new guidance issued. Most recently, OMB issued hundreds of pages of new rules and guidance that were seen by the public.

We have over 500,000 comments on those, which is a record setter in in what I'm aware of. And we don't know what's gonna happen next. There's some legislation in the Senate that might actually put this rule making on pause, at least temporarily. But this would be another way of really restricting certain kinds of funding to certain kinds of nonprofit work. So everyone's got their eye on this, and it would largely politicize what historically is not a political process at the federal funding level.

The other one that I think is important, and it's probably the wonkiest among these, but I arguably, one of the most foundational, and that's the Johnson Amendment. This is that firewall between politics, the partisan part of politics, and the nonprofit sector. This was put in place in 1954. It has been a bipartisan bulwark, nearly unanimously supported for those seventy plus years. But we are now really in the first time in history, and since it has been created, it is under attack directly.

And there are those that want to get rid of that that partisan nonpartisan bull work. I think that is dangerous for all sides, but particularly dangerous because nonprofits, one of the reasons we are so broadly and widely supported is we are known to not be partisan actors. Where you walk in the door, we don't ask what you believe in x, y, and z. We help. And that's that is really, especially in the human services, so so important.

So we have our eye on this. There are several, angles here. There are there are things in federal tax court. There are, again, our executive orders, and there are other things within the IRS, moving forward that would theoretically and possibly undermine or even eliminate the Johnson Amendment. So this is another threat to the the broader health of the sector.

We then have the big legislation last year, HR 1, and I think everyone here, probably in this hearing or listening, knows that there are two big parts of this, and it really is a dismantling of two big pieces of our safety net, at least the federal part of that, having to do with health care and food security. The state, of course, and every state is asked to step up and do what it can to compensate and accommodate.

But the fact is there is no state, even one as large and powerful as California, that can completely make up for the whole that is coming. And, of course, it's been parsed out over many years. So the full effect of this will not be felt for some time, but everybody working in health and food security right now in in California is definitely making plans around how to deal with this big hole coming.

And then finally, I'll just say and then these are just sort of the larger buckets that I've I've placed for today. There's more, but this is the the sort of fourth angle that I think is important, which is just a series of hearings and investigations at the federal level. Again, framing nonprofits as somehow doing something that is dangerous or undemocratic or counter to values of the American public.

Again, I will say overwhelmingly false, yet those kind of narratives do take root and they lead to people asking questions or second thinking around their giving or whatever it may be. And we just have to be highly attuned to what is being said and where those narratives are.

And when there is something that is in fact a scandal or wrongdoing, it it gets immediately blown up by by these sorts of forums, and we have a lot of folks that are then responding to that. So all of those things are a lot to navigate, and it's why it's so important, especially right now, to really bolster and and support the nonprofit sector and do what we can to keep it strong. So what does all this mean to our sector?

We ask, and we ask regularly at Cal nonprofits what it what this all means and what effect it's having on nonprofits. And I'll just give you a snapshot here of what we're being told.

This was our last, member survey. And we asked a series of questions. The two I'll share with you, today are what are the challenges that your organization is facing? And so in hierarchical order there, you see that funding and uncertainty is top of mind. Nearly 80% of organizations are saying we just are not certain what's coming.

And that is all types of funding. And, of course, the nonprofit sector, the revenue is very diverse, and we'll talk about that in a moment. But when such big pieces of it are in question, whether it's about donor behavior changing, whether it's about federal or state funding, being withheld, or whether it's about rules changes of how funding gets used, all of those things are threats to the regular operating of a nonprofit.

It's important to, I think, note that nonprofits, unlike for profits, if you think about what a typical revenue model is in a for profit, you're creating something, either a service or an item, and your customer is paying you for that directly. That that is the transaction.

In the nonprofit sector, it's a more complicated economics because you're providing something, but generally, the person or entity to whom you're providing it is not the payer. You're having a third party help to pay for that so that that is then delivered to this other party, and that makes for a much more complicated set of of players for that that economy. So we are very concerned about, that being the top one. You can see other than their workforce stability and challenges, sustainability of of systems.

So there's just a lot there.

None of these are brand new, but at the intensity of some of these is certainly a response to the to the current moment that we're in. And then this is really the the bigger existential question that we asked, and it was simply how would you describe your organization's current situation? And you can see there, that, you know, the majority said we are challenged, but we're we're finding ways.

And there's if you can say one thing about nonprofit leaders and workers and volunteers, they are some of the most creative and entrepreneurial people I have ever met. This is work of passion.

People do this because they see a need and they have they believe a solution. And so they will find a way, but it's not easy. And I think it's important to note that a lot of energy and time gets wasted navigating some of these other issues where that should and could be put into doing the good work. You'll see that second part up there is actually that these are the folks that said we're actually growing.

Now this was a little bit of surprise to us, but it's it's about a quarter of our membership base.

And if you look a little bit deeper, it's the folks that were already connected to broad networks. They were already doing some sort of advocacy, and they were the ones being sought out in this moment where there are attacks coming at sector. So if you step back and think about it, it makes sense that there's a significant portion.

It's a minority for sure of nonprofits, so that we're kind of ready for the moment, and are gaining some strength in this moment to try to to to, demonstrate a different a different way forward. And then you have the roughly 17% who said, you know, we're not sure if we're gonna be here next year.

And that's really the bigger existential threat. And that's largely about funding, not exclusively, but overwhelmingly the folks that were in that position were about funding. Now that seems like a small number, but if you think about the size of the sector in California, if we were to lose 17% of it suddenly, that would be catastrophic for a lot of our basic social infrastructure. So I do wanna share this is the the research, some of the results of our our current causes count.

And these are the the last full numbers at the end of twenty three.

We know it's about a hundred and ten thousand now, and you'll hear shortly, from our, our Department of Justice folks. Elizabeth Kim will be here to to share a bit about the current realities, but let's say a 110,000 in all. That's about a 22% increase over the decade. So the number of nonprofits in California continues to grow. People are creating new entities to solve problems, and that has been a fairly steady growth in in recent years.

This is the financial side. So if you look at the top line there, this is, the assets in billions, and just below that revenue in billions. And you can see well over 700,000,000,000 in assets in the nonprofit sector. This is just the five zero one c three public charitable sector in California, and approaching 450,000,000,000 in revenue. Now that's bigger than the state budget, and I know I don't have to tell you that.

But I think it's important for folks to know that in addition to doing all this work that is solid in in service of our missions, we are a major economic factor and a major player in in our state. And of course, this being one of the world's largest economies, that's not that's not a small number. Nonprofit revenue itself, and this is a slightly older donut graph, but I like it because it's brightly colored. You can see it from a distance, and it doesn't change that much.

This is, essentially what the revenue sources are within the sector in a typical year, and this is the entire, sector across The United States.

But roughly half is earned income, and that gets forgotten. That nonprofits is our businesses. Nonprofits are business entities. They're they do earn revenue. Think of the the money you would pay for a summer camp or a co pay at a clinic, or, you know, it may not be the market price of what you're receiving, but it is still revenue for the entity.

So fully half of that is earned revenue. That third that is orange, that's actually the public partnership. So that's the grants and contracts. So as we talk about this today, about the importance of making sure those systems work as as well as they can, That is a full third of the revenue into the sector. The remainder is the the private philanthropy of various types.

So individuals being the largest share and then foundations, corporate, and

a handful of other other sources. This this graph, I just show because it it hurts your brain. Yeah. But I do think it's important to show the complexity of the revenue within the sector. So this was something that was done by a colleague, John Pratt, and some other researchers some years ago.

But it does show just how complicated it is where where dollar flows come into and go out of the sector, and this is across all of the different subsectors and missions that are that are out there. So this this does change year to year, but there are a pretty steady hierarchy of where the dollars come from and where they go. But the the take home point is here. It's it's very large economy and it's very complex.

So here's what we're learning, and I'll I'll end on some of the really positive notes.

First of all, you you referenced earlier as did Senator McNerney. You know, over 1,400,000, approaching 1,500,000 Californians work for nonprofits. So we are a major employer in the state. This makes us about 9%, 9.1% of all private employment in California. Roughly one in 12 jobs as of our our latest measure.

And that makes us the third largest private employer by sector in the state. So if you put all of those nonprofits together, we are the third largest employer in the state of California in the private sector. And it's important to note that 70% of the nonprofit sector has zero employees. We are all volunteer associations overwhelmingly. So it's even a small minority of those 110,000 that make up this third largest employment sector.

So truly a a statement about the economic power and importance of the sector without throughout the state. And and the the really good news and I I will end here and say that, you know, the the faith in the sector is strong. And we have seen this vary in a lot of what I mentioned earlier about the federal narratives attacking the sector in various ways, or if a scandal happens in some it it sows doubt in someone's mind. Overwhelmingly, Californian support nonprofits.

They believe they're important to their their personal lives and communities.

You can see their 95% of nonprofits say they're either very or somewhat important to their communities. Broken down there, I think 76% said very, 19 said somewhat. But that's that is nearly everyone recognizes the importance. 82 are somewhat or very concerned about cuts, to funding, so the people are aware of that. That narrative is penetrated.

They hear it, and they are concerned about that. And, actually, 87% said they benefited personally from a nonprofit service in the last twelve months. And this is why this is so important. Nonprofits truly are of, by, and for the communities we serve. They're usually born right there locally out of a need and an understanding of what's happening on the ground.

And people of all types. So we're we're not just talking about those in the the struggling the most at the margins. We're talking about all kinds of folks across the economic spectrum that take advantage of what nonprofits offer, because that that's the the best choice for them for whatever reason, whatever the thing they may be seeking. And you can see there that 75% thought it was in within their power to improve their own communities through personally supporting giving or working with nonprofits.

So the good news is we we enjoy the strongest support, of any sector in our community.

It's a a major economic sector, and it is relied on across the the system. I think it's important to note too that we are generally there, when we're doing that partnership that I referenced at the top. That is at the invitation of the other partner. So oftentimes, folks will reach out to the sector and say, hey. This is our mission that we're trying to accomplish.

We understand you may be able to help. And certainly, state government does that regularly. And so when we talk about what we wanna do with the office of nonprofit empowerment or we talk about, you know, improvements in grant systems, it's all toward that greater goal of making sure that we can execute and say yes to those invitations and improve communities across the the state. So with that, I will say thank you. And

Thank you very much, Mister Green. That was a great presentation talking about the complexity and resiliency of California's nonprofits. Next, we have representatives from the Little Hoover Commission, Dionne Aroner and Crystal Beckham. You have an important story to tell as well. So thank you.

Appreciate you being here.

Thank you. And good afternoon, Chair Hart. It's a it's a pleasure to be here. Right? As I was listening to Jeff, I was thinking of my own personal experiences with nonprofits.

Right, when he talked about the range. Right? So mine started with a a a program that was helping women who are who are formerly incarcerated, right, to come back into the community. And then I went to work I went to work. I was on a board of an of a large music organization, right, in the Bay Area.

And after that, I sat on the one of the largest women foundations of boards of directors here in The United States. And I currently sit on the largest child welfare agency board of directors here in the state. And so it's the range is amazing, isn't it? And just and I'm just one person. And so you can imagine how many other people that are doing the same kinds of things.

So, anyway, it's a pleasure to be here. Right? I wanna thank you for inviting us today to discuss the Little Hoover Commission study, and thank you for acknowledging it in your remarks. I almost said to myself, I don't have to give all the remarks. He's got it already.

But, anyway, we really appreciate this. Nonprofit organizations play a critical role in service delivery in California as you just heard. They provide essential services to communities and employ millions of workers and millions of volunteers, obviously. Right? Yet many of these organizations are small and strained for resources as you just heard.

Given their critical role and the operational challenges many of these organizations face, we looked for opportunities to strengthen the way California administers grants and contracts with nonprofit organizations. We found that the challenges facing nonprofits are not the result of a single policy or agency. Rather, they stem from a collection of administrative practices that have developed over time and taken together create unnecessary burdens for both nonprofits and state agencies. Ultimately, these inefficiencies divert time and resources away from the delivery of services.

So we made 12 recommendations in our last report on the nonprofits, and they're intended to address the challenges through practical and what we consider achievable returns.

We learned that nonprofits often subsidize the delivery of state services in three ways. By providing services before receiving the funding to pay for those services, as I think you mentioned before, when the state is late in issuing reimbursements and when the state does not allocate enough funding to cover overhead expenses. The state, not nonprofits, should fund the cost of delivering state services. We made three recommendations to rectify this.

First, we recommended that the state provide an advanced payment of at least 25% and at least 100% if the nonprofit has been in good standing for at least three years.

State policy currently allows agencies to provide an advance payment of up to 25% on nonprofit grants grants, but it does not require them to do so. When a nonprofit receives an advanced payment if payment, it depends on the agencies administering the grant. Payment delays create significant financial strain for nonprofits. Some nonprofits use their own funds to provide services on behalf of the state, some even taking out loans to cover up these upfront costs. And the loans are not reimbursable by the state, by the way.

The interest on them is not reimbursable. This means they pay they pay interest to deliver state funded services. Second, we recommended amending the prop prompt payment, act so it so its protections apply to all state contracts with nonprofits. Nearly one in four respondents to our survey of nonprofit organizations waited more than three months to receive reimbursement from the state. One nonprofit reported carrying $945,000 in accounts receivable from the state for more than seven months.

Nearly three quarters of nonprofits experiencing late payments reported moderate to severe operational impacts, causing them to reduce programs, take out loans, or cut staff. The prompt payment act was meant to address these sorts of payments delays, but the law only applies to certain types of grants and contracts. The state should work with this nonprofit partners to establish realistic and equitable payment timelines to be incorporated into the prompt payment act.

And if the agreement and if an agreement is unreachable, we should expand the prompt payment act protections to all nonprofit grants. Finally, we recommend requiring state agencies to match the Federal Government's allowance for overhead expenses.

State agencies and nonprofits should be allowed to negotiate a higher overhead rate if it is justified. Indirect cost such as rent, utilities, and administrative oversight are often overlooked in state grant funding. When these costs are not fully reimbursed, they are shifted to the nonprofit, forcing organizations to cover the difference with their own resources and in effect to subsidize state funded programs. State agency should match Federal Government's minimum rate for indirect cost, which currently is 15%, while allowing higher negotiated rates when they are justified.

This approach would reflect the true cost of delivering state funded services and help insurance and help ensure nonprofits can sustain the programs that Californians depend on.

Another topic we learned about during our study was the important work nonprofits do in serving Californians during wildfires and other disasters and emergencies. Welcome back, Chair McNarty. Nice to see you. We heard how important it is to have a standardized process in place to quickly amend a contract in in a declared state of emergency so that nonprofits may continue to deliver services in the face of rapidly changing conditions.

I'd like to acknowledge Assembly Assembly Member Macedo Macedo's leadership in this space last year with her bill that proposed allowing nonprofits to alter a contract with the state in an emergency.

Our recommendation reflects that proposal. We also learned that the state's approach to grant administration differs by agency. While some agencies have developed innovative and efficient practices, others take a more cautious approach. The legislature has already directed state agencies to expand partnerships with nonprofits with limited financial reserves serving serving disadvantaged communities. As a result, many nonprofits now work with the state now that now work with the state have less experience navigating state processes than those in the past.

We believe a nonprofit liaison could work with these less experienced nonprofits and help state agencies navigate the challenges of working with lower capacity organizations. This is why we are recommending establishing an office of nonprofit empowerment. This office could also serve as a logical vehicle to implement several of our other recommendations. These include providing plan plain language guidance to state agencies, facilitating training and peer learning opportunities, and creating and running a uniform grant report reporting portal.

There are other ways to strengthen state nonprofit or partnerships as well.

I'd like to describe several additional opportunities we found to straight to strengthen state nonprofit partnerships. First, we found the current grant administration requirements disproportionately emphasize compliance over outcomes. And nonprofits often are required to submit similar information to multiple state agencies, each using their own different formats, their own different reporting schedules, and their own different requirements. This duplication consumes valuable staff staff time that could otherwise be devoted to serving Californians.

And when I talk about valuable staff time, I don't mean just at the nonprofit, I also mean at the state agency.

As a state, we must optimize our reporting requirements. To do this, we recommend a full review of reporting requirements across grant programs to identify areas where we could harmonize requirements with federal standards without reducing oversight. We also recommend reducing the frequency of reporting when possible. I can't remember how many times sitting on boards I've heard the multiple audits that go on. Why can't we get to a single audit system?

There must be a way. Next, we learned that the state's current paper based payment processes contribute to funding delays. Paper checks can increase processing times. They create problems when checks are lost or delayed in the mail. They require additional tracking and documentation, and they introduce more opportunities for fraud than modern electronic payment systems.

There are times, believe it or not, where we will send out paper checks that are that could be written for millions of dollars that get lost in the mail. I heard a story once where the the u United States Postal Service. Right? The driver decided to go to Las Vegas and left the truck on the side of the road with checks in it. Okay.

I'm I'm not joking. And so it's an incredibly important thing in the in the in this state that has the technological. We are the technological center of the world. Right. That we can't figure out a way, to be able to electronically send checks to nonprofits.

So we recommend that the state controller's office adopt electronic fund transfers as the standard method for dispersing grant payments. Electronic payments would be faster, more secure, and more efficient for both the state and its nonprofit partners. The SCO also could establish a specialized grant processing unit to troubleshoot payment issues and provide a direct point of contact when problems arise. Next, we learned that a few grant applicants receive substantive fee excuse me.

We learned that few that few grant applicants receive substantive feedback when their applications are rejected.

The lack of feedback is particularly challenging for smaller organizations that may not have had professional grant writers or experience working with the state agencies prior. When applicants understand why proposals are unsuccessful, they are better equipped to submit stronger applications in the future. Over time, they can improve the overall quality of the applicant pool. For these reasons, we recommend that state agencies provide meaningful feedback to unsuccessful applicants. Finally, we found that state agencies do not always use the full grant periods authorized by the legislature.

Shorter grant cycles make it difficult for nonprofits to recruit and retain qualified staff and create uncertainty about future funding. They also require more time spent on grant applications and awards processes rather than service delivery and program monitoring. So we recommend that agencies issue grants for the maximum authorized period and adopt easier renewal processes for higher for high performing nonprofits to continue to receive funding. In closing, our recommendations are grounded in a simple principle.

When the state makes it easier for nonprofits to partner with government, Californians receive better services.

We believe there's an important opportunity to build on the progress already made and continuing to modernize California's grant and contract systems in a way that benefits nonprofits, state agencies, and most importantly, the Californians who rely on these services. I'd like to thank the committee for the opportunity to present our findings and recommendations. And I'm now gonna ask our commission staff, Crystal Beckham, who served as the primary researcher for our study, to discuss efforts to implement our recommendations. Thank you.

Thank you, commissioner Aroner, and thank you members of the committee. Since our report was released in January, we've been honored to support two pieces of legislation that we believe would strengthen the state's relationship with its nonprofit partners. The first, SB 1240, authored by Senator McNearney and Assembly member Hart, would establish the office of nonprofit empowerment. This office would oversee and coordinate state level policies and strategies to support the nonprofit sector.

As commissioner Aronner described, the state currently does not provide centralized guidance to nonprofits or to state agencies on grant administration issues.

We believe that the office as envisioned by this list legislation would strengthen and improve the state's relationship with nonprofit organizations. The second, SB 1366, which was authored by Senator Rubio, would require the California Public Utilities Commission to report on the steps it takes to avoid cash flow delays to its contractors. This legislation would be a first step in addressing the funding challenges experienced by nonprofits, small businesses, and other contractors that wish to partner with the state.

We appreciate these opportunities to work closely with members and hope to serve as a resource to you and your staff in upcoming years as you can as you consider future opportunities to strengthen the state's relationship with nonprofits. Thank you.

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

Well, thank you. Sorry, Jeff, that I missed your presentation. But I I'm interested in how we can make state agencies more responsive. And some of those questions were brought up here and answered having doing a pay paper check requirement that would be I can imagine that would be helpful. I just read an article that said don't send checks by mail And don't send them by truck apparently now either.

But and the the you've mentioned the current criteria for emphasized compliance over outcomes. I want to put some thought into that. You know, maybe we can work with you on how we can sort of change the culture that that so emphasizes compliance and how we can make metrics over outcomes that would be useful in in terms of judging how contracts and and awards are being used. So that's something that I'd like to look forward to working with you on.

And, again, I appreciate your support for the Office of Nonprofit Empowerment, state agencies.

There are state agencies that really do give big support to businesses for profit businesses. And and it it doesn't help make our state the economic powerhouse that it is. But nonprofits do a significant amount of work for the state and for the people of the state, and they need advocacy in Sacramento. So I I think that was a feel good bill. It it did pretty well in both houses, and I I think the governor will be inclined to sign that.

So thank you for your support on that.

And I'll just add, I wanna really recognize the work of Little Hoover Commission in highlighting these issues. We're fortunate to have Peter Nava as the Chair of Little

Hoover Commission,

a former member of the legislature and a member of my district. And he he has been a great leader of the commission. And it is so much important work to highlight issues, you know, in a meaningful deep, systematic way and to to have your lens applied to the

nonprofit's challenge in providing services in California has really helped to elevate the conversation, I think, in a in a substantive way. And I appreciate, Senator McNearney's leadership on the office of nonprofit empowerments. You know, cult cultural change is fundamentally what we need to do to make the most meaningful difference in the relationship between nonprofits and California state government.

Having an office of non power nonprofit empowerment in the governor's office, you know, having those interactive daily interactions between the state agencies, helping to coordinate, helping to cheerlead and advocate for this kind of change is critical. We can continue, you know, working through the legislature bill by bill, and it's gonna take too long to make the change that we need to make.

We need to have it be having it boiling up internally within the administration, and that's the intent of this legislation is to get that cultural change. And like Senator McNerney, I'm optimistic that we're gonna get the bill through the legislature and that the governor will recognize that this would be a great legacy to the state of California in his final year in office to to make that kind of cultural change. But thank you for every all your information that you shared with us today.

Can I just add something regarding this idea about, you know, about aiming to outcomes? Okay? When I was in the legislature a long time ago now, okay, when we would develop pilot projects, okay, right, legislatively direct, come up with them. We decided, and it would and it wasn't just we.

It was a particular member, right, a former assemblyman Phil Eisenberg, right, when he sat, I think, on the budget committee, came up with this idea that when we did a pilot project, we should actually have to say, here's what we want the here's what the we hope the outcomes will be so that literally you had to kind of identify what you hoped that that project would be.

Right? So it wasn't just a question because very often, if you've defined the outcomes and that helps you define what the program's gonna be, that was the idea. And I just as I was sitting here thinking, as we know, as we talk to state agencies about this, right, it's not just a question. And also to the prospective contractees, right, to talk about, what are your outcomes? What are you looking for?

What are you right? And it's not just because it's not just numbers always. Right? It really is the what's the quality, right, of what of what you're providing. Right?

And it's having an impact in the very families that your families or whomever you're trying to serve. And so maybe that's a model that we might wanna go back and look at. I don't know if we still do Eisenberg language or not. I'm sure it's not called that any longer, but it's the idea of of, you know, of figuring out what what are you looking for? Why why are you putting money out there?

You must be looking for something to happen for the families that you're serving. So just thought I would put that in there.

Your cohort of legislators in that time did such important work. It is amazing to hear, you know, the references to the word.

That's Well, it can the good news is it continues through all of you as well. So Thank you.

I just wanna thank you and apologize for being late. Multiple committees, multiple meetings, and just thank you for your work. I represent 11 very rural counties that are unfortunately being carried on by non nonprofits and community members at at this time. So we grants should be an extra thing, and they've become our lifelines to keep our communities going, which isn't I don't think it was the original intent, but it's what's happening in our district. So thank you.

And as I started writing grants when I was 17, and this since I got this job, I have not had to write a grant. But but it it is a very niche thing that often people don't know about and don't know how to do it, and and it's kind of taking a risk. You know? You're putting yourself out there and putting your your organization and ideas and kinda big big picture thinking and putting it out there for somebody to judge.

And, so I I hope people will continue taking those risks and and that we can make the process a little bit better for them because it is a painful process.

I also have a big pet peeve with reporting. So that's my long term goal why I'm here is to have one universal reporting system because we have we have the tech. We should be ahead of that. So I've already hit up Thurman. We were supposed to start working on it.

So start with education first and then go to everybody. But but it we have a lot of things that we could do to make it a simpler process and and create those bridges to have those better relationships. So I just appreciate what you guys do and wanted to say thank you.

Well, thank Assemblymember Hadwick, and I like that that you have a vision for what would what could improve the the program. So thank you for that. Thank you for the first panel. Appreciate your inputs. Thank you.

Panel two is optimizing state systems for effective nonprofit partnerships.

Panel two is optimizing state systems for effective nonprofit partnerships.

Please approach the the dais.

Okay. Good afternoon. My name is Elizabeth Kim. I'm the senior assistant attorney general of the charitable trust section at the attorney general's office. Today, I'm so excited to share with you about the online filing system, the registry, which is the registry of charitable trusts, or I should say the new name, the registry of charities and fundraisers within the attorney general's office.

What what we've been doing the last few years, rolling out the online filings system in stages starting from 2024. So I will share that with you today. But I wanted to first start out by sharing with you some of the attorney the laws and attorney general's jurisdiction over charities and charitable fundraisers that operate in this the state to set kinda context as to why there's the registry and what we're doing at the registry.

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

And this is my outline of the presentation today, which is going to cover the attorney general's authority that has been given to the attorney general to oversee charities, and then I segue into the rollout of the online filing system that we've been doing since 2024. So in California, like most other states in in the in The US, the attorney general is empowered to oversee charities as the representative of the public.

Because charitable assets are meant to benefit the people of California, and there you there is usually no one willing to assume the legal assume the burdens of a legal action or who could properly represent the interest of the public, that power has been given to the attorney general. To come to ensure compliance with a purpose or the purposes for which any given charity is formed, and to ensure charitable donations are used for the purposes for which they were solicited.

Charities must register and annually report on their assets to the attorney general's registry of charities and fundraisers.

Chitubal fundraising professionals, including the fundraising platforms, is also register and report on the fundraise on the funds raised for charitable purposes. The registration and reporting requirements are to promote account accountability and transparency pertaining to charitable funds and to provide information to the public so that they make informed decisions about giving. Now, I now segue to the register's operations as registration of materials and reports are filed with the registry.

So until 2024, all registration and most charity registration renewals were done using paper forms, and the submissions of supporting documents and paper checks were mailed to the registry. Starting in June 2024 with the passage of Assembly bill 488 that enacted laws pertaining to charitable fundraising that's happening on the Internet platforms and that required those platforms to register online, the registry built and rolled out its online filing service for charitable fundraising platforms.

The online filing system streamlined filings and payments for the platforms, including the ability to register and file reports online, pay fees online, and communicate with the registry and receive communications from the registry registry via emails. Then last year, in September 2025, the registry rolled out the online filing service for new charities that are registering for the first time with the attorney general's registry.

As you're aware, all charities operating or and or holding assets in California must register in with the registry within thirty days of receiving assets. With the rollout of the online filing service for new charities, The registration form is completed and filed as a fillable form via the online filing service that's available on the attorney general's charities webpage.

And the payment fees are also, the initial registration fees are also paid online, and in any supporting documents that are required to register such as the articles of incorporation are uploaded online.

After filing, a confirmation of registration is sent from the registry via email to charities to the email address that's provided by the charities at the time of online initial registration. When the online filing service went live last year, we posted on the attorney general's charity's web page information including an FAQ on how to register using the online filing service. So what's next? At the end of this month, the registry is planning to go live with its online filing service for all remaining registries programs.

So the remaining programs are because I just I just shared with you the initial registration program.

The remaining programs at the registries includes the registration renewals, the delinquency program, charity raffles, the non platform professional fundraisers, dissolution, and complaints, which is the com the the program that receives complaints about charities and fundraisers that are submitted to the attorney general's office. So all of these programs will have the opportunity for registrants to submit filings to them and make payments using the online filing service.

When the online filing service rolls out for all remaining registry programs, registration registrants can submit all filings, reports, and make payments online. The registry will be able to send notices and reminders via emails to registrants. And because the registrants will use and complete the fillable forms and make payments online, the registry will receive fewer defense deficiencies or incomplete filings and avoid wrong payments or bounce check issues.

The online filing service was also significantly reduced manual time consuming paper, document opening, and processing tasks that we were used to doing at the registry because most submissions were done via paper submissions, such as opening envelopes, scanning and uploading documents, accounting for checks, countless other manual related processing of papers will be, hopefully, a tasks that we do that are in the in the past when the registrants start using the online filing service.

The benefits from the online filing service will allow the registry to process filings more quickly and to improve their services to the public and to the registration population. I have here listed some of the resources that are currently available on the registry's charities webpage. The registry, in the coming days, will be communicating with the public and to charities via banners on his web pages and to and with letters to the charities to to inform them about the online filing system going live for all registry programs.

In addition, we will be posting new information on our web page, including an FAQ on how to use the online filing service.

We're working with Cal nonprofits and with the DOJ communications team to to provide notices to the public and to the and to the charities about what is happening at the registry, the new rollout that is happening at the end of this month. Very excited about the rollout. We're doing a lot of work behind the scenes to make sure this goes smoothly. And thank you for this opportunity to share with you what we've already rolled out and to preview with you what's coming. Thank you.

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

Good. Any members of the committee have questions?

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

And what will that mean for nonprofits in their interaction with the office?

I think that it's too early to tell as we're rolling out the system, and we have the registering population that has to get used to the idea of online filing. So I think that in the very near future, maybe even a year, we'll still be dealing with a lot of paper filings that are coming through in addition to those the population of registrants that'll be using the online filing system. So until we and then a lot of questions coming through.

So I think that in the near future, maybe even up to a year, we will not have a true picture of how many like, the majority of, you know, charities using the online system versus using the traditional method of sending paper filings and checks.

Well, that's a great clarification. I didn't realize that both systems are gonna continue to operate, you know, in parallel for a period of time. Yes. And that makes sense. There are many, folks who are not digitally savvy that wanna use paper.

But in time, it is a great, transition, I think, that you're gonna have to to be able to deploy people at different ways. That'll be a

valuable benefit.

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

Yes. So with the registry, the new registrants would pay the initial registration fee. That's one payment. And thereafter, they renew their registration. So renewal of registration fee depends on the charity's revenue.

So it could be as low as $25 for those entities with very little revenue up to it could be over a thousand dollars with millions of dollars in revenue. So there is the initial registration fee. There's annual renewal fee. Those are for charities, and there's also separate fee if you're a charity is conducting raffles. For fundraisers, there's a separate registration fee also for fundraisers and a different fee for fundraising platforms.

Okay. And then on the other case, there are paper checks going from the state to the agent to these different non profits. And that's that was the question in the prior panel. Okay. Another question is, if the one the office of non power non profit employment is established, will that relieve the AG's office of some of its responsibilities with respect to nonprofits?

So I can I can attempt to and I know that's your bill 1420? Is that the number right number? 12401420?

1240.

Yeah. 1240. Sorry. And the question is what will the impact of that bill be on the on the DOJ?

Right.

I'm not sure we have an analysis to share about that right now, but we can circle back with your office on that.

So, I mean, there's likely a reduction of of service required by the AG by the AG by the DOJ?

Again, I'm not sure what I'm not sure. How to quantify that, but we'll have to follow-up with you on the analysis of that with the last version of the bill that's in print.

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

Usually, how we receive complaints is as complaint anonymous or it could you could a complaining party could identify themselves. They submit a form to the registry, describing what they suspect to be illegal activity on wrongdoing on the part of the charity or to professional fundraiser.

So once in receipt of that, we have, the registry staff initially go through whether or not the entity is registered with us and their registration standing and what the the articles and corporations say as to their purpose for existence as a charity and then they sent over to the legal side for review. So we look to see whether or not it is a solicitation violation or misuse of assets And so depending on the issues, this is how we would, determine whether or not an investigation needed.

We look at publicly available information, including the filings that are done by the charities that are filed with the registry.

So we look at their annual renewal filings. We look at their nine ninety filings, and we make a determinist as to whether or not what kind of assets they have, how they're spending their assets. And then if we need additional information, we may be contacting the complaining party or investigation with a request for documents and information to the charity itself.

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

Some of them we feel are doesn't require additional action. It really does depend on the allegations that are being made in the complaint.

Okay. Thank you. I guess I don't have any other questions. Alright. Well, I think, panel, thank you for your, you know, inputs.

Okay. Now we have partnerships and practice lessons from the OCPSC and the MANS for institutional support and nonprofits. Matt Gonzales.

Hello. Can you all hear me?

Oh, okay. You're online.

Yes. Yes. I'm coming to you, live from New York City.

Okay. Very good.

I would love to share some slides. Okay. It looks like you all are giving me access. One second. I'll be right with you.

Okay. Can you all see my screen?

Yes. Thank you.

Wonderful. Thanks for having me. My name is Matt Gonzales. I'm the vice president of policy and advocacy for Nonprofit New York. Disclosure though, I am a native of California and Angelino, who's residing in the mugginess of New York City.

So really thankful to be here with you all and really excited to hear about the amazing work that you at the legislative level as well as those in the nonprofit sector are are pursuing in California. And I'll say a lot of what I heard today in this hearing resonate that you could have switched out New York for California in a in a number of the comments that I heard from my colleagues. Right?

We faced a number of of of similar issues and challenges here in New York City and New York State. Just walk you through a little bit of the work that the mayor's office of nonprofit services has has yielded over the past few years in New York City.

I will also just note that this is a municipal structure, and we you know, I'll share a little bit more about some of our statewide efforts, which we we we may be looking to you all to to help build some models for our state efforts too. So prior to the the initiative around the mayor's office of nonprofit services, the contract backlog was over $6,000,000,000.

This was, again, as you heard, you know, from many folks today at this at the New York state level, New York City level, we were seeing billions of delayed contracts. This, you know, ultimately, led to delays in services, has created registration backlogs. And and, again, as you as you heard, right, this is not a not a new story.

Right? This required nonprofits in New York City who are who are providing critical services across our city to one and, you know, to basically, you know, front the work for the state and in front for the city. And so, you know, human service providers provide critical services. We are not charities, and we, you know, we provide critical services and our and our operators businesses and, you know, have advocated for our city and state to treat us such.

Prior to to this initiative, we were also seeing 80 plus percent of the contracts arriving late.

Again, prior to this role that I have at nonprofit New York, I was leading a nonprofit in New York City, and so I dealt firsthand with the delays delayed contracts, delayed payments, and then the the just the kind of messiness of trying to navigate the procurement system. Right?

And so, you know, I've had to deal with this on the front end as a nonprofit leader and, you know, thankfully get to play this role in trying to change the the legislative approach administrative approach that we're working on at the state level. So some of the core bottlenecks, again, none of this is gonna sub sound incredibly surprising to you all, but the registration of contracts, was probably the primary delay. Right?

And so this this meant that we were providing services prior to actually having a registered contract because we needed to continue serving our communities. The system in New York City is called passport. That's where all the contracts run through this centralized system. The system prior to that was, was an entire nightmare as well. However, we have still not quite figured out all the kinks through the passport system.

And so this this has, you know, created an opportunity for the mayor's office of nonprofit profit services to help us think through how to to how to navigate and provide the the right kind of recommendations to continue improving the system. And then, of course, the cash flow and liquidity crisis. Right? As many of panelists have said, nonprofits are are serving more need with less. We continue to be asked to do more, and we are happy to do that work for our, for our communities.

But we continue to do that with fewer resources. You know, there were references to a number of the federal attacks that have been levied against the sector. We are feeling that in New York City as well. It has led to reduces in reductions in in funding, direct political attacks on on particular organizations. And, you know, we we serve a nonpartisan mission and continue to do that.

And so while we are navigating the political attacks that we're facing, facing you know, navigating the bureaucratic structures of registering a contract should not should not be part of the problem. Right? And so I'm glad you all are thinking about this conversation in California. So just a couple of highlights on what the mayor's office of nonprofit services does. Right?

This serves as a as a really critical between city agencies and the nonprofits that contract with the city to deliver those critical services. Prior to this office, it really opened up a a relationship of of kind of pension and kind of adversarialness because, you know, you have a nonprofit who's really struggling to get their money or to get their contract paid. And so it creates this tension with a contracting agency that ultimately really undermines the the the the kind of delivery of services. Right?

And so the, mayor's office of nonprofit services has really served as an ombudsman to help be a liaison between agencies and the nonprofit sector.

They do provide free trainings to help provide successfully to help providers successfully navigate the the kind of procurement system. While we have this office, we have not corrected the the kind of madness of the procurement system at the city and state level. And so it's really important to have, free trainings and support and coaching from the mayor's office of nonprofit services to help folks navigate some of those systems.

They also have appointed 18 chief nonprofit officers across several human service agencies, and those those individuals help resolve some of the contract delays or issues in real time. Right?

Again, none of this is perfect, but having this entity has actually created a real real kind of support system to help navigate this, some of the challenges, at the bureaucratic level. And then there you know, they have actually, Mons has played a really huge role in helping collect data and share information, not just with providers, but also with the city so we can know that our nonprofits are serving the role and the need that they are kind of paid to do.

And so thus, us as nonprofit leaders and organizers can help think about how to improve our work, our our delivery, and also think about the way that the system is is navigating and procuring contracts. So there are five pillars of form to the that that were introduced from the mayor's office of nonprofit services. And I think the I might be getting the name wrong, but the the the mini hoover or the small hoover commission, right, is is very emblematic of

a of a a commission that was brought together in 2021 here in the city that led the the reflect here. Right? It was really in an an initiative to improve the the contracting structure in New York City. And so they identified these five key priorities, clearing backlogs. Right?

That's the number 1 kind of structure that we're navigating, making sure that submissions are timely, that we can, you know, enforce mandatory cut offs and early submission targets ahead of the the July 1 fiscal year.

This was another critical piece that we're navigating is advancing funding to make sure that we are continuing to provide I know you our members spoke about this on the panel, but to provide advanced payments of up to 25 to 50%, We you know, that has play been a critical lifeline for nonprofits who are providing important services, and then making sure that we have multiyear awards. Right? Excuse me.

When I was, serving a nonprofit as a leader, we would get one year awards, and then we'd have a whole nightmare of procurement and and payment delays.

And just for a one year reward for a $100,000, right, which, of course, is a lot of money and really important, but really extending those those contracts to multiyear awards can really help create stability and stabilization, and then help con consolidate annual discretionary, awards into these three year agency grants, I think, really go a long way for us. Right? And then the lastly and probably most importantly, building some structural accountability, is really is really necessary. Right?

Establishing these chief nonprofit officers within the agencies to provide, you know, kind of issue resolution has been really a a really critical priority for us.

And, again, it can it it removes the adversarial nature of the the relationship between nonprofits and the contracting agency. It is not, all perfect, of course, but having an ombudsman in, you know, intermediary actually plays a huge role in kind of turning down some of the heat and helping actually create solutions instead of more problems and and kind of undermining the relationships.

So some of the kind of strategic actions, right, as I kinda talked about, right, the talked about, right, the standardizing this multiyear based contracts has really been key. The contract allowance clause, right, which incorporates standard flexibility allowances into contracts to execute budget modifications and COLA. Right?

When we're trying to make a cost of living increase, or adjustment, sometimes that caused a lot of, delays and challenges within the contract structure, but this has kinda streamlined that process. The contract stat data oversight system, right, which institutes monthly interagency tracking of registration status, buzz budget approvals, and invoice turnaround under the leadership of Mons. This has really, again, helped create more transparency in the process, which has been a really huge challenge.

And then really just creating the audit the to to audit and streamline and harmonizing the process, right, to shift the risk based contract auditing and allow reliance on a single independent CPA audits to reduce administrative redundancy. Right?

We still, you know, are paying, you know, accountants sometimes, some small nonprofits don't have an operations or a finance person. Right? And so making sure that we streamline and harmonize some of these processes has really been really key and critical. And so just some kind of highlights on the impact of Mons. Right?

There are many more, and I'll, you know, happily share as much as I can after I finish this. But there there's been a significant contract backlog reduction. Right? This was kind of the primary goal of the the mayor's office of nonprofit services. And this reduced that backlog from 11,000,000,000 to under 3,000,000,000.

3,000,000,000 is still too much, but that has again played a really key role in helping reduce the backlog. And we have many more, you know, initiatives to continue getting that to zero. Right? And then 88% of service contracts have been registered on time. Right?

That is a a a significant increase from 430 to 812 contracts. Again, the delays create barriers to providing services. They cause financial strain. And so on time contract registration is is a really key element of, the mayor's office of nonprofit services. And then the advancement of payment standards has doubled right from 25 to 50%.

This is totaled by $5,000,000,000 in fiscal year twenty six. Again, those those advanced payments mean that we don't have to front end, any cost, any labor, any materials that need to be purchased. Right? We're able to purchase those and not go into, you know, into our pockets as a small nonprofits and organizations. And then $4,200,000,000 has been cleared of delays.

Right? Again, this is a really significant growth from the the system that we were operating from before. You know, this we've cleared over 2,600 retroactive contracts. Again, there's still more to do here. And then lastly, right, the streamlining of these multiyear contracts has has been really key, that that creates sustainability.

It create creates consistency. And, you know, we're in a moment where, again, this is not a perfect system. And as I as I mentioned on the on the outset, right, this is a municipal structure. We're currently advocating for legislation to include some of these priorities at the state level. We do not actually have a state entity that plays this particular role.

Right? And so it's really exciting to see you all in California thinking about, like, what what are the state structures and leverage points that can help streamline these processes and create a a more productive relationship with the nonprofit sector. Right? And so as many of you know, right, we we just have a new, mayoral administration, in their kind of first, eight months of office.

We just got a new executive director of the mayor's office of nonprofit services who comes out of, much of the the work to support this this initiative.

So we have someone in that role who obviously needs to kind of get their, you know, get their feet under them, but will be a really huge advocate for us, and be a partner to us to ensure that we're improving the system. So I believe that is the extent of my presentation. I'm happy to answer any questions I can, and I will be also submitting a memo to follow-up on my comments. Thank you all for the time.

Great. Any questions or comments from the other guys?

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

My pleasure. Take care of y'all.

So, Matt, again, thank you for oh, did you go away?

Sorry. I'm sorry. My apologies.

Okay. Thank you for the presentation. Hey. This is really interesting, and I I should hope that we can duplicate the kind of success you've seen. Couple of questions just out of curiosity.

You pointed a $6,000,000 contract and backlog at the beginning. Is that money that's coming out of New York City budget? Or is that charitable money that's being lost? Where where's that money coming from that's being lost?

So the backlog is really you know, again, and I think a couple of of, your panelists spoke about this. Right? A number of the backlog is actually, nonprofits having to take out inch high interest loans Oh. To to kinda balance the backlog. And and, again, similarly, you know, when we take out these loans, the interest is not being reimbursed.

We are currently, on a state legislative battle right now to get some of those things changed because that would require some state policy change. So this this is on the hook. You know, nonprofits are on the hook for this backlog. And we're we're working with the the the New York City mayor's office and the mayor's office of nonprofit services to see if there's an opportunity for them to, you know, Kinda basically pay back the the the the payments that the and the interest in particular.

And some of those, you know, at the state level, less so at the city, can can can reach in the the thousands of dollars and hundreds of thousands of dollars for some of the larger nonprofits.

So the, you said the 88% of the contracts are late. Now, you know, when you're, when some institution owes you money like an insurance company, you know, you often seem delay. And the reason in my mind they're linked is they want to get that little extra interest. Right. Is that kind of what's happening in your mind?

Or is that just a bureaucracy that can't respond?

Yeah. I mean, you know, this is actually not something that the private insurance companies are necessarily like, they're they're really just kind of a beneficiary of this. Right? They're actually receiving, you know, kind of this benefit. And and and, really, this the backlog is really at the city and state procurement level and the delayed payment level.

Right? And so I don't think there's anything I'm sure the insurance companies, particularly the private ones, are not mad about receiving more interest payments. Right? But I don't think they actually have any real stake in this other than they're gonna continue receiving their payments.

This is a a, you know, kind of administrative barrier and delay that I don't know that there's any ill will at the city administrative level either, but we are I you know, the bureaucracy that the nonprofits are having to navigate is leading them to have to go out and take these loans.

And they're they're really they're they're kind of stuck between a rock and a hard place. They don't have a choice. Right? They need to make payroll. They need to continue paying, paying back any any other, you know, loans or other issues, around funding.

And so I don't know that it's, you know, specifically nefarious, but it it has nefarious impacts and negative impacts for the sector.

So one of the question, you had your five pillars, which are good. I'll name them. Clear the backlogs, timely submissions, advanced funding, and multiyear awards. Now I would be a little bit concerned about moving that, in that direction that could introduce, opportunity for graft or corruption. Could you address that?

You know, because you're doing things quickly without as much oversight.

Sure. Well, I'll say that, and again, I I'm suspect it's somewhat similar in California. In order to receive a a contract as and secure a contract with our city, or with our state, there is a arduous journey that a nonprofit needs to navigate. Right? There are a number of different checks and balances that that exist on the front end before a contract is even registered, signed, and paid.

My and and I think our kind of position is that those those mechanisms are actually are are are sound. Right? They work well. They they they ensure that nonprofits are and, again, this you know, you can never account for a 100% of, you know, kind of mismanagement and challenges, but the process we have is already quite arduous. Right?

I Aye, you know, in my previous work, I I was leading running a small business. To receive a contract, there was very little oversight. And so, like, we were actually asking to be treated close to a small business. Right? The way that, again, this doesn't mean we don't want oversight.

We believe deeply in the need for oversight in the the the sector. Right? But there there are already a number of hoops that we have to jump through to receive a con just even be considered for a contract, and and we think that those would satisfy the the kind of process around corruption. I think on the other side, you know, the looking at creating more transparency is really necessary and valuable so that we can see on both sides. Right?

See, like, who is administering these contracts on the agency side. Right? And so we can ensure that there's just a lot of daylight in the process. I think the transparency and the process of of receiving the contract already creates enough of the the kind of backstop that we're hoping to to ensure we have. And we haven't had any dramatic, you know, scandals in New York City related to multiyear contracts.

Alright. Thank you. Any other comments? Well, thank you again, Matt. I appreciate the the presentation.

Take care, everybody. Appreciate it.

Come back to come back to California. We need you here.

I'm I was just there visiting. I I might I might. I'll be right there. Alright.

K. Thank you. I guess that concludes the hearing. And that that will conclude the, the hearing. Thank you all for participating and listening. Do we have any public comment before we adjourn? Alright. Thank you. Oh. Public comment.

Anybody wants anybody wants to make any public comments briefly, if that'd be great, just come on up to this microphone.

Hello there, Chair Hart, Chair McNerney, Member Hadwick. Michael Henning, on behalf of California Alliance of Child and Family Services. California Alliance represents over 200 organizations, including nonprofit and community based that serve children, youth, and families in public systems throughout the state. Our nonprofit member organizations are essential safety net providers for incredibly vulnerable communities, including foster youth, but they are fighting for survival right now.

They are facing significant challenges, including massive cuts from the Federal Government and an insurance crisis threatening to shut down agencies serving foster youth.

We are grateful for today's testimony from the Little Hoover Commission, in New York for shining a light on these issues and making a compelling case that California must strengthen its institutional partnership with the nonprofit sector. SB 1240 will provide a much needed tool to ensure that nonprofit organizations thrive in our state, and we do respectfully urge the legislature's support and the governors. So thank you.

Thank you.

Thank you.

Good afternoon. Thank you for holding this hearing. Edgar Guerra here on behalf of SEIU, representing more than 750,000 workers across the state. As the state increasingly partners with nonprofits to deliver public services, it is critical that transparency and accountability remain central. Public dollars should come with a strong oversight to ensure that they are spent effectively and deliver for Californians.

While hiring into civil service position should remain the preferred approach whenever possible, We recognize that there are limited circumstances where exemptions can be appropriate. Thank you.

Thank you.

Good afternoon, Mister Chairs and Members. Jennifer Fearing on behalf of Cal Nonprofits. I just wanted to thank you both and your staff so much for the effort you put into this hearing and the regular leadership you provide for the sector. Also, just wanted on Cal Nonprofits behalf, we really wanna thank our partners and our regulators at the Department of Justice. The hard work they put into modernizing the new system that's gonna roll out is going to make life for so many charities.

You know, if it live if it can serve live up to the potential, and I we have confidence in the effort they've put in to design it. We are enthusiastic about the potential that it could have to make it the process of registering and renewing as a charity, which is something, frankly, a lot of legislative offices have heard about for years with charities in their district struggling with that system. We're really grateful that the day is here, and that the system's rolled out.

And we're also grateful for the effort they put in last fall to, like, provide opportunities for charities that have been long time delinquent in part because of the system's challenges, have an opportunity to either have that delinquency vanquished or or readily cured in advance of this new system.

So we just we're we work a lot with the Department of Justice and the registry unit, and we just are grateful for the progress that they've made since the last hearing where more of the focus was on those challenges.

And today, we're hearing more of the solutions that they've implemented. So just wanted to publicly acknowledge and thank them.

Thank you. Well, thank you. Any other public comments? Well, again, I wanna thank, participants. I wanna thank the, the Cal nonprofits and others, that were here today.

I wanna thank my staff and the Assembly Member Harts staff for, helping run this. We don't have a committee consultant, so to speak, on this committee. So it's all our our our office of staff that are, you know, organizing these hearings. So I wanna thank them.

And in addition to the folks that our Chair McNerney thanked, I wanna thank Assembly Member Hadwick for joining us today too. She is always here for our hearings, and her particular, district and the part of California that she represents is, you know, so geographically unique and distinct, and the issues that you face are really important to highlight. And you make a you do a great advocate for your communities, and your experience with the nonprofit sector is really invaluable to what we're trying to do and accomplish.

And just wanna thank you for your consistent, leadership and activism in the space. So thank you.

And really appreciate the Department of Justice folks here to be engaged and to always be a good partner in working with our nonprofit sector and trying to modernize and systematize our our systems and processes. There have been challenges in the past, and your commitment to making that work better is really impressive. And we appreciate that and look forward to the August end of August rollout. There's gonna be a lot of people who'll be watching and participating, and fingers are crossed that the law goes smoothly.

And also too, thanks to the Little Hoover Commission for your great work in highlighting this issue.

You know, I think you created a spark that helped us in the legislature advance this issue, and it's really invaluable. And then, of course, Cal Nonprofits. That is the the leadership voice for California Nonprofits. The work you do is essential to, everything that's being accomplished in the state of California. Appreciate, Jeff and, Jennifer, your your advocacy and the whole team.

So, thank you again. This has been a really successful hearing and look forward to working together in the future.