Delayed payments to nonprofits hinder California’s fight against homelessness

PATH was one of the nonprofits that jumped at the opportunity to participate when the program launched in 2022. But CEO Jennifer Hark Dietz has been more cautious lately. As of last month, the city owed her organization nearly $7 million for its work on Inside Safe. The city, under recent pressure from local nonprofits to expedite reimbursement, repaid part of that amount last week. Dietz, however, said he still owes PATH $1.18 million for work done in June.

Now, to avoid expanding his organization too much, he must make difficult choices. She began to decline when the city asked her to accept new Inside Safe locations before signing the contract.

“It’s definitely heartbreaking for me personally,” she said.

Mayor Bass knows there is a problem and says her office is working with the city council on a solution, but she hasn’t provided details on what that solution will look like or when it will be implemented. The situation came to a head in May, when the city owed $26 million in homeless services contracts. In September, the mayor announced that the money had been paid and all Inside Safe invoices for the first quarter of the fiscal year had been processed.

“We must change the city’s entire approach to payments – beyond payments to service providers – to overhaul and modernize the entire system,” Bass said in an emailed statement.

Los Angeles County recently tried to do just that. The county currently offers nonprofits advance payments on certain contracts so they don’t have to do the work without first getting paid.

“It’s something new,” Paul Rubenstein, deputy director of external relations for the Los Angeles Office of Homeless Services, said of the renovation. “But I think it works.”

California’s role in this problem

Sometimes the state government is to blame for these delays. In April, Gov. Gavin Newsom awarded the latest round of grants through the Encampment Restructuring Fund, a program that provides state money to help cities and counties clean up encampments and rehome their residents. Marin County, which won the $18 million grant, was expected to sign the agreement in July, said Gary Naja-Riese, director of the county’s Department of Human Services and Homelessness. Instead, the document kept getting delayed, and now five months have passed and no one has seen a dime yet. The state finally sent out the contracts last month, but it’s unclear when the money will arrive.

This has caused a major headache for Santa Barbara County. The county won a nearly $8 million grant to clean up 21 vehicle encampments and contracted with the nonprofit New Beginnings to connect with people living in cars and RVs, offer them services and place them in apartments. New Beginnings got to work immediately after signing the contract with the county in June and so far has placed at least 23 people in shelters and another six in permanent housing. They couldn’t afford to wait: the grant has a strict timetable and requires recipients to spend half of the funds by June 30, 2025, or risk losing them.

However, New Beginnings has not yet been paid for this work. The nonprofit has had to borrow money in the meantime – $350,000 so far at an interest rate of 9.5%, said executive director Kristine Schwarz. She worries that borrowing too much will put her organization in a hole it won’t be able to get out of. That’s why he’s withdrawing from the services he offers. This means that she leaves people on the street because she cannot afford a hotel room for them, she added.

“I can’t just spend money without knowing when we’ll get our money back,” Schwarz said.

The delay at the state level is due, at least in part, to the California Department of Housing and Community Development taking over grants this year from another state agency.

“Standard ERF Round 3, Window 1 contracts have been impacted to some extent by the transition and additional liability considerations, but this is not expected to be an issue in the future,” Megan Kirkeby, deputy director of housing policy development at the Department of Housing and Community Development, said in email to CalMatters. She added that cities and counties will be reimbursed for money spent before signing the contracts.

“I need the money when it comes.”

Funding delays are an especially serious problem for small nonprofits. Kalain Hadley’s organization Reclaim-Possibility provides 44 beds in Los Angeles for men recently released from prison. Hadley opened the company just before the Covid-19 pandemic hit, and with no customers and therefore no income, he had to burn through his savings and go into debt to keep the organization afloat.

Currently, his payments come from the state and Los Angeles County through two contractors who act as intermediaries. Hadley said they are usually at least a few days late. This may not be a big deal for a larger nonprofit, but for an organization like his that doesn’t have a cushion, it’s devastating.

“I’m running around trying to withdraw cash so I can pay my parents on the weekend. And it’s like that every month,” he said. “I need the money when the deadline comes.”

To stay afloat, Hadley turns to a new rescue in Los Angeles County. The nonprofit Future Communities Institute recently launched a program called the Los Angeles Working Capital Fund to provide interest-free bridge loans to nonprofits providing homeless services awaiting government funding. So far, Hadley has taken out four loans ranging from $15,000 to $20,000 and has paid them all off.

The Future Communities Institute hopes to raise money to scale the program and offer more loans, said Justin Szlasa, director of homelessness initiatives.

Without that money, Hadley’s nonprofit could have already closed, he added. But even so, loans aren’t a solution to the overarching problem – they’re just a Band-Aid.

“Someone needs to find out why we can’t get paid on time,” Hadley said.