By Kelsey Kukaua – Associate Editor, Pacific Business News
Jun 24, 2022
It should be the best of both worlds — government grants deliver needed social services to the public via independent nonprofits, which should in turn, offer some of the advantages of the private sector, such as competition, competitiveness and accountability.
But as Pacific Business News learned when it recently gathered five industry leaders virtually for its annual Nonprofit Roundtable, there’s an ongoing issue that has plagued the partnership between administrations and service providers for decades: inadequate funding.
“It’s government contracts – not painful costs, late payments, complex reporting requirements, midstream contract changes – that sort of send the nonprofit into a tailspin,” said Lisa Maruyama, president and CEO of Hawaii Alliance of Nonprofit Organizations, or HANO.
“And the requirement of cost reimbursement strategies that expect the nonprofit to front large amounts of money to provide the service and then get reimbursed after. [Hawaii nonprofits] have experienced these pain points and they can speak directly to those issues.”
Panelists joining Maruyama included Leina Ijacic, chief administrative officer of IHS, The Institute for Human Services Inc.; Michelle Ka‘uhane, senior vice president and chief impact officer of Hawaii Community Foundation; Venus Rosete-Medeiros, CEO of Hale Kipa; and Stella Wong, vice president of programs of Catholic Charities Hawaii.
MEET THE PANELISTS
Leina Ijacic, Chief Administrative Officer at IHS, The Institute for Human Services, Inc, Friday, May 20, 2022, in Honolulu.
EUGENE TANNER | PBN
Michelle Kauhane is the Senior Vice President & Chief Impact Officer with the Hawai‘i Community Foundation shown here in The Council for Native Hawaiian Advancement Call Center, Thursday, May 19, 2022, in Kapolei, Hawaii. The call center helps native Hawaiians find mortgage, rent and… more
EUGENE TANNER | PACIFIC BUSINESS NEWS
Venus Rosete Medeiros CEO of Hale Kipa, Monday, May 23, 2022, in Ewa Beach, Hawaii.
Stella Wong, vice president of programs for Catholic Charities Hawaii, Thursday, May 19, 2022, in Honolulu.
EUGENE TANNER | PACIFIC BUSINESS NEWS
Lisa Maruyama, president and CEO of HANO, Thursday, June 9, 2022, in Honolulu.
EUGENE TANNER | PBN
“The intent of this conversation is not to vilify government, who is not seated here at the table to defend itself, but it’s really to call forward some of these issues that we need to work on together and it’s only in true partnership that we’re really going to be able to serve communities efficiently and effectively,” said Maruyama, whose organization aims to support thousands of nonprofits in Hawaii through advocacy and consulting.
“On behalf of nonprofits, they’re doing [the work] with bubble gum and duct tape,” said Ka‘uhane, who with HCF stewards more than 1,050 funds, and in 2021, distributed more than $85.3 million in grants and contracts statewide.
“They’re still doing it no matter what it takes. So, what I want us to stay away from in this conversation is this notion of, ‘How do these organizations become self-sustaining?’
“They don’t,” she continued. “They will always need government support for the kinds of services that they’re providing. … But we need to dismantle the ineffective systems and rebuild together.”
From this discussion and national and local data points, PBN highlights how Hawaii nonprofits have offset incurred costs for overhead, staffing and other program needs not explicitly covered by government contracts – and the sector’s collective efforts to repair their relationship with government agencies to continue to build up communities.
Signs of improvement, but ‘prescriptive’ pain points remain
Panelists agreed that the partnership between these specific types of social service nonprofits and government agencies is critical.
“When we look at nonprofit government contract and grant revenues in the aggregate at the national level, 32.5% of the sector’s overall revenue derives from government grants and contracts. There is no way private philanthropy can supplant this income,” Maruyama said. “This is an important partnership, so if this relationship is so important to community health and well-being, then why aren’t we fixing some of the frailties of that relationship?”
“When we look at nonprofit government contract and grant revenues in the aggregate at the national level, 32.5% of the sector’s overall revenue derives from government grants and contracts. There is no way private philanthropy can supplant this income.” — Lisa Maruyama, president and CEO of HANO
Wong said that since she started 25 years ago with Catholic Charities Hawaii, which is currently celebrating 75 years of service and advocacy, “I must say government has improved.
“We would start a contract July 1 and sometimes never got paid until December or January,” she said. “There has been improvement because I remember not getting paid for so many months and having to take out loans. But you know, they’ve gotten better.”
Wong said some government departments have pushed back on submitting payment in various ways, from not abiding by 30-day payback laws, extending terms or by asking nonprofits to resubmit an invoice with a changed date. “It’s been a challenge, but I will say they have improved their payment system better than when I first started.”
Rosete-Medeiros said said about 88% of Hale Kipa’s total revenue comes from state, city and county contracts. “But the 88% basically does not cover the full cost to run the program, so we must fundraise the other 12%,” she said. “We don’t always receive our timely payments and therefore we do have to front costs.”
While the reasons for late payments vary for each contract, Rosete-Medeiros said, “there’s been numerous times when payments have been late, but still, there’s been no compromise to service.”
“We’re talking about human lives here,” she said. “We can’t turn people away in their time of need. So, we have taken out operating loans to cover our cash flow to continue to provide services.”
Particularly with the organization’s newer city contract for Hale Lanipolua Assessment Center, a youth home for victims of sexual exploitation, payment processing has taken four to five months once submitted. “For other contracts, when [payment] is late, we have taken out operational loans to cover those expenses.”
Rosete-Medeiros, who founded and formerly served as the executive director for Maui nonprofit Neighborhood Place, said partnering on contracts and collaborating to offset expenses happens more often on the Neighbor Islands.
“The issues on the Neighbor Islands are no different than Oahu; however, from my experience, nonprofits or community-based organizations on the Neighbor Islands are much more willing and able to work together to support each other’s work.”
Ijacic, who oversees IHS’ finances and operations, said the set amounts they are given to work with creates added pressure.
“Not only does the government tell us for certain contracts, you only have $10, but they will also say you can spend $2 on labor, and not just on labor for these certain positions, then another $3 here or another $1 for administration fees.
“So, it’s very prescriptive. Not only are we limited in what we can spend, but it must be spent within the predetermined buckets. I think that’s where the contract redesign and the partnership with government would give us a bigger bang for our buck.”
Partnership is one solution. Contract redesign is another.
“Contractors would never be treated that [same] way where they’re told how to spend their dollars,” Maruyama said to Ijacic’s point.
“And they’re able to have negotiating leverage on those contract terms,” she said. “So why is it that for the nonprofit sector, it’s so different? That the power sits with the contractor? It’s not even consensual or collaborative in coming up with those terms. … Difference in the power dynamic exists.”
Another solution, Ka‘uhane said, is in finding equity.
“These community-building organizations are businesses who reinvest their profits into the mission of their business, which is our community,” she said. “They have collective missions of reinvesting what they earn into our people and this place, and that’s the only difference from this type of business versus a for-profit business: They have stakeholders versus shareholders. [Nonprofits] are not sharing their profits with shareholders; they are reinvesting their profits into our community.”
In business, she continued, “We want people to test and come up with good products and develop good services, but if we took that same concept and we apply that to a community building, nonprofit organizations, when they fail, we add mandates, more controls and requirements.”
The Covid funding flood, and a look at the labor environment
Maruyama said, in recent years in the context of Covid, a lot of federal money has passed through the nonprofit sector for immediate response and relief efforts. The flood of funding has brought its own set of challenges.
“There have been trust issues, tech and capacity issues, and other systemic issues really on both sides. Both parties suffer with their own kind of related capacity issues that prevent the relationship from flourishing,” she said.
For example, Catholic Charities Hawaii, in partnership with the Council for Native Hawaiian Advancement and The City and County of Honolulu, distributed funds through its Rental and Utility Relief Program, one of the highest performing programs in the country.
“Our main goal with the recent rent relief programs was to assist tenants impacted by job loss or reduced work hours because of Covid,” Wong said. “This allowed them to remain safely sheltered in their homes during the pandemic. The number of helpline calls increased tremendously right after Covid shut down of many businesses and created mass layoffs. A lot of people lost their jobs and were seeking help for the first time.”
Wong said that from Fiscal Year 2020 to 2021, “just based on recognized revenue alone, government and private grants and contracts” the organization’s revenue grew from $26 million to $109.9 million, or an increase of 323%.
“This unprecedented growth was attributed primarily to the federal Covid-19 rental assistance programs,” she said. “These programs were federal cost-reimbursement contracts through state and county pass-through entities.”
About 88% of all Catholic Charities Hawaii income revenues are through government contracts. Wong said the breakdown prior to 2020 was 57% state, 26% federal, and 5% city, with the rest covered by fundraising; however, when tasked with statewide rent relief efforts, 9% came from state, 88% from federal, and 1% from the city.
“Although most of the programs provided a working capital advance, we had to rely on a foundation grant to help us scale up prior to the start of the actual contract,” she said. “This meant the renting of significant space so that we could have 6 feet between staff as recommended by [The Centers for Disease Control and Prevention] and purchase of equipment for approximately 100 new hires.”
“Although most of the programs provided a working capital advance, we had to rely on a foundation grant to help us scale up prior to the start of the actual contract.” — Stella Wong, vice president of programs at Catholic Charities Hawaii
Delays in payment did occur, she added, “which meant slowing down rent payments as there were not sufficient funds in the account to cover all approved applications.”
That, and “in the beginning the federal government sent different interpretations of the grant. This hampered our contract with the state as guidelines were changing or still being established.”
Wong said they will continue to administer the program until funds run out.
The contracts are so detailed that even giving raises to staff as small as 2% needs government approval, she added. “They said, no, you can’t do that. So, I asked for a 2% raise for just one staff member. And they said you must justify it.”
Ka‘uhane said, Catholic Charities’ kuleana of rental and utility assistance required mass hires and training, not to mention office space to do their work.
“They have to get ready while they’re negotiating a contract with the city or the state, whichever entity they’re working for, and they’re not allowed to spend a dime, even if they want to, until the contract is executed, because any expenses that you incur before you ink that contract don’t count,” she said.
“That is just an unrealistic expectation,” Ka‘uhane continued. “If you tell a business, you’re going to open your doors tomorrow – here’s our grand opening – but you don’t get to spend and dime until you open your doors. It’s just not possible. It’s just not real. But we put these strange mandates [on nonprofits] and have an expectation that’s quite high.
Rosete-Medeiros echoed Wong’s frustration, saying “We are short staffed because we are unable to pay enough for our positions. If the state and county increased our contracts to cover full costs, we would be able to pay our staff salaries they probably could afford to live on. But with a contract staying flat for over 10 years, we are unable to give raises unless we fundraise for it.”
Advertising for open positions on job search sites like Indeed and Glassdoor are an added cost to nonprofits. She explained, “We cannot use contract funds to advertise or market for positions, so we must use unrestricted fund-raised dollars to pay for all advertising – dollars that could’ve been used for programming.
“We are constantly trying to fill positions to meet our contract and provide the needed services for our youth and their families,” Rosete-Medeiros said. “People passionate about this work are unable to do it because they can’t survive on what we pay them because our contracts are so underfunded. Thus, the constant struggle to fill our positions.”
New systems and spending on innovation
Ijacic said, “Innovation, for us, starts by addressing our community’s toughest needs.”
IHS is addressing mental illness, substance abuse, and physical ailments in Hawaii’s homeless population by “opening Hawaii’s first homeless triage and transfer center this fall to provide medically assisted detox, behavioral health services, and intensive case management under one roof,” she said. “Our medical respite program cares for homeless patients being discharged from the hospital reducing costs for our community and hospital readmissions. Our temporary quarantine and isolation center provides Covid-positive homeless individuals with a safe place to recover.”
She said when the full scope of work on such projects are not funded by the government, private gifts and donations end up subsidizing it.
“Our donor dollars are now being used to pay for interest, to subsidize government, when it’s really supposed to be the other way around. That should be used for building new programs, for doing things different, for … improving things in Hawaii.”
Wong added, “I don’t want to subsidize government. I want them to be more innovative and get our boards more active, too.”
Catholic Charities [may] be “$1.5 million in the hole because contracts don’t cover, but there’s always the mercy of God,” she said. “We pray that we get pennies from heaven.”
Mission-wise, she says, “While there is still much to be done, the goal remains the same: to assist the poor, the homeless, the downtrodden, the stranger, the migrant, the elderly and to give voice to the voiceless through our advocacy efforts and programs. Whatever challenges our local community faces, our mission will continue to provide a community of hope to serve those most in need.”
“We’re looking for innovation and excellence in a system that doesn’t allow for any of that to occur,” Ka‘uhane said. “That if we want that from the sector, that kind of growth and capacity building and vibrancy that I know they have, then we would have to trust in these organizations and we have to build a structure and a system.”
“Trust in government is a public issue, it’s not just a nonprofit issue,” said Ka‘uhane, who’s seen a “willing administration at the federal level.”
“So how do we locally lean into that movement and that dynamic?” she asked.
By making change together, panelists agreed.
“Yeah, that’s the thing, everyone has to do it,” Rosete-Medeiros said. “I think it would be constructive for nonprofits to form an alliance so we can communicate together to the state about the hurdles we often see when our contracts aren’t fully funded and to reject underfunded contracts.”
The conversations boards are having are too often devoted to worrying how to fill financial gaps then strategizing for innovation, Maruyama said. But they, too, can be part of the solution.
“At the end of the day, we may have very different systems,” she said. “We may have very different scales and approaches and regulations and rules. But we have the same goals and intentions. We both want to see the community thrive.”