Since Donald Trump won the U.S. election, there has been concern in the nonprofit field that his proposals could result in less federal funding, which seems likely. But for most nonprofits, this is a future problem, one that requires looking for other funding opportunities to supplant or replace that funding. But for nonprofits in New York City, there is an added wrinkle. Some cuts to federal spending could result in the loss of money even for existing contracts, thanks to some complicated legal issues in that city.
Because New York uses “retroactive contracts,” some nonprofits that contract with the city end up paying out of pocket for expenses that eventually end up covered by the government, essentially the city pays them back for the good they’ve already done. With less federal funding going to the city, that could mean less money to go around to honor existing contracts.
In addition, some contracts dole out money based on whether or not funds can be appropriated. They don’t come out of an existing fund, but rely on whether or not the funds become available as part of the federal budget. Those contracts could also end up not being paid.
While New York City only receives about 9 percent of its total funding from the federal government, a lot of nonprofits rely on that funding. The New York City Department of Housing Preservation and Development gets 48 percent of its funding this way, while the Department of Homeless Services gets 34 percent. These and other organizations are pretty important to the well-being of the city, and they could end up with suddenly and seriously reduced budgets because of federal cuts.
According to the city comptroller, about 69 percent of city contracts were retroactive contracts as of 2015. Even if that number has gone down by now, there are still a lot of contracts that are in danger of suddenly not being paid.