Changing Gears
8:33 am
Wed June 15, 2011

Late government payments strain nonprofits

DETROIT — Nonprofits are a vibrant part of the Midwest economy. They employ a lot of people and the need for their services has grown. But charities that contract with governments to provide social services also depend on those governments for payments. When promised payments are late, the results can be crippling.

Here’s the story of two non-profits — one old and one new — and their fight to survive the effects of late payments in hard times.

First let’s visit the young nonprofit in Detroit. A group of volunteers gathers in a park where men come to cruise and do drugs. It’s pouring rain. A wiry man named Fletcher Reliford briefs the crew.

“If you encounter a situation that is even perceived to be dangerous, immediately abort the conversation and come back where we are,” he says.

Reliford coordinates outreach for Guiding Light Sober Living Treatment and Recovery. It’s a residential substance-abuse program for two vulnerable populations: men who sleep with men (and are HIV positive or at risk), and women who are chronically homeless.

The group wants to do more outreach, but it can’t. The nonprofit has a contract with Detroit and it relies on a combination of government funding streams. One of them has slowed down, creating a kind of financial avalanche.

For example, to provide substance-abuse services for the city, the group must be accredited by an outside organization like CARF. Guiding Light CEO Darryl Dewberrry says they had planned to pay for that process with money received from Medicaid reimbursements.

The problem, he says, is Medicaid reimbursements are arriving so late that sometimes his staff can wait weeks to get paid. So when it came time to pay for accreditation, the money just wasn’t there.

Instead, he says, the group’s accreditation lapsed.

“That puts us in non-compliance,” Dewberry says.  “I mean, we could potentially lose our contract with the city because of this noncompliance issue.”

The occasional late payment is nothing new. But nonprofit umbrella groups say the financial crises at every level of government have made things worse. State officials in Michigan hadn’t noticed delays, and not every nonprofit has either. But what happens when late payments do occur is important. For one thing, 1 in 10 Michigan workers relied on nonprofits for their jobs as of 2009.

Last year, a national survey from the Urban Institute ranked Michigan and Ohio in the bottom half of the nation in terms of late government payments. Illinois was the worst.

“It appears our state is broke,” says Gary Kenzer, executive director of the Polish American Association in Chicago. The group is almost 90 years old.

The nonprofit has served 3,000 fewer people this year than last. Kenzer says late state payments drove the group to borrow hundreds of thousands of dollars. To survive, it laid off a fifth of its staff. Gary Kenzer lists some programs that got the axe:

“Helping families and children to be registered in the state health insurance program,” he says.  “Very important program. Services for youth at risk. Very important program. Services for senior citizens. I mean, where can you argue with these programs?”

Gary Kenzer says the state of Illinois still owes his group almost half a million dollars. So I called the woman in charge of paying the bills there — state comptroller Judy Baar Topinka. Picture a feisty woman with a massive bill backlog. Outstanding payments totaled north offour billion dollars, as of early June.

And that’s just bills the state has already received. State officials expect to finish the fiscal year with some eight billion dollars in financial obligations.

As comptroller, Topinka has to prioritize things like bond payments and employee payroll. There’s just not enough money to pay for everything.

“You’re playing God here to a certain extent,” she says.  “And it’s difficult.  It’s difficult and sometimes it just doesn’t make you feel good after it’s all said and done.”

Michigan does not have a similar backlog.  But when you’re a young nonprofit in Detroit, struggling to maintain professional standards with no cash reserves and no credit, late payments can break you.  Guiding Light Sober Living got behind on its rent and had to move, very suddenly. It was chaotic.

But the group found a cheaper place, in a beautiful Catholic church.  As the clients filed in, their mood was hopeful. Amelia Cummings also seemed hopeful about her life. She says she entered the program four months ago, after decades of heroine use.

“I’m clean,” she says.  ”You know, and I feel stuff, I look at the trees, I look at grass.  Before I was numb.  You know like, I been missing all this.”

The next day I called Darryl Dewberry, the group’s CEO.  He says the city now wants to revoke his contract.