A National Imperative: Joining Forces to Strengthen Human Services in America (Jan 2018)

CHALLENGE #1 Constraints imposed by government contracts

Human services CBOs receive the majority of their revenues by contracting with government agencies to provide human services to populations for which those agencies are responsible. Given the great extent to which governments and the public rely on human services CBOs for provision of critical services, government contracting processes should consistently lead to financially healthy CBOs. Yet the research demonstrates that this is rarely the case. Common issues include: Government contracts that fail to cover the cost to deliver the quality and outcomes desired. Government seldom reimburses a CBO for the full cost of providing services. Part of this stems from funding levels having failed to keep up with growing costs over time. Government agencies have also tightened up funding during lean years and subsequently failed to restore prior funding levels. The funding gap also often reflects an explicit policy choice to underpay. A common belief on the part of government agencies is that human services CBOs can and should rely on philanthropic funding to close the gap. One argument is that philanthropic donations represent appropriate “skin in the game” from the communities who benefit from CBO services. However, the result is that philanthropic donations are used primarily for program-related funding gaps instead of to enhance programs, research and development, testing new approaches, and investing in technology, reserves, people, knowledge and organizational strategy. The reluctance to cover full program-costs is further reflected in administrative spending caps that seek to minimize non-program spending. Covering indirect and non-program costs associated with general operations, capacity-building, and innovation is crucial to the long-term success of the programs and services of human services CBOs, and to the outcomes policy-makers desire. All of these issues are exacerbated by the fact that human services CBOs and government agencies often do not have a shared understanding of the full cost to deliver services and the benefits the services create. In addition, hospitals and for profits are increasingly able to “cherry-pick” the most financially viable contracts, leaving CBOs serving the neediest recipients under the most difficult contractual terms. “We’re stuck between a rock and a hard place. The government funds us like a charity but expects us to run like a business. And make no mistake: we are a business. We have a business to run, and we have real costs associated with running our business. If we can’t afford to cover these costs, how does anyone expect us to support our community?”

– Human Services CBO CEO, Illinois

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