How New York City Routinely Fails to Pay the Nonprofits It Relies On

As protest slogans go, “Payment on time, every time!” may sound like a modest demand.

But for many of the nonprofit organizations that New York City hires to provide billions of dollars in social services, prompt payment is a distant dream. Workers from organizations representing hundreds of nonprofits rallied outside City Hall last week to beg the city to simply pay them what they are owed.

According to a new report by the city comptroller, Brad Lander, the city is sitting on at least 7,000 unpaid invoices from nonprofits, some dating back years, totaling over $1 billion.

This is money for groups that shelter the homeless, provide child and elder care, feed hungry New Yorkers, counsel the mentally ill, protect domestic violence victims and provide legal services to immigrants and defendants who can’t afford lawyers.

“The city says to these organizations, ‘Look, we don’t have the capacity to do this lifesaving work — we need you to do it,’” Justin Brannan, chairman of the City Council’s Finance Committee, said at the rally on Wednesday. “But then when it’s time to get paid, they treat you like a deadbeat parent and they don’t answer the phone.”

Mr. Lander says the $1 billion is most likely an undercount. His review found that as of April, nonprofits with active contracts might have performed up to $4.9 billion in work that the city had not yet paid them for.

Here’s what to know about the city’s chronic late payments.

Why is the city so bad at paying its bills?

It’s not a cash flow issue — the city has the money. Rather, delays are built into the contracting and payment process at every step.

The city was late in registering more than 90 percent of human services contracts last fiscal year, a crucial step that legalizes contracts and lets contractors submit invoices.

When a nonprofit requests even a small contract modification — say, a few hundred dollars to fix a boiler — that can stall payments for months.

Staffing is also a big problem. New paperwork requirements instituted after abuses have increased workloads at city agencies that are already dealing with lots of vacancies.

And a new payment portal rolled out last year has been plagued with glitches, the comptroller says.

How late are the payments?

Across nine of the slowest city agencies, accounting for more than 4,000 overdue payments, the unpaid invoices were an average of 49 days late, the comptroller found. The Department of Homeless Services, the slowest to pay, holds more than 1,300 unpaid invoices, averaging 82 days old. It has 72 unpaid invoices that date back more than a year.

Volunteers of America-Greater New York, which runs shelters for domestic violence victims, veterans and people with disabilities and is owed $32 million, said that it remained unpaid for some expenses incurred in 2017.

How do the nonprofits keep the lights on when they are owed millions?

Mostly by borrowing money, which creates its own problems. Some organizations pay as much as a million dollars in annual interest on their debt. The city doesn’t have to reimburse them for the interest, so that money needs to come from somewhere — sometimes at the expense of serving people in need.

At a City Council hearing in March, the Rev. Terry Troia, the president of the shelter operator Project Hospitality on Staten Island, said her organization was owed “only $4.5 million,” down from $16 million last year. Nevertheless, it was facing a $100,000 interest bill and had to cover that cost itself.

“You do that by raising money in the community,” she said, “but people would prefer to give money to our food pantry.”

Do late payments ever drive nonprofits out of business?

It has happened. In 2023, Sheltering Arms, a 200-year-old youth services organization that provided child care and foster care, shut down partly because of delayed payments.

Other nonprofits have scaled back services. And thousands of their employees who were promised cost-of-living raises have yet to receive them.

More often, said Kristin Miller, the executive director of Homeless Services United, providers stop bidding on city contracts “because the risk of doing further business with the city is too high.”

But for many of them, the city is the only game in town — the only source of the work that the organization performs.

What is City Hall doing to fix the problem?

Last Tuesday, Mayor Eric Adams, who is up for re-election, announced that next fiscal year the city expected to make over $5 billion in advance payments to contractors, up from $2.8 billion this fiscal year. Nonprofit contractors can receive up to 25 percent of their contract value as an advance. The new fiscal year starts July 1.

City Hall is also a launching a new tracking system “to bring data-driven accountability to nonprofit contracting across city agencies.”

Mr. Lander, who is running for mayor, said that increasing advance payments was “a helpful Band-Aid to help solve the immediate crisis,” but emphasized the need for deeper reforms.

What have other officials proposed?

Mr. Lander has proposed making partial invoice payments a standard practice so that a dispute about one line item does not hold up payment on the whole bill; expanding grants and bridge loans to ensure nonprofits make payroll; and fixing “pain points” in the new payment system, PASSPort.

The City Council has introduced several bills in an effort spearheaded by the speaker, Adrienne Adams, and Mr. Brannan. One would require the city to pay 80 percent of each year’s contract upfront. Another would establish a new city agency, the Department of Contract Services. A third would require agencies to submit “corrective action plans” if they were late registering contracts. (Ms. Adams is also running for mayor.)

Mr. Brannan has also proposed requiring the city to cover interest costs incurred because of late payments.