Little Hoover Commission hearing says state grant rules hinder nonprofits; witnesses urge advance payments and less paperwork

The Little Hoover Commission held a hearing on state grant making and contracting with nonprofits on Aug. 28 in Sacramento, where commissioners heard testimony that payment delays, low allowances for indirect costs and burdensome reporting rules hamper service delivery across California.

"Nonprofits are vital partners for the state, delivering everything from food and housing to health care and wildfire resilience," Little Hoover Commission Chair Pedro Nava said, citing the commission's survey that covered nearly 400 nonprofits and found widespread payment and reporting problems.

The witnesses described several recurring problems: long delays on reimbursement payments, inconsistent use of advance payments, low or capped indirect-cost (overhead) rates, and heavy, duplicative reporting requirements. Jeff Green, chief executive officer of the California Association of Nonprofits, told commissioners that "advance pay is a critical tool" and said states should normalize upfront payments rather than treat them as one-off experiments.

Why it matters

Nonprofits deliver services the state relies on but often lack the cash reserves to float publicly funded programs. The commission’s survey — discussed by Nava and witnesses — found that nearly 40% of nonprofits reported never receiving advance payments despite authorizing legislation; 1 in 4 waited more than three months to be paid; nearly three-quarters of those delayed payments produced moderate to severe impacts such as program reductions, staff cuts or loans; and two-thirds reported burdensome reporting requirements.

What witnesses recommended

- Advance payments and prompt payment protocols. Multiple witnesses urged more routine advance payments and faster reimbursement. Kate Gordon, chief executive officer of California Forward, recommended standardizing advanced payment protocols and cited the practical need to hire staff and set up systems at a grant’s start.

- Full-cost recovery (indirect costs). Witnesses said current practices frequently underfund administrative and back-office functions. Gordon noted some agencies cap indirect rates as low as 5%, while the federal de minimis is 15%. Jeff Green called for valuing the "full cost" of program delivery rather than treating overhead as optional.

- Reduce duplicative reporting. Gordon described a $130,000 state grant that required a task-level Excel spreadsheet, monthly meetings and a consultant just to complete reporting work; she said that example illustrated excessive administrative burden.

- Unified grant portal and shared data. Witnesses urged a single state grant portal that would let nonprofit applicants upload audits, IRS filings and insurance documents once, lowering administrative burden and allowing funders to verify qualifications quickly.

- Office of nonprofit support and shared best practices. Green and Gordon both proposed a central state-level hub to publish guidance, spread successful experiments across agencies and offer onboarding resources for smaller organizations.

- Pay equity and compensation standards. Commissioners and witnesses said nonprofits often perform work the state cannot or will not do directly; several witnesses urged pay equity standards so the sector does not become the low-cost labor alternative.

Other issues raised in public comment

Public commenters expanded the case for change. Purva Bhattacharjee of the California Alliance of Child and Family Services said liability insurance costs jumped an average of $163,000 per agency in one year, forcing many foster-family agencies to cut capacity or lay off staff; the group supported short-term state bridge funding while longer-term solutions are developed. Rachel Mueller of the California Coalition for Community Investment said nonprofits often borrow from community development financial institutions to cover state payment gaps, which carries interest nonprofits cannot recover under current contracts.

What commissioners asked

Commissioners pressed witnesses on fraud prevention and public accountability. Commissioner Janice Sidley asked how the state could assure taxpayers that advance payments would be spent appropriately; Green and Gordon responded that strong front-end due diligence, contract terms and focused reporting can provide accountability without excessive micromanagement. Commissioner David Beyer and others recommended standardizing financial reviews (compilation, review, full audit) and urged using audits and other signals to triage grant oversight.

Where proposals stand

Witnesses pointed to existing legislative efforts. Chair Nava credited Assemblymember Greg Hart with introducing bills in recent years (identified during the hearing as AB 590, AB 3017 and AB 1039) aimed at improving nonprofit funding. Witnesses recommended the legislature and the administration consider statutory and administrative changes to standardize advanced payments, require minimum indirect rates, create a unified grants portal and establish a central office to coordinate state policy toward nonprofit partners.

Ending note

Commissioners said the hearing will inform the commission’s continuing study of state-nonprofit contracting. The commission’s next meeting was announced for Sept. 25 in Sacramento.