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Nonprofit finance experts press for advanced payments, prompt pay and higher indirect-cost coverage
Summary
Nonprofit finance specialists and local service providers urged the committee to expand advanced-pay options, require prompt reimbursements, and align indirect-cost policies with OMB guidance to address cash-flow and equity concerns.
Policy advocates, lenders and frontline nonprofit leaders told lawmakers that common contracting practices — reimbursement-only payments, payment delays of weeks or months, and low indirect-cost allowances — are forcing organizations to borrow, deplete reserves, or curtail services.
"26% of nonprofits in California get paid over 60 days late," Annie Chang, vice president for community engagement at Nonprofit Finance Fund (NFF), said, summarizing results of a recent statewide survey. She said 45% of organizations report drawing reserves to cover delays, one-third rely on lines of credit or loans, and 22% pause or reduce services when payments are late.
Advocates credited AB 590 (as passed by the Legislature this year) as a step forward because it expanded advanced-payment authority, and they urged agencies to implement the changes broadly. "This isn't just a small change, it's a game changer," Alfredo Cruz Jr. of Community Resource Project said, describing how a 25% upfront payment model allows nonprofits to launch programs without taking on crippling debt.
NFF and other witnesses also urged wider adoption of the Office of Management and Budget's 2024 guidance raising the de minimis indirect-cost rate from 10% to 15% as a baseline, noting that a large share of California contracts still provide 0–10% indirect coverage. Chang said 60% of organizations receive indirect rates under 11% despite the federal guidance.
Witnesses described consequences: delays of up to three months in state reimbursements, nonprofits incurring interest costs on lines of credit to cover payroll, and program suspensions when invoices are not paid. Panelists recommended immediate steps: agencies should pilot advance-pay options, require timely payment timelines in contracts, and update default indirect-cost practices so nonprofits can fund essential finance, IT, HR and compliance functions.
No formal votes or motions were taken during the hearing.
