About 40 percent of responding nonprofits that contract with the state have never received upfront payment, despite recent legislation authorizing advance payment of state awards, according to a new survey conducted by the Little Hoover Commission.

Nonprofits have long argued that when they are forced to wait for reimbursements from state agencies after costs have been incurred, they are put in a financial bind, sometimes having to borrow money or reduce spending.

In response, the Legislature in 2023 authorized — but did not require — state agencies to provide nonprofits with up to 25 percent of contract funds through upfront payments.

The commission’s survey is the first attempt to measure the implementation of the recent legislation. In January, working in conjunction with the California Association of Nonprofits, the commission sent out a survey to thousands of nonprofit organizations. About 400, representing a broad array of nonprofits, responded.

Of the respondents, 39 percent said they had never received an upfront payment from the state, while 53 percent said they had been paid at least some funds at the start of a contract.

“Nonprofits are on the front lines every day, working hard to try and address problems,” said Commission Chair Pedro Nava. “That’s why the Legislature authorized upfront payments. We’re going to be looking into this in more detail, but our survey results indicate that this change isn’t yet being implemented across state government.”

The survey is part of ongoing work by the commission to gauge the state’s relationship with the nonprofit community. The commission recently released a report on how the state can better work with foundations to fund public programs. The survey is part of a second phase of the ongoing project, assessing how the state can better provide funding to nonprofits with which it contracts. The commission anticipates holding a hearing later this year on the contracting issues.

Over 31,500 nonprofits operate across California and support a range of government services and programs, such as job training, meals at food banks, and rental assistance. Their work is financed in part through awards from state agencies.

“By highlighting key challenges, these survey results provide a framework for state leaders to further strengthen state government’s relationship with nonprofits,” said Commission Vice Chair Anthony Cannella.

For many nonprofits, reimbursement of state funds can be difficult, as it can mean months of waiting to get paid for services provided. Over half of nonprofits responded they are challenged by payment delays, with nearly one-quarter waiting more than three months for reimbursement.

“When the state takes too long to pay nonprofits for the services they provide, it creates a barrier for partnering with the state and places a burden on who chooses to do so,” said Dion Aroner, who serves on the commission’s subcommittee overseeing the work on state contracting.

The issue brief highlights a number of additional challenges in the state award-making process, with respondents citing burdensome reporting requirements (65 percent), insufficient funding for indirect costs (60 percent), and complex application processes (58 percent).

Nonprofits also indicated that a number of changes — including upfront payments (58 percent), simplified application processes and reporting requirements (55 percent) and higher indirect costs rates (53 percent) — would enhance their experience working with the state.

“Improving the relationship between the state and nonprofits is critical to ensuring all Californians have access to the services they need,” said Gil Garcetti, who also serves on the commission’s subcommittee on this topic. “We look forward to learning more about this at a subsequent hearing.”

Despite these obstacles, state funding is and will remain a valuable resource for nonprofits — with 83 percent of respondents reporting they are likely to pursue future funding opportunities.

The Little Hoover Commission is America’s only permanent, independent citizens commission working to improve state government.

A nonpartisan oversight agency created in 1962, the commission includes 13 commissioners appointed by the governor and legislative leaders.

The commission’s mission is to investigate state operations and promote efficiency, economy and improved service.