Nonprofits that receive government contracts and grants have gotten used to waiting months or even years for payments, often for services already delivered. Under most governmental agreements, nonprofits are often expected to provide services first and get paid later—with reimbursements taking months or even years to arrive. Compounding the problem, contracts can be delayed as they wind their way through layers of government red tape before they’re finalized.
Forcing nonprofits to front these costs can create a serious cash flow crunch, especially for smaller nonprofits or those with limited financial reserves. The resulting budget burden can push nonprofits to take out loans, scale back programs, lay off staff, or even close their doors.
It’s a system that imposes unnecessary financial strain on cash-strapped organizations. Consequently, some state and local governments are now attempting to fix how they fund the nonprofits they rely on to deliver essential public services.
It’s a system that imposes unnecessary financial strain on cash-strapped organizations.
This problem is especially severe in New York City, made evident by an April 2025 comptroller report titled Nonprofit, Nonpayment: An Analysis of Payment Delays for the City’s Human Service Contractors that exposed a massive backlog of 4,000 unpaid nonprofit invoices, totaling $861 million. Those figures don’t reflect the full scope of the problem, however, since many nonprofits perform critical services for the city even while the government drags its heels on finalizing their contracts. The city owes nonprofits billions more dollars for these delayed agreements.
Things are no better at the state level, either. According to a May 2025 report, Nonprofits in Peril, released by a coalition of advocacy groups, New York State is in debt to nonprofits to the tune of $650 million, while one in three nonprofits with state contracts are owed funding for services already provided. The report also explains that two-thirds of the members of the New York Council of Nonprofits are concerned about funding basic operations this year. These are stark indicators of a sector in distress.
New York State’s delayed payments cause constant strain. One anonymous nonprofit leader, quoted in the report, noted their organization regularly carries over $1.5 million in receivables from the state. While the organization appears financially stable, they explained that “every two weeks I go through the same anxiety—will we have enough cash to pay payroll? It’s like Groundhog Day.”
Even as these debts pile up for years, nonprofits have largely kept their programs running. Kristin Miller, executive director of Homeless Services United, a coalition of nonprofits serving homeless and at-risk adults and families, said in a statement to the New York City Council that the city still owes some organizations millions of dollars on contracts dating back to fiscal year 2019.
“Make no mistake—this is a crisis,” said Miller.
Steps Toward Reform
While these problems persist, mounting pressure from nonprofits and their advocates has prompted efforts to change the broken system.
In April, the New York City Council proposed legislation to speed up payments, require agency reporting, and restore funding to a contract management office. Just before the council’s scheduled hearing on the legislation, Mayor Eric Adams announced $5 billion in advance payments for fiscal year 2026, up sharply from the previous year’s $2.8 billion—a move Council Speaker Adrienne Adams’s spokesperson called “half-baked” in a statement to local paper The City. With the mayor seeking reelection, any fixes for the contracting crisis are destined to be entangled in politics.
Without reliable funding, the vital public services delivered by nonprofits are at risk.
At the state level in New York, an effort is underway to stabilize a system that has pushed a growing number of nonprofits to the breaking point. State legislators have introduced bipartisan bills (S 7001 and A 7616) to revamp the state’s decades-old Prompt Contracting Law. If passed, these bills would require 25 percent advance payments, standardized contract timelines, and increasing the interest rate for late reimbursements.
Other states are grappling with fixing similarly broken nonprofit contracting and payment systems. This month, Nevada passed a law (AB 442) requiring the state to notify nonprofits promptly when payments will be late and administer advance payments. An Oregon bill (SB 602) currently under consideration would update the state’s nonprofit grantmaking and contracting practices, including allowing 25 percent advance payments and establishing a council to make recommendations on other ways to improve contracting.
In California, a package of bills known as the California Nonprofit Equity Initiative aims to reform how the state pays nonprofit contractors. One of its key bills, signed into law in 2023, allows any state agency to make 25 percent advance payments to nonprofits serving vulnerable communities or with limited financial reserves. The rest of the package is still in progress, with three bills moving through the current legislative session that would mandate advance payments and timely contract reimbursements, among other needed changes.
Whether these reforms mark a turning point in how governments treat their nonprofit contractors remains to be seen. But what’s clear is that without reliable funding, the vital public services delivered by nonprofits are at risk. As more state and local governments confront the chronic failures in their contracting systems, the question isn’t whether nonprofits can adapt—it’s whether governments will finally take responsibility for the systems they’ve long allowed to fail.
