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Philadelphia’s Fiscal Tapestry: Untangling the Challenges and Oversight to Provide Needed Services

February 14, 2024 Category: Long

Non-profit organizations sustain their community services by securing grants, but behind the large checks and ribbon-cutting ceremonies, lies a complex system.

In Philadelphia, many small nonprofits depend on three forms of financial management and support services for government-funded initiatives: fiscal agents, fiscal intermediaries, and fiscal sponsors.

A fiscal agent operates under a contractual arrangement to carry out specific financial tasks on behalf of another organization, while a fiscal intermediary solely facilitates financial transactions. Fiscal sponsorship, on the other hand, is when a nonprofit organization with tax-exempt (501c3) status allows another individual or organization to operate under its 501c3 status — in this arrangement, the sponsor agrees to provide administrative and financial support to the sponsored project.

Two big players in the fiscal space in Philadelphia are the Urban Affairs Coalition (UAC), a nonprofit that supports over 80 organizations, and Public Health Management Corporation (PHMC), a nonprofit public health institute. 

David Fair, who has 40 years of experience in the nonprofit and public sector space, had his first experience with fiscal sponsorship in the 1980s while working for Philadelphia city government to establish a public health response to the AIDS epidemic. Fair went to the UAC to distribute city funds to the small community-based organizations doing the work.

“The city bureaucracy moves very, very slowly. Small organizations can really get seriously damaged if they rely on the city government to pay their bills because it takes so long,” Fair told Generocity. “It’s not that they’re not trying to do it as quickly as they can, there are just so many regulations.”

“Most of the time organizations doing street level work in Philadelphia are only able to do that because of organizations like UAC and PHMC,” he said.

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Fair is the Executive Director at Turning Points for Children, a PHMC subsidiary, and his views are independent of both organizations. 

In recent years, Philadelphia’s allocation of funds towards anti-violence initiatives has highlighted the intricacies of the fiscal landscape and the accompanying challenges faced by small nonprofits, the city and the contracted financial management organizations.

In March of 2022, WHYY News reported significant delays faced by small nonprofits awaiting the distribution of funds from the city and its nonprofit fiscal sponsor, the UAC. Numerous individuals shared that they had to rely on personal funds or seek support from private donors to sustain their programs during this period. The funding pools in question included the Targeted Community Investment Grants, providing between $10,000 and $45,000 to nonprofit groups committed to executing anti-violence programs, and the Community Expansion Grants (CEG), ranging from $100,000 to $1 million. The CEG program, launched in 2021 to address gun violence in Philadelphia, awarded $13.5 million to thirty-one organizations.

Although UAC received $1.1 million to distribute the CEG grant funds, monitoring non-fiscal program aspects was not included in the contract. 

In April of 2023, The Inquirer reported that recipients of the CEG grant program, which ended up totaling $22 million with administrative costs, were not adequately screened by the city. Approximately one-third of the 31 recipients received amounts surpassing their previous year’s operating budgets, while some had reported no prior operating funds. 

Despite disqualifying start-ups, the city also granted funds to organizations lacking a board of directors or paid employees. And, despite concerns expressed by some individuals at UAC regarding grant recipients, the city urged them to proceed, according to The Inquirer. Generocity reached out to the UAC for comment but was unable to connect with a representative. 

Now the CEG program is running through PHMC. 

Managing government money isn’t typical for fiscal sponsors, a system that has no specific regulatory governmental management. If grassroots organizations aren’t given adequate training and support in managing large sums of money, things often go awry, as seen with the city’s anti-violence initiatives.

“The system that UAC was using to manage and process this was very complicated, very precise and more pressure was put on the end user to submit perfect paperwork. And if they didn’t, payments would get rejected,” an anonymous source, who has asked to conceal their affiliation, told Generocity.

This is what led to the payment delays.   

UAC’s operations grew during the COVID-19 pandemic, and according to the anonymous source, its increased revenue went into executive office space and people instead of addressing other issues. Organizations like Ones Up and SELF Inc. eventually left due to frustrations with UAC’s systems.

The UAC’s 990, a primary tax return for a nonprofit’s activities, finances and governance, reveals that the organization’s revenue more than doubled from 2020 to 2021, showing an upward trend continuing into 2022. The UAC went from managing $44.67 million in gifts, grants, contributions and membership fees in 2019 to a whopping $141.98 million in 2021.

Unlike the UAC, PHMC is a fiscal intermediary, but the organization will work with grantees to make sure forms are processed properly, Michael Pearson, PHMC’s president and CEO, told Generocity.

“We’re not creating the form nor are we creating the criteria, we are simply trying to find the most economical way to complete the forms with these entities and assist them in making sure they’re completed correctly,” Pearson said.

“[We hope to be] a kinder and more benevolent administrator, not to say that our predecessor didn’t do that, but I’m speaking to PHMC internally, we are looking at better ways to communicate with those smaller entities where they’re not intimidated,” he added.

Fair says deciding on the right fiscal system depends on an organization’s needs. 

His husband, Rudard Robinson, who runs the Preventing HIV Project, uses the UAC as a fiscal agent. In this arrangement, if Robinson wants to purchase condoms to distribute to high-risk individuals, for example, he must ask UAC permission. The UAC will certainly say yes, but it is an extra step. Fair on the other hand, who runs Turning Points, operates independently and can make autonomous financial allocation decisions. 

Fiscal agency is a good system for small organizations that likely wouldn’t exist if they had a direct contract with the city, Fair explained, but there can also be challenges.  

Fair previously worked with an organization that was instructed by the city it needed to find a fiscal sponsor and used the UAC,  but after growing substantially, it faced a “painful” experience trying to disassociate.

“We grew an almost $4 million operation to a $10 million operation and UAC was getting 10% of every dollar we received to provide its fiscal sponsorship services,” Fair said. “They didn’t react well when we decided we wanted to go back to being independent.”

But Fair notes some sizable organizations like One Day At A Time thrive with heavy involvement of fiscal sponsorship from the UAC, so it is not a one-size-fits-all approach.

For managing large sums of money, a fiscal intermediary might be a better option. In the early 2000s while working for the city’s Department of Human Services, Fair used PHMC to disperse a $35 million allocation.

Pearson of PHMC said he understands the frustration small organizations face with the fiscal landscape, and with a new city administration, comes an opportunity for Philadelphia to look at what other cities have done to improve prompt payment and completion of contracts.

“Most of the people who are looking to do this work are well-intended. They have a desire to change and affect their communities and they come in with all of the necessary fire to tackle these issues. However, what I hope not to do in executing what is a necessary evil — that is the paperwork side or administrative side — is deter people from being active in their communities.”

Ultimately, Fair argues that the challenges with fiscal sponsors and intermediates are often due to the city’s “cumbersome processes” which he believes need to be streamlined.

“You can argue we’re wasting money using fiscal sponsors and intermediaries because they need to be paid to be the fiscal sponsors and intermediaries,” he said.

“We spend money that should be going to direct services on having an agency do what shouldn’t have to happen. They’re only doing it because the city is unable to do it and that becomes millions of dollars. That’s money that can be spent preventing gun violence.” 

 

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