How to Ensure Up-Front Payments to Homeless Services Providers Work

Recently, LA County’s Board of Supervisors took quick and significant action toward paying homeless services providers up-front. This is groundbreaking progress. And we know from experience what will make or break the implementation of this approach.  

Los Angeles provides services for its unhoused residents largely by contracting with nonprofit service providers. Many payments to these providers are made on a reimbursement basis, after services have been delivered. This forces nonprofits to find the cash upfront to pay for salaries, supplies, rent, etc., well before they are paid back by most City and County government agencies.  

After hearing an emergency agenda item about how the accumulation of backlogged payments – with providers waiting months for reimbursements – has created an untenable situation, LA County has acted. 

Cheri Todoroff, Executive Director of Homeless Initiative and Affordable Housing, presented a plan developed with cooperation and input from stakeholders to move toward up-front payments that would be reconciled after services are delivered. This meets the needs for compliance and stewardship of County and City funds, while also giving providers the security they need to hire staff and deliver programs. We are enthusiastic for the County to increase advance payments to providers and hope the City will do so as well.  

We have  studied this issue and worked with the Los Angeles Homeless Services Authority (LAHSA) and LA's community-based homeless services providers for years. We applaud the move to up-front payments. Here are three things that the City and County can do to make this a success:

We run a $9 million bridge fund that offers 0%-interest loans to Conrad N. Hilton Foundation grantees that has overwhelmingly been accessed by LA homeless service providers needing to bridge delayed payments from LAHSA.  These organizations have been able to keep staff, run payroll, and maintain services because of these loans. This fund is an outlier in that nonprofits usually must shoulder interest costs that are not reimbursed while waiting for payment – compounding the injustice of government not paying on time.  

Aside from special funds, NFF and other Community Development Financial Institutions (CDFIs) regularly provide bridge loans to nonprofits that experience delayed government payments, but accessing those funds often takes time as nonprofits move through the borrowing process. We applaud the County and LAHSA leadership for recognizing that systems solutions are long overdue. But while those reforms are being implemented, we must ensure service providers can keep the lights on. All providers waiting on delayed payments should have quick, easy access to bridge capital so they can pay their staff, rent, and other costs required for them to continue to deliver critical services.  

Here’s some of what we learned from our experience with the Hilton Foundation's Bridge Loan Fund: 

• Large scale capital is needed. Our average loan size, across 17 nonprofits covering government payment delays, is $480,000. Most borrowers ask for the maximum of $500,000, which illustrates the significant gaps and delays that nonprofits are perpetually trying to “smooth out.” The budget size of borrowers is $2 million to $10 million.  
• Smaller organizations need to be able to access working capital, too.  It is important for solutions to also reach small providers who have less cash-on-hand on their balance sheets to manage contract payment delays. 
• The traditional loan closing process takes time – even with engaged partners and accelerated timetables – it can still be a barrier when cash needs are urgent. The best way to significantly speed payments would be to gain access to the County’s systems or receive guarantees from government agencies so payment delays could be quickly confirmed.  
• Providers appreciate thought partnership when dealing with extended delays and complex working capital needs. More than 90% of borrowers in the Hilton Foundation's Fund have simultaneously partnered with NFF’s consultants to refine financial strategies and approaches. Many are connected to and learning from each other, as well.  

The Center in Hollywood is an inclusive space for anyone experiencing homelessness to feel welcome, feel safe, and receive services. It received a $500,000 bridge loan through the Hilton Foundation's Program.   

Alex Sato, Executive Director of The Center, shares, “We would not be open today without these funds. There are times when the government owes us more than $1,000,000 on completed work. Covering payroll is a challenge more frequently than I would like to admit. Unfortunately, we have to say no to some funding opportunities due to slow reimbursement timelines coupled with the reality that many contracts do not cover the full cost of program operations. We want to take on additional work serving our unhoused neighbors, but we also need to ensure that we can keep our doors open to continue serving the community members engaged in our current programs.” 

Reimbursements from City and County funding rarely cover the actual costs of delivering services. So, the more people a provider serves, the bigger the funding gap it creates. It isn’t sustainable for any business or nonprofit to have costs like rent and staff compensation consistently outpace revenue. Paying fairly includes building in annual cost-of-living adjustments and considering staff salaries – and what it really costs to live in or near LA – when calculating provider rates.  

Homeless services providers have the skills, relationships, and experience our community needs to get people housed and keep them housed with the necessary wrap-around service supports. We need to acknowledge the contributions of this critical labor force by paying them on time and ensuring people doing this essential work are paid living wages. 

Service providers spend untold hours reporting and re-reporting the same information into multiple forms and systems. Reporting on how money is spent is necessary. But as the City and County move to a new process, it is crucial to consider efficiency and create a system that doesn’t force providers to jump through even more hoops before they can get paid for the good work they are doing. 

The move to up-front payments has the potential to deeply impact service providers’ ability to address homelessness in our region. Let’s do it right. 

Read more about the government funding practices that NFF is advocating for and what's at stake in a blog by Aisha Benson, "Critical Social Services Hang in the Balance of NYC Contracting Reform."