Are nonprofits the permanent government of New York City?

Current and former executives, as well as others in high-ranking positions in philanthropy and government, weigh in on the question, holding organizations accountable and more.

Greg Berman is the co-editor of Vital City.

Greg Berman is the co-editor of Vital City. Michael Falco

When New York City Comptroller Brad Lander questioned the city’s $432 million no-bid contract with DocGo Inc. to provide services to recent immigrants, he inadvertently highlighted an underappreciated reality of urban governance: the city relies heavily on private contractors to perform a host of tasks that we typically associate with government, from childcare to education to housing. 

Many of these contractors are non-profit agencies. 

Some have argued that the nonprofits that contract with the city amount to a “permanent government” – mayors and other political players may come and go, but these large nonprofit social service providers remain basically the same no matter who runs the city.  Because of their heft and their stability, these groups can exert enormous influence over how the city works. 

Viewed positively, nonprofits help to give the city an institutional spine, ensuring continuity, maintaining standards and building the kind of trusting relationships with local neighborhoods and residents that can take decades to develop.

But not everyone views nonprofits positively these days. The nonprofit sector has recently sparked a fair amount of criticism from the left. At the root of this criticism is the idea that the “nonprofit industrial complex” bleeds resources from the state and blunts more radical kinds of organizing while lining the pockets of nonprofit executives. In “The Long Crisis,” historian Benjamin Holtzman accuses a number of New York City nonprofits of being unwitting (and sometimes witting) handmaidens of “neo-liberalism.” In “Nonprofit Neighborhoods,” Claire Dunning goes further, arguing that the very existence of nonprofits represents “the failure to create a more inclusive and responsive government.”

The nonprofit sector is also criticized from the right, of course. From this perspective, “unelected NGOs” are guilty of wielding an outsized influence on our politics, advancing a “woke” agenda that is out of step with the opinions of the majority of Americans.  Writing in Tablet, Michael Lind assails “the ritualized gobbledygook of foundation-funded single-issue nonprofits,” blaming these groups for crowding out internal dissent and promoting a set of unpopular ideas that have contributed to Democratic party electoral defeats.

In an effort to get a better understanding of the issues involved with nonprofits providing essential services for the city, I recently reached out to a half dozen experts in the field.  My informants included current and former nonprofit executives as well as people who have held high-ranking positions in philanthropy and government where they have been responsible for funding and overseeing nonprofits. I asked them to respond to four questions and promised them anonymity in order to maximize candor. What follows are highlights from what I heard back.

Is the “permanent government” analogy accurate?  

Most of my respondents admitted that there was at least a grain of truth to the notion that there are well-established nonprofit service providers who have become an embedded part of the governance of New York. 

A former nonprofit CEO says that the analogy is “apt” but thinks that this is a positive thing, since nonprofit leaders can help ensure “continuity of critical programs and services during disruptions in political leadership.”  She points out that well-established nonprofit leaders often feature prominently on mayoral transition teams and thus help determine the shape and staffing of new administrations.  A current nonprofit executive director concurs, saying that experienced nonprofits can be of particular value to new mayors and their policy teams who aren’t well-versed on a particular issue, helping them “translate abstract ideas into practice.” 

According to a former nonprofit leader, the analogy is fair “up to a point.” While it is true that many nonprofits become “entrenched,” she argues that the state of “mutual dependence” between the government and the nonprofit sector is “better than the alternatives” since it allows for “flexibility, innovation, experimentation and expertise that benefits the recipients of services.” 

A philanthropic executive says that the city benefits from longtime nonprofit practitioners “who have seen various administrations come and go” and can serve as “critical voices in policy debates,” offering a valuable perspective about “how things really work and what’s likely (or not) to filter down to the ground.”

A nonprofit leader says that a vibrant nonprofit sector is one of New York City’s “hidden strengths” and that critics should “be careful what they wish for – if we were to eliminate all of New York’s nonprofit service providers and replace them with government workers tomorrow, the quality of life in New York would go down, not up.”

How fair is the critique that there is a “nonprofit industrial complex” that is guilty of privatizing public services and diluting radical political energy? 

Almost everyone I reached out to pushed back on this critique.  

One nonprofit executive says that the argument is fundamentally “misguided.” She believes that “the notion that radical change will result from organizations declining government funding and withholding services from those who need them is a kind of magical thinking.” Moreover, she argues that “we should not underestimate how much radical change has been affected by the partnership between government and nonprofits,” identifying the creation of a right to counsel in housing court as an example.

A former high-ranking government official makes the case that, far from being a drain on the public sector, nonprofits make life easier for those in government: “Nonprofits are more nimble than government and can do things faster and easier in ways that benefit communities. Most public agencies welcome the kind of partnership offered by nonprofits for this reason.”

Another former government official hit a more skeptical note: “My instinct is that the increasing dependence of government on nonprofits is a sign of government weakness. Government’s single obligation is to the well-being of the people. When government contracts out to non-profits they make an implicit trade: government trades that single commitment to New Yorkers well-being to a non-profit cottage industry that by its nature is committed first and foremost to its own survival. The nonprofit is constitutionally unable to judge whether the particular service it offers is still needed.”  

A former nonprofit executive admits that “there is corruption, waste and pocket-lining in the nonprofit sector,” and that “highly motivated and savvy nonprofit executive grifters can go for years without getting caught.”  Further, “I’ve seen cases where government agencies feel like they have no choice but to go with suboptimal partners because there are too few nonprofit vendors available at scale to get the work done.”  Another executive acknowledges that “there is little incentive for nonprofits to be efficient,” which can lead to “bloated organizations and overpaid chief executives.”

While there was a recognition that some nonprofit organizations are mismanaged, in general my respondents believed that nonprofit service providers significantly out-perform government service providers: “The best nonprofits center the needs of their clients and program participants, using their government contracts as a means to a mission-oriented end.” By contrast, they characterized government agencies as overly bureaucratic and guilty, in many cases, of processing people like widgets in a factory.

Is the nonprofit sector too “woke”? 

Almost everyone I reached out to dismissed this concern. 

“The woke objection doesn’t resonate,” says one nonprofit executive. “Nonprofits are dependent on fundraising. If the values they espoused were in fact objectionable to the majority of Americans, they would not be able to raise money and would fade away.”

A counter argument was offered by one former nonprofit CEO who points to declining trust in nonprofits as a sign that nonprofits are alienating not just die-hard conservatives but also moderates and even some liberals.  Another worries about a potential loss of talent within the sector, wondering whether some organizations may be losing prospective employees, “who are not ideologically aligned with the messaging and do not want to work in that environment.” 

But the general consensus was expressed by this nonprofit leader: “I think as long as nonprofits are laser focused on the needs of their clients and stakeholders, it shouldn’t really matter where they fall relative to opinion polls.”  

Is there a need for greater public accountability for nonprofits?  

Criticisms of the nonprofit sector, whether they come from left-wing activists, conservative commentators, or middle-of-the-road observers, almost always come back to the issue of accountability. Elected officials can be voted out of office. Private sector companies are subject to the Darwinian logic of the marketplace. What mechanisms exist to manage or constrain the behavior of nonprofit organizations?

One philanthropic executive suggests that substantial accountability mechanisms are already in place, pointing to the fact that “nonprofits are required to provide significant disclosure about their programmatic purposes on their IRS 990 form” and that the city and state comptroller offices “have significant auditing power and conduct thorough audits of larger nonprofits with City or State contracts on a rotating basis.”  

A nonprofit leader argues that it may be possible to build on the existing 990 reporting structure to require nonprofits to provide more timely information that would enhance the ability of both private and public funders to assess organizational efficiency.  At the same time, she cautions that “improving accountability is challenging as there are already many burdens on nonprofits to comply with reporting and other obligations.”

Picking up on this theme, another nonprofit leader complains that “the quest for accountability regarding contracts and payments with the city results in byzantine, bureaucratic, and maddening processes for nonprofits, often with the result of existential threats to organizations and the sector at large.  One need only look at the increasingly late payments from the city on contracts.  The germ of the problem comes from the processes put in place to try to ensure compliance and root out waste and the misallocation of funds.”

A former nonprofit executive director points out that he has seen government and philanthropy continually add new demands over the years, expecting more and more detailed accountings of fiscal expenditures, programmatic impacts, and the achievement of diversity and inclusion goals. He observes, “While obviously this is motivated by a desire to improve performance, it has also had some perverse consequences, making many nonprofits more bureaucratic, more top heavy, and more like government. If nonprofits are no different than government, then what’s the point?”

A current nonprofit executive director agrees: “Accountability checks in the public sector tend to encourage risk aversion. Adding more oversight of nonprofits might cut down on rank corruption but lead to mediocrity and a lack of entrepreneurial energy.”

Overall, the leaders I reached out to did not see a powerful rationale for increasing nonprofit accountability. Indeed, it was suggested that instead of attempting to enhance accountability, we should be taking a more positive approach, looking to “recognize and reward organizations that demonstrate best practices and that focus on holistic outcomes for people.”