Center for Non-Profits - DHS Proposal

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NJ Department of Human Services Proposes New Expense Restrictions on Non-Profits

Contact your legislators, Governor's Office to express concern

Posted 4/28/2010

According to widely published news reports, the New Jersey Department of Human Services (DHS) is proposing a new policy to cap DHS payment of salaries and restrict tuition reimbursements and other expenses for non-profit organizations that contract with the Department. Whether or not your organization receives DHS funding, we urge you to contact your legislators and the Governor’s office to express concern about this proposal.

As reported in the Star-Ledger on April 26, 2010 (see http://www.nj.com/news/index.ssf/2010/04/nj_gov_chris_christie_aims_to.html ), the draft proposal would implement ceilings for maximum DHS payment toward salaries based on a sliding scale according to the gross revenue of the organization. It would also impose new limits on tuition reimbursement, and provide additional restrictions on staff training, travel, conferences and other expenses.

The Center for Non-Profits is concerned with this proposal for several reasons:

The proposal is selective in its focus, targeting non-profits to the exclusion of other industries. There are no reported efforts by the State to impose similar expense restrictions on for-profit law firms, lobbyists, engineering firms, construction companies, financial services providers and countless other interests that benefit from large state contracts every year. It is unclear why non-profits – often the first and last source of help for many people in need – are being singled out.
Non-profit executive compensation is board-determined and already subject to IRS scrutiny. Non-profit boards are responsible for recruiting executives and setting compensation based on appropriate indicators in the field and within established IRS guidelines. Unlike vendors in other sectors with whom the State contracts, non-profit boards set executive salaries under IRS “intermediate sanctions” regulations that prohibit excess compensation based on comparable conditions within similar organizations. The process is reviewed by auditors and reported to the IRS, and both the organization and its board and staff leadership can incur stiff financial penalties if excess compensation is found.
Tying compensation levels to gross revenues would wreak havoc on budgeting and hamper governing boards’ ability to recruit and retain leadership. Non-profit revenues often fluctuate dramatically from one year to the next, and this is especially true in a volatile economy. The DHS proposal does not appear to consider that many organizations have already implemented cuts in response to the recession. Yet under the multi-tiered revenue ceilings, even a modest decrease in funds could put an organization in a lower compensation bracket, possibly forcing pay cuts beyond those that may have already taken place and exacerbating an already difficult situation for affected personnel. The proposal would undermine the flexibility of independent organizations to address funding situations as they see fit in preserving their charitable missions.
Curtailing tuition reimbursement or training would discourage talented professionals from staying in the field. Field-appropriate education is a cost-effective way to enhance program quality, boost retention and lower the administrative costs associated with higher turnover. It is also an important way to groom mid-level program staff for eventual leadership in organizations. Restricting tuition reimbursement and staff development will discourage future leaders from remaining in the field, forcing non-profits to spend scarce resources on extra recruitment and training.
The proposal runs counter to the Administration’s efforts to reduce needless red tape and bureaucracy. Governor Christie and Lieutenant Governor Guadagno have made a priority of reducing the costs of compliance with government regulations and procedures. Under the DHS proposal, advance Department approval would be required for a number of specified expense types, adding extra layers of administrative costs to many otherwise modest expenditures. Many of the other expense limitations could hamper recruitment and retention of executive and program staff. The cumulative effect is an increase in time and administrative costs that neither the state nor the non-profit community can afford.

Action Needed: Non-profits have already made painful cuts to their operations while being called upon to perform more and more in these times of distress. Meanwhile, the proposed FY 2011 budget calls for deep cuts in most State funding for non-profits and their constituencies. The ultimate focus of the contracting partnership ought to be on program outcomes and community impact, and it is unclear how either would be advanced by the DHS proposal.

1) Please take a moment to contact your legislators and the Governor’s office to express concern about the DHS proposal, and please share with the Center any response you receive. To find your legislators, visit http://www.njleg.state.nj.us/members/legsearch.asp . Contact information for the Governor’s office is: Office of the Governor, PO Box 001, Trenton, NJ 08625, 609-292-6000, www.nj.gov/governor .

2) If you are already active on this issue, or would like to become further involved, please call the Center at 732-227-0800, or email center@njnonprofits.org , so that we can all better share information and coordinate actions.

We will provide additional updates as they become available.

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