A closer look at how City government funds nonprofits in New York
What does it mean to govern a city? One important way to understand this question is to look at a municipality’s budget. Budgets, any policy analyst will tell you, reveal what a government’s priorities really are: By looking at how much a city is spending on something, we can deduce how important that something is. Beyond the actual dollar amount, though, it’s also critical to look at how we’re spending that money. And in New York, a big chunk of money each year is spent on contracts to nonprofit organizations. In FY 2024, for example, the City paid out over $16 billion to nonprofits to provide human services (see Checkbook NYC). That’s about 15% of the City’s total $107 billion budget — a substantial sum. What does this tell us about nonprofit organizations and City governance?
The U.S. nonprofit sector entered a period of rapid growth after 1970. In that year, there were about 266,000 registered nonprofits in the country. Today, the number is close to 2 million. These nonprofits include many organizations that provide direct services in areas like childcare, health care, education, youth development, assistance to the elderly, community improvement and more. The sector also includes many nonprofits engaged in advocacy, research, religion and other activities. Especially on the direct service side, nonprofit growth has been closely tied to changes in how government spends money to meet citizen needs. Both increased government expenditures on social programs and pressure to constrain the size of government (as measured by the number of government employees) have contributed to the vastly increased number of nonprofits.
In New York City, these trends have been particularly robust. New York offers myriad public services to its residents across numerous domains. And while government pays for these services, nonprofits deliver many of them. Nonprofits succeed as providers of public services because they often have stronger connections to specific neighborhoods or communities and can be more responsive to these different groups. Working with nonprofits thus allows city governments to better serve their diverse residents and places, at least in theory. At the same time, by outsourcing public programs to nonprofits, cities can reduce the size of their workforce — and by doing so, reduce costly expenditures on public employee salaries, benefits and pensions. The average nonprofit worker, it turns out, costs quite a bit less than the average public worker, in both the short- and long-term.
Nonprofits help constitute what has been called the “urban infrastructure” of cities — they cultivate civic capacity, connect residents with government, facilitate economic collaboration, create a sense of belonging and shape changes to the built environment.
We often think about nonprofits in terms of the services they provide. Indeed, providing services is the manifest reason city government contracts with nonprofits in the first place. But the role of nonprofits in cities goes beyond this transactional relationship. Understood more broadly, nonprofits help constitute what has been called the “urban infrastructure” of cities — they cultivate civic capacity, connect residents with government, facilitate economic collaboration, create a sense of belonging and shape changes to the built environment.
One important division among the nonprofits that receive funds from city government is between nonprofits that mainly focus on the neighborhoods where they are located and those that have a citywide orientation. Neighborhood nonprofits are generally smaller in size and tend to be located in the city’s more disadvantaged areas. This suggests that neighborhood nonprofits, while perhaps not the most efficient in terms of service delivery, play an important role in serving city residents who are most in need and least mobile.
In contrast, citywide nonprofits tend to be larger and are often located in more advantaged areas of the city. Sometimes these organizations provide services in neighborhoods far from where their headquarters are located, although this distance may compromise these organizations’ connection to the people they serve. In other cases, citywide nonprofits concentrate resources for distinctive populations — such as the LGBTQ or disability communities — in a central location, facilitating access for people living in the city’s far-flung neighborhoods. Overall, citywide nonprofits often trade off the physical proximity to city residents in need prized by neighborhood nonprofits for broader reach.
Nonprofits that contract with City government pursue resources through both programmatic and political strategies. Most of the money New York spends on contracts to nonprofits flows through competitive request-for-proposal (RFP) processes run by various City agencies. To win these contracts, nonprofits must demonstrate their capacity to provide quality programs aligned with the City’s articulated needs, and they also must be capable of wading through the complex paperwork required to complete an application. Advantage in competitive contracting thus goes to nonprofits that have more administrative capacity and are more established, as evidenced by repeated winning of contracts by many of the same nonprofits year after year.
Also important in the RFP process is the need to offer services across the city’s neighborhoods. As such, there is a certain amount of distributional calculation going on when City agencies choose which nonprofits will win contracts. In addition, the City’s leadership is aware of the political resources at play in different neighborhoods and may seek to respond to important political constituencies through the contracting process. This usually looks like making the case for a qualified nonprofit in a neighborhood of political interest to get the nod for a contract over another qualified nonprofit in a neighborhood where the political resources are less important. While these elements of the decision-making process might scandalize those committed to a purely programmatic evaluation of nonprofit bids for contracts, this phenomenon should be read instead as an indication of the embeddedness of nonprofits in City governance.
Advantage in competitive contracting thus goes to nonprofits that have more administrative capacity and are more established, as evidenced by repeated winning of contracts by many of the same nonprofits year after year.
A second type of City contract that New York nonprofit organizations can get passes not through the competitive process run by City agencies, but rather through the New York City Council. Each year, the 51 members of the council have control over a small chunk of the City budget to give out what are referred to as “discretionary” contracts to nonprofits. “Small” is a relative term: In FY 2024, the council distributed a little over $530 million in discretionary expense funding to some 2,200 nonprofits.
While that is only about one-half of 1% of the total City budget, here’s another way to think about it: There are only a handful of private philanthropic foundations in the U.S. that come close to giving away $530 million on an annual basis. Some of those funds can be traced back to decisions by individual council members: About $2.2 million in discretionary expense allocations are attached to each council member (these data can be seen in the council’s expense funding database or on Schedule C of the New York City budget). The other $400 million in council discretionary expense funding occurs through “Council Initiative” funding and cannot be traced to a specific council member. (Council members also play a role in distributing capital discretionary funding — $775 million in FY 2025 — some of which goes to nonprofits.)
While many City Council expense grants are not very large, these discretionary funds are an important source of support for both neighborhood and citywide nonprofits, helping to make up organizational budget shortfalls in a context where competitive-bid contracts often do not meet the actual cost of providing services, and allowing nonprofits to respond to emerging needs not anticipated by City agencies in their annual budget planning. Occasional scandals over discretionary funding have led to a far more transparent process with greater oversight, but “Council Initiative” funding could benefit from increased transparency as well.
Discretionary contracts also reveal the ways that nonprofits are connected to the dynamics of City governance. On the one hand, neighborhood nonprofits nearly always receive discretionary funds only from their local council members. This type of relationship means council members can use discretionary funds to garner support from local residents served by nonprofit contract recipients. This may be an important resource council members can leverage in their next election.
On the other hand, citywide nonprofits often receive discretionary contracts from multiple council members — and rarely from the council member representing the district where the organization is located. This suggests that citywide nonprofits find it important to seek political support from across the city; in turn, council members use their funding of citywide nonprofits to signal their interest in particular issues and possibly to establish relationships that may be useful to their careers once they hit council term limits.
Examining the distribution of council discretionary funding provides a window into the different ways that New York’s nonprofits are an ingrained part of City governance, and this financial mechanism is just one facet of the relationship between nonprofits, elected officials and the City bureaucracy. Some nonprofits carry enormous weight in governance decisions, and there are analysts who argue that nonprofits can be more important voices than elected officials. At the same time, without its robust nonprofit sector, New York (and many other cities) would be at a loss for how to meet citizen needs. We should be keeping an eye on both City agencies and nonprofits as we seek fair and effective public services while recognizing that the fragmented, decentralized nature of City governance makes it harder to find the lines of accountability.