Gov. Chris Christie’s move to tighten rules on how nonprofits operate while providing social services has highlighted how many nonprofit corporations are used to provide state services.
In The Press of Atlantic City’s coverage area, 58 agencies are being paid $141.8 million in public funds to help the needy and provide social services. Starting July 1, these nonprofits — classified as 501c3 tax-exempt groups — must curb executive pay and limit travel expenses and staff-training opportunities or risk losing some of their government funds.
Contracts in effect as of Thursday show how much state money is paid to area nonprofits from the Department of Human Services, which spent $1.8 billion statewide this fiscal year to offer care and treatment to those with mental and developmental conditions. The Department of Human Services contracted $102.5 million in services to nonprofits in Atlantic, Cape May, Cumberland and Ocean counties.
At the same time, the Department of Children and Families is providing $39.3 million to 43 agencies for family services in the region.
The figures do not include funds paid to county and local agencies, some of which then contract with other vendors.
Some of the biggest organizations on the list are associated with hospitals — most notably AtlantiCare, which received $2 million from the DHS for services provided through its regional medical center and five other grants totaling $6.5 million to its AtlantiCare Behavioral Health Center.
AtlantiCare’s Behavioral Health Center also has two contracts, totaling almost $10.8 million, from the department Children and Families.
It is not unusual for the two state departments’ lists of contracts to overlap: Organizations such as Jewish Family Services of Atlantic County, South Jersey Healthcare and Cape Counseling Services receive contracts from both agencies.
“On the ground, these providers often work for more than one department,” said Debra Wentz, executive director of the state’s N.J. Association of Mental Health Agencies. That group’s members include some of the local nonprofits with contracts, which are labeled by the state as “third-party vendors.”
Wentz defended the costs as good value for government.
“This example of privatization has been the best bargain the state ever made,” Wentz said.
A shift by the state
As the state moved in the 1970s and 1980s to get out of running its many psychiatric hospitals and developmental centers, a network of nonprofits sprouted to fill that void. Groups bid on new contracts, which can be renewed every year.
Cape Counseling, Inc., which contracted for $5.3 million with DHS and $2.4 million with DCF, was founded in 1979 and now helps about 5,500 people annually, administrator Cathy Leahy said.
“We provide services mainly through outreach, going to the homes of people who can’t manage everything themselves,” Leahy said. “Many people don’t know what we do until they or their families need that help.”
Grant numbers provided by the state departments show some nonprofits making large portions of their operating budget from state grants.
Lauren Kidd, a spokeswoman for DCF, stressed the figures are the maximum contracted with each agency. “If we’ve contracted for 10 hospital beds, say, and we end up using one,” she said, “the final costs of services we pay for annually could turn out to be less.”
The third-party vendor model may be used increasingly in other state departments. In March, Christie announced he had created a Privatization Task Force to examine ways to farm out state services to private and nonprofit groups.
The grant amounts give ammunition to critics of some of the organizations’ executive pay scales, a viewpoint that has gained momentum under Christie.
Administration staff at the departments of Human Services and Children and Families have looked to use these large state contracts as a tool to reform nonprofits.
A report by the Office of Legislative Services in 2009 sampled 62 nonprofits that held state contracts for social services to help the sick, the disabled and needy families. More than half of them paid their top executives more than $141,000, the report found.
The two departments will implement new contract language on July 1 for organizations to cap executives’ salaries or lose state funds.
Chiefs of agencies with the largest budgets should pocket no more than $141,000, state plans show.
Smaller agencies should pay their heads less, the memo states, proposing a $126,900 maximum salary at nonprofits with budgets between $10 million and $20 million, $119,850 for those with budgets between $5 million and $10 million, and $105,750 for those operating with less than $5 million.
If the proposals are enforced, any organization whose executive makes more than these limits could lose a portion of its state contract equivalent to the executive’s extra salary.
Agencies such as Jersey Cape Diagnostic Training and Opportunity Center in Cape May County, Ocean Mental Health Services, Inc., in Ocean County, and Tri-County Community Action Partnership in Cumberland County have listed salaries outside of those limits.
Nicole Brossoie, a spokeswoman for DHS, said the plan would not withhold entire state contracts from nonprofits with high-paid executives.
“It simply limits the amount the state will pay towards the salary based on the contract total for third-party provider CEOs,” she said. “If a CEO earns more than the $141,000 state contract maximum, the provider agency can use other revenues, including fundraising to equalize the salary.”
But Wentz said Thursday that a question remains over whether the salary cap would apply to hospital nonprofits.
“That’s very hard to say, and (it comes) down to the detail of what they do for us,” she said.
While many hospitals were reimbursed on a case-by-case basis with state and federal Medicaid and Medicare funds for doing clinical work, she said the vendors had all committed to contracts for support, screenings and other patient services. “It would be hard to say how you would enforce that hospital institutions cut the pay of their executives,” she said.
Grants may increase
The number of grants may go up in the next six months, as the state’s proposed budget plans call for closing some of the existing state-run developmental centers that serve patients with physical or mental disabilities in southern New Jersey. One of the proposed closings is the west campus of Vineland's state-run center.
Human services confirmed any closing of a state institution would mean more contracts with third-party vendors.
Increased use of nonprofit vendors rather than state social services has bipartisan support: Assemblyman Lou Greenwald, D-Camden, said Friday he supports community-based groups taking the strain off those agencies.
New Jersey has a rate of 34.9 people per 100,000 institutionalized because of physical or mental disabilities — nearly three times the national average of 12.9 per 100,000. Meanwhile the patient waiting list for services has more than doubled to nearly 10,000 individuals waiting for community placements in the past decade, data from the Office of Legislative Services show.
The average per-day cost of care in one of the state’s developmental centers has risen from $640 to $710 in the past year alone, data show. Wentz said, “Equivalent services might cost $30,000 through a vendor.”
Greenwald introduced a bill last week to allow developmentally disabled individuals, their loved ones and their care teams to work together to decide whether institutionalization or a community setting is more appropriate.
“By refocusing funding toward community options, we can free many families from a seemingly endless purgatory of waiting lists and delays,” Greenwald said. “These families have waited for too long.”
Wentz pointed to the closing of the west campus of Vineland Developmental Center as a sign that more local groups will have to fill that void. “That means more services are going to be moved out into the community,” she said.
“We’re going to see more, much more of this.”
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