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April 20, 2015 Rule of Law

CT unfairly underpays human services nonprofits

John Horak
By John Horak

In one form or another we will always need a safety net for people struggling with intellectual or physical disabilities, addiction, mental illness, or a personal crisis of some sort. While a compelling moral case can be made for the safety net, an equally persuasive case can be based on the risk to social order its absence would present. Consequently, the only debatable issue is how to structure a fair and effective human services delivery system.

Unfortunately, Connecticut's system is sorely in need of repair. Here's why:

The American safety net was originally created by civic-minded volunteers who formed nonprofit associations to undertake tasks that were communal in nature (orphanages, poor houses and many others), and who financed them with private donations.

However, in the 1960s federal and state government stepped into this sphere in a robust manner supported by the steady flow of tax revenue. Government social service agencies were created, and a government-nonprofit “partnership” emerged across the country based on a contractual legal structure: government and nonprofits enter into contracts under which government provides funds and the nonprofits provide services.

The Connecticut system followed the post-1960s trend, but with a twist that is the root of the current problem. On the one hand, Connecticut uses a contract system to hire nonprofits. According to the Connecticut Nonprofit Human Services Alliance, in 2014, 10 Connecticut agencies entered into 1,585 Purchase of Service Agreements (POS Agreements) with nonprofits with payments totaling $1.38 billion. On the other hand, many Connecticut state agencies (in contrast to a national trend) also provide services directly with their own employees. As a result, we have a two-track system in which both state and nonprofit employees do much of the same work.

The two-track system worked well at first, but approximately 20 years ago (about the time the income tax was enacted to solve the fiscal crisis of that day) the rate of funding under the POS Agreements began to slip. This trend has continued precipitously, and is now reflected in long waiting lists and aging facilities, but most significantly for our purposes, a massive disparity between the wage/benefit scale of nonprofit employees and their equivalents working for the state.

Human services is a labor intensive field and personnel costs account for the majority of nonprofit providers' budgets. Moreover, the workers in question are not “flipping burgers.” They have training and responsibility for the health and safety of people under their care (many of whom have complex medical conditions).

The problem is severe. A February 2015 report prepared by the Connecticut Community Providers Association notes that nonprofits are now paying direct care staff close to minimum wage with few or no benefits, and suggests that approximately 33 percent of nonprofit workers qualify for Medicaid and other state benefits. Insiders have told me that 20 years ago the wage differential was about 15 cents per hour, and that nonprofit employees currently receive about half of what is paid to state counterparts. To make the problem worse, if not insulting, nonprofits regularly lose staff (trained at their expense) to direct state employment when jobs open up.

So, in the context of the national debate about low wages and income inequality, and given the fact that the vast majority of nonprofits are completely dependent on POS Agreement funding to operate, it is very fair to ask both how and why the state permits this “shadow payroll” system to exist.

The “how question” is fairly simple to answer — the state has nonprofits in a legal vise caught between antitrust law and the “take it or leave it” one-sided terms of the POS Agreements. Nonprofits as a group have no power to bargain collectively for higher contract rates (which would allow them to increase wages) because of the risk of price fixing and other antitrust law issues.

Second, this complete lack of bargaining power is reflected in the POS Agreements, which are presented on a “take it or leave it basis,” and are so one-sided that nonprofits literally live at the mercy of state officials. For example, the POS Agreement allows the state to: reduce payments unilaterally at any time state money gets tight; cancel the entire agreement without prior notice if funding is no longer available; and be indemnified by the nonprofit if anything goes wrong (even if caused by inadequate funding).

The “why question” must be answered by state policymakers. They should tell us why they take advantage of the nonprofits' lack of bargaining power to create a second class of low paid human service workers. Before responding they should review a bill pending before the General Assembly that would impose a $ 1 per hour fine on “large employers” paying employees $15 or less an hour. The fine would be used to reimburse the state for the cost of state social benefits low-paid employees are qualified to receive. One wonders if the backers of this bill realize that the state maintains a low paid “shadow payroll” of its own, but that it hides behind nonprofits to keep it secret. 

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own.

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