Issue Brief: Survey on CA State Funding for Nonprofits

Issue Brief: Survey on California State Funding for Nonprofits June 2025 Executive Summary This issue brief examines nonprofits’ experience applying for and managing grants and contracts (“awards”) from California state government agencies. These findings are based on a January 2025 survey of nearly 400 nonprofits, conducted in partnership with the California Association of Nonprofits. The responses provide critical insight into the state awardmaking process. KEY CHALLENGES IN STATE AWARDMAKING Respondents identified key challenges facing nonprofits navigating the state awardmaking process: ◊ Advance payment barriers: About 40 percent of respondents said they have never received upfront payment, despite recent legislation authorizing advance payment of state awards. ◊ Burdensome reporting requirements: Almost two-thirds of grant recipients have faced burdensome reporting requirements. ◊ Insufficient indirect costs: Nearly 60 percent say that do not receive sufficient funding for indirect costs, which includes expenses such as rent or utilities. ◊ Complex application processes: Almost 60 percent of grant recipients have been troubled by complex application processes. ◊ Late payments: Nearly one-quarter waited over three months to be paid by the state. Among nonprofits receiving late payments, around 72 percent were moderately to severely impacted by delays. To cover shortfalls, nonprofits rely most frequently on reserve funds (64 percent). ◊ Lack of rejection notice: Some respondents (22 percent) have not typically received notification that they were not selected for an award opportunity. NAVIGATING AWARD APPLICATION SETBACKS Following unsuccessful applications, respondents were most likely to delay launching new initiatives (76 percent), while over half (53 percent) have needed to reduce programs or services. To fill funding gaps, respondents most often turned to individual donors (55 percent) or foundations (53 percent). POTENTIAL AREAS FOR IMPROVEMENT To enhance their experience working with the state, nonprofits noted they would benefit most from upfront payments (58 percent), simplified application processes and reporting requirements (55 percent) and higher indirect costs rates (53 percent). STATE AWARDS REMAIN A VALUABLE RESOURCE Despite these challenges, most respondents are still committed to applying for government awards—with 83 percent reporting they are likely to pursue future state funding opportunities. Issue Brief: Survey on California State Funding for Nonprofits June 2025 Introduction California state and local governments rely on nonprofits to support a range of government services and programs, such as job training, meals at food banks, and rental assistance. Along with many other services, nonprofits also help to provide healthcare to older and low-income Californians, delivering an estimated one-third of Medicare and Medi-Cal services.1 One way this work is financed is through grants and contracts from state agencies. In the fall of 2024, the Little Hoover Commission launched a study to examine how the state can best work with outside philanthropic partners, whether as funders of state activities or as contracting partners receiving state funds. As part of this review, the Commission partnered with the California Association of Nonprofits (CalNonprofits) to survey nonprofit organizations about their experiences applying for and receiving grants and contracts—referred to collectively as “awards”—from California state government agencies. This issue brief describes that survey and the results. The Commission received nearly 400 responses, which collectively provide critical insight into the state award- making process. Background What are Nonprofits? The goal of a nonprofit is to provide a benefit to society, rather than to generate profit. They are typically driven by specific causes, such as education, healthcare, or the environment. Examples include food banks, churches, animal shelters, museums, and civil rights advocacy groups. Nonprofits can rely on philanthropic support (such as donations), revenue from goods or services, and grants/contracts to help fund their work. However, their income cannot be distributed to trustees, officers, or members, and any profit the organization makes must be reinvested back into its mission. Federal law requires that a nonprofit’s mission must fall into one of eight broad categories, and such organizations are exempt from federal income taxes.2 Additionally, nonprofit organizations may choose not to participate in social security taxation, though 80 percent of nonprofits do opt in.3 States determine whether nonprofits are subject to state income tax and unemployment programs and whether they receive other special benefits, such as immunity from, or limited, tort liability. In California, nonprofits that qualify for federal tax exemption are exempt from state income tax, and depending on the nature of the nonprofit, also may qualify for sales, use, and property tax exemptions.4 There are around 31,500 registered nonprofits in California, which account for about 10 percent of the state’s workforce. A relatively small number (60) of very large nonprofits (with 3,000+ employees) constitute around half of California’s nonprofit workforce. However, most nonprofits have fairly small staffs, with 90 percent employing fewer than 50 paid workers. Approximately 12 percent of registered nonprofits depend entirely on the support of volunteers to drive their work. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 2 Issue Brief: Survey on California State Funding for Nonprofits June 2025 However, as these figures are based largely on organizations subject to state income tax law, they likely underestimate the total number of nonprofits in California.5 State-Nonprofit Partnerships Funding to nonprofits from state agencies is typically distributed in one of two ways: reimbursement and upfront payment. In the case of reimbursement—the most common method—recipients must cover costs upfront, track their spending, and submit receipts to the state for repayment. The timeline by which recipients are reimbursed differs from award to award. Some nonprofits may also have the option to accept awards through advanced payment, in which the recipient receives either part or all of the award funds before the work or services begin. In order to be paid this way, recipients can be obligated to meet certain requirements, such as expending funds within a set period of time or documenting their use. Government Grants vs. Contracts The terms “grants” and “contracts” are often used interchangeably, although different levels of government use their own distinct definitions. The State of California generally refers to contracts as legally-binding agreements used to acquire services, which are specific in topic, scope, budget, and outcomes. Whereas grants are used to provide services to a community, and are generally more flexible in nature than contracts. Conversely, the federal government differentiates the two by whether the public (grants) or the government (contracts) benefit.6 California Award-Making Challenges Raised by Advocates Advocates have raised concerns about issues that nonprofits face when applying for and managing state grants and contracts. Key concerns include reimbursement-based funding methods, long payment waiting periods, inadequate cost reimbursement, and burdensome application requirements. They also contend that smaller nonprofits, or those serving or located in disadvantaged communities, are most impacted by these challenges. In 2023, CalNonprofits sponsored a package of bills to improve the relationship between the state and nonprofits. This package, together called the California Nonprofit Equity Initiative, aimed to ensure prompt payment of state awards, set a floor for indirect costs paid by the state, and streamline processes for small grants. More than 500 nonprofits and foundations supported the effort.7 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 3 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Analysis of Survey Findings The Commission distributed its survey of nonprofits to approximately 56,000 recipients on an email list maintained by CalNonprofits in January 2025. Nearly 400 responses were received during the three-week survey period. Survey respondents represented a broad swath of nonprofit organizations, with different missions, sizes, and service areas. Perhaps most important given the topic of the survey, most respondents reported at least moderate experience with the state award application process. About two out of three respondents said they had secured or applied for between two and 10 awards from the state. For a more detailed profile of respondents, see Appendix A on page 13. Survey methodology and the full questionnaire can be found in Appendix B on page 16. Priority Issue: Advance Payment Barriers About 40 percent of respondents said they had never received upfront payment, despite recent legislation authorizing advance payment of state awards. About half said they have received at least one state grant or contract as an upfront payment, rather than through reimbursement. California’s disbursement timelines have consistently troubled the nonprofit sector. Advocates have raised equity concerns about the government paying nonprofits via reimbursement, which they say can disadvantage small and under-resourced nonprofits from accessing state funding. This issue was raised during our study examining California’s efforts to address intimate partner violence (IPV). Some service providers had to wait months to be reimbursed for state funds from a key domestic violence grant program. As a result of these long delays, service providers were frequently forced to borrow money, leave money unspent, or not apply for it at all.8 To address this limitation, the Commission recommended that the affected program provide its funding in upfront payments, rather than through reimbursement. This reform was implemented the following year via AB 673 (Salas, 2021).9 Just Over Half of Nonprofits Said They Have Received Upfront Payments Q8: “Have you ever received any state grant or contract that included any upfront payment, rather than reimbursement?” 53% 39% 8% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Don't know LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 4 Issue Brief: Survey on California State Funding for Nonprofits June 2025 However, even before the Commission issued its recommendation, the state had already started to allow advance payment for some grants. In fact, various provisions of statute allowed for advance payment for various programs. But there was no uniformity or consistency with regard to state policy. In 2017 and 2018, legislators passed a series of bills enabling recipients to receive 25 percent of funds upfront for grants related to forest health and wildfire prevention.10 Under one of the laws, which created two grant programs that both ran for five years, 214 grantees took advantage of advance payments. According to a report by CAL FIRE (the awarding agency), the upfront funds allowed the state to support organizations that would have otherwise not been able to operate, as well as maintain a more inclusive pool of recipients.11 Later, AB 590 (Hart, 2023) further expanded the use of advanced payments by authorizing state agencies to provide nonprofits up to 25 percent of contract funds through upfront payments. Agencies were also directed to prioritize entities and projects serving disadvantaged, low-income, and under-resourced communities. The law, however, simply allows but does not require the use of advance payments.12 Legislators have also tried to enable agencies to provide 100 percent upfront payments for small grants—first those under $200,000 and then those under $20,000. However, both bills were held in the Senate Appropriations Committee.13 Additional Challenges Facing Nonprofits Survey respondents reported a variety of challenges in applying for and managing state awards. More than half of respondents to this question cited burdensome reporting requirements, insufficient funding for indirect costs, complex application procedures, late payments, and insufficient funding for program costs. Nearly Two-Thirds of Grant Recipients Face Burdensome Reporting Requirements Q10: “Which of the following challenges has your organization faced when managing state grants or contracts? Select all that apply:” Burdensome reporting requirements 65% Insufficient funding for indirect costs 60% Complex application process 58% Late payments 53% Insufficient funding for program costs 52% Extended contract negotiation periods 33% Unexpected agreement changes 27% None of these challenges 6% 0% 10% 20% 30% 40% 50% 60% 70% LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 5 Issue Brief: Survey on California State Funding for Nonprofits June 2025 BURDENSOME REPORTING REQUIREMENTS Almost two-thirds of respondents said they face burdensome reporting requirements—the greatest challenge identified among respondents. As with advance payments, the Commission encountered similar concerns during its study on California’s response to intimate partner violence (IPV). IPV service providers seeking state grants said they faced cumbersome reporting requirements. The requested data could be onerous to collect and at times redundant, resulting in providers spending their finite resources counting “widgets” as opposed to measuring service efficacy. In response to these challenges, the Commission called for more streamlined data reporting processes and greater utilization of technology. In reviewing implementation of the Commission’s report we found the state made some improvements to reporting processes—such as requiring less reporting and allowing for online submission of documents and digital signatures. However, not all reporting requirements are within the state’s control. Nonprofits may also need to follow those mandated by the federal government, which can present separate challenges.14 California Grants Portal State leaders have taken steps to make it easier for nonprofits and others to find state funding opportunities in response to concerns about the accessibility of grant information. In 2018, lawmakers passed AB 2252 (Limón) to create an online California Grants Portal (grants.ca.gov). Previously, state award information was posted to varying degrees of depth on agency websites. Two separate state agencies also maintained online databases with information on state grants. However, proponents for the Grants Portal said these details depended on voluntary and infrequent department and agency reporting. They also argued that some entities lacked the expertise needed to navigate the system and may miss out on opportunities, a problem that they say disproportionately affected underfunded organizations and areas. Launched in July 2020, the online portal provides a centralized database to find all grant and loan opportunities offered on a competitive or first-come basis by California state agencies and departments. In the 2023-24 fiscal year, 54 different state entities published a total of 455 funding opportunities on the Grants Portal.15 INSUFFICIENT INDIRECT COSTS Grant recipients also argue that they are often not reimbursed for the full cost of running contracted programs, including for indirect (such as rent or utilities) or administrative (such as grant management or executive oversight) costs. These, they say, are real and tangible expenses that must be paid if an organization is to continue operations and provide services. Respondents in our survey shared these concerns, with 60 percent saying that have faced insufficient funding for indirect costs. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 6 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Under federal rules issued in 2024, governments that hire nonprofits using federal dollars must reimburse Top Application Challenges those nonprofits for indirect costs at a rate of Q16: “What main challenges did you experience in either 15 percent, or at a higher rate that has been the application process? Select up to three:” negotiated and approved by a federal agency.16 59% Competition from other However, no such rule exists for California state organizations grants. As it currently stands, the share of indirect 35% Reimbursement-based funding costs that nonprofits can recover, unless specified in structure the authorizing statute, is determined by the state agency administering the award. SB 336 (Umberg, 29% Complex or unclear application 2024) would have allowed the state administering requirements authority to reimburse grantees for indirect costs at either the two rate options available in federal 27% Limited staff time/capacity contracts, at an existing state negotiated rate, or at a rate proposed by the grantee—whichever option the 24% Short application timeframes grantee requests. Governor Newsom vetoed the bill 22% Matching funds requirements on the grounds that it could inadvertently allocate a significant amount of grant funding toward indirect 22% Lack of communication from costs, instead of implementation.17 granting agency COMPLEX APPLICATION PROCESSES 18% Unable to meet eligibility requirements Government grant opportunities are typically reviewed based on an objective set of factors, such 12% Lack of grant writing expertise as alignment with funding priorities or organizational capability, and scored via a points system. To meet 2% None of the above evaluation criteria, some applications require extensive documentation and a meticulous adherence to complex requirements. Nonprofits were strong competition (59 percent) and the contend they spend an inordinate amount of time on reimbursement-based funding structure (35 percent). grant applications, taking resources and focus away from implementation. To support nonprofits in applying for awards, some state agencies host workshops or hire consultants These concerns were shared among survey to answer questions or provide guidance. Still, respondents. Nearly 60 percent of organizations some nonprofits argue the state should prioritize with experience managing state grants indicated simplifying applications requirements and language, they have been challenged by complex award which, they say, is especially important for smaller application processes. Further, nonprofits that have nonprofits with fewer resources or access to legal applied for—but have yet to receive—state grants expertise.18 Recent legislation would have simplified identified similar concerns. Among this group, 29 application requirements for smaller grants, percent identified complex or unclear application including by enabling applicants to complete their requirements as major barriers. However, the applications online, but both bills failed to leave the biggest challenges they said they face in applying Senate Appropriations Committee.19 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 7 Issue Brief: Survey on California State Funding for Nonprofits June 2025 LATE PAYMENTS Over half (53 percent) of respondents say they been challenged by late payments from the state, with many having faced long delays in reimbursement. Nearly one-quarter of respondents said it typically takes them more than three months to receive repayment. A little over half of respondents indicated that they waited one to three months before being paid. Nearly One-Quarter of Respondents Typically Face Reimbursement Delays Beyond Three Months Q9: How long does it typically take (in calendar days) for your organization to receive payment of your state grants after submitting an invoice? Under the Prompt Payment Act, state agencies are required to pay grants within 45 days of receipt of invoice to avoid paying late penalties. But, for nonprofits, the law only applies to grants equaling $500,000 or less. There have been a few recent legislative efforts to remove the ceiling to include all grants and contracts, as well as to set a minimum discrepancy amount. The second condition would have set a minimum threshold for when disputes can be initiated, requiring a discrepancy greater than $250 or five percent, whichever is lower, between the invoice amount and the value of the property or services actually delivered or accepted. However, these bills were vetoed over concerns about the fiscal impact on state agencies and the risk that the discrepancy threshold would incentivize paying incomplete invoices to avoid penalties.20 Most Respondents Turn to Reserve Funds to Handle Payment Delays Q12: “If you have received late payments, how has your organization handled these delays? Select all that apply:” Used reserve funds 64% Reduced programs or services 21% Took out loans/credit 21% Not applicable 20% Avoided other state funding opportunities 11% No action needed 11% Reduced staff 11% Froze or reduced employee salaries/benefits 10% 0% 10% 20% 30% 40% 50% 60% 70% LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 8 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Nonprofits typically handle payment delays in a variety of ways. Respondents most frequently reported turning to reserve funds (64 percent) to help fill the gap. Over one-fifth of organizations have needed to reduce programs (21 percent) or take out loans or lines of credit (21 percent) as they wait. Nearly Three-Quarters of Respondents Experiencing Payment Delays Report Significant Impact Q11: “If you have received late payments, how have they impacted your operations?”21 Significant Impact: 72% 6% 21% 46% 26% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% No impact Minor impact Moderate impact Severe impact Among respondents who experienced late payments, nearly three-quarters say these delays moderately to severely impacted their operations, while 27 percent experienced minor to no impact. Some respondents even reported that payment delays influenced their willingness to take on state awards in the first place, with around 39 percent saying that they refrained from applying for a state grant or contract over payment timing concerns. LACK OF REJECTION NOTICE Of the respondents who had not received any awards, one out of five said they had not been notified in any way. However, because there were relatively few respondents who answered this question, the respondents who received no notice constituted only 11 cases. The majority of respondents who had not received awards were given some form of reasonable notification from the state—either a form letter, detailed written feedback, or a meeting or call. Some Respondents Not Notified About Unsuccessful Applications Q15: When your applications were unsuccessful, what type of feedback did you typically receive? General form letter 47% No feedback or notification 22% Offered debrief meeting/call 12% Detailed written feedback 6% None of the above 8% Don’t recall 6% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 9 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Navigating Award Setbacks For nonprofits, missing out on award funding most frequently results in delaying new initiatives— an outcome reported by three-quarters of respondents following unsuccessful applications. Also common are cutbacks, with over half of respondents answering that unsuccessful applications have forced them to eliminate or reduce programs or services. Following Unsuccessful Award Applications, Nonprofits Often Postpone New Programs Q17: “How did not receiving state funding affect your organization's ability to serve your community? Select all that apply:” Delayed launching new initiatives 76% Eliminated or reduced programs/services 53% Froze or reduced employee salaries/benefits 31% Reduced staff 14% No significant impact (operations unchanged) 12% No significant impact (funding elsewhere) 8% None of the above 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% In the wake of award denials, nonprofits often turn to a mix of sources to fill their funding gaps. According to respondents, this is most commonly individual donors (55 percent) or private foundation grants (53 percent). However, not all funding is the same. Broadly speaking, private foundations are likely to offer less funding than governments, and these grants are less likely to be renewed. On the other hand, private grants are often more flexible and come with fewer reporting requirements. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 10 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Private Funding Becomes Critical When State Grants Fall Through Q18: “Did you pursue alternative funding sources after not receiving state funding? If so, which sources did you pursue? Select all that apply:” Individual donors 55% Private foundation grants 53% Fundraising events 41% Local government funding 37% Corporate sponsors/donations 33% Fee-for-service activities 24% Loans or lines of credit 22% Federal grants 20% Did not pursue alternative funding 2% 0% 10% 20% 30% 40% 50% 60% Potential Areas for Nonprofits Say They Would Benefit Improvement Identified Most From Upfront Payments and by Nonprofits Simplified Processes Q20: Which changes would most help your To make the award application and organization apply for and/or manage grants or management processes easier, over half of contracts? Select up to four: respondents maintained they would benefit 58% Full or partial upfront payments from full or partial payments (58 percent), simplified application processes (55 percent) 55% Simplified application process and reporting requirements (55 percent), as 55% Simplified reporting requirements well as higher indirect cost rates (53 percent). 53% Higher indirect cost rates However, the specific improvements 44% Faster reimbursement processing nonprofits preferred at times differed depending on the type of respondent. 27% Electronic payment options For example, those that went through the 22% Improved agency communication application process but have yet to receive awards were more likely to report benefiting 14% Extended application deadlines from support-based resources, such as 13% Online invoicing additional training and improved agency communication, while nonprofits with 9% Additional training resources experience managing state grants were more 1% Multi-language support likely to select funding-based improvements, such as higher indirect cost rates and faster- 2% None of the above reimbursement processing. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 11 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Nonprofits to Persist Despite Funding Challenges A majority (83 percent) of respondents noted they would still likely pursue state funding opportunities in the future, although nonprofits that have received state awards (87 percent) are far more likely to say they would do so, as compared to those who have not yet received awards (64 percent). Nonprofits Maintain Still Likely to Purse Future State Funding Opportunities Q21: “How likely are you to pursue future state funding opportunities based on your past experience?” Likely to Pursue: 83% 3% 7% 8% 31% 52% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Very unlikely Somewhat unlikely Neither likely nor unlikely Somewhat likely Very likely LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 12 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Appendix A: A Profile of Respondents This Appendix outlines the characteristics of nonprofit respondents, highlighting their focus areas, the types of communities served, state award application experience, size, and reliance on state funding.22 The Commission requested that respondents provide only one survey response per organization. FOCUS AREAS Human services-focused organizations represent the largest share of nonprofits in our survey, comprising nearly a third of respondents. Additionally, this share may be even higher when including housing and homelessness (8 percent), which sometimes fall within the human services subsector. Nonprofits centered on public/societal benefits are the second largest subsector at 18 percent, while other categories are smaller in comparison, with no single subsector exceeding 12 percent. Some focus areas—such as international affairs (0.4 percent) and religion (one percent)— have minimal representation in our survey. One-Third of Nonprofit Respondents Focus Primarily on Human Services Q1: “What is your organization's primary focus?” 31% Human Services Public/Societal Benefit 8% Arts & Culture Environment & Animals 18% 10% Healthcare (Physical and/or Mental) Other 10% Housing/Homelessness 12% 10% Other: Unknown/unclassified (8%), Higher Education (1%), Religion (1%), and International Affairs (0.4%). SERVICE AREAS Respondents serve a range of communities across the state. Most provide services in urban areas (67 percent), while many also work in suburban (53 percent), and rural (46 percent) communities. While more than half focus on a single region, approximately 44 percent serve multiple regions. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 13 Issue Brief: Survey on California State Funding for Nonprofits June 2025 FAMILIARITY WITH THE AWARD APPLICATION PROCESS Most nonprofits reported having at least moderate experience with the state award application process. A little more than two-thirds (68 percent) said they have secured or applied for between two and 10 awards.23 Most Respondents Report At Least Moderate Experience With State Award Applications Q6 & Q13: How many state grants or contracts did your organization secure/apply for in the past five years? 16% 68% 15% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1 2 to 10 More than 10 Don't know SIZE Nearly half of respondents (45 percent) who have not received any state awards are micro nonprofits, with an annual budget of $250,000 or less. Only 14 percent of respondents received awards that small. Two out of three respondents (69 percent) who had received awards reported a budget of at least $1 million.24 Similarly, organizations with larger staffs were more likely to have received awards. For example, about a quarter (27 percent) of organizations that have received awards employ 50 or more workers, compared to just nine percent of organizations that have never received an award. Micro-Nonprofits Are Less Likely to Receive State Awards Q3: “What was your organization’s annual budget in FY 2023-24?” 100% 10% 90% 18% 4% 80% Large+ 18% 14% ($10 million+) 70% Mid-Size 60% ($5.1 to $10 million) 24% 50% 37% Small ($1 to $5 million) 40% Grassroots 30% ($250k to $1 million) 17% 45% 20% Micro 10% (<= $250k) 14% 0% Received Awards Not Yet Received Awards LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 14 Issue Brief: Survey on California State Funding for Nonprofits June 2025 RELIANCE ON STATE FUNDS A small share of respondents said that state government awards are their primary source of revenue, with 14 percent reporting that government awards constitute at least three-quarters of their budget. Almost half (44 percent) said state awards comprise no more than a quarter of their budget. Nearly One-Third of Nonprofits Report State Funding Comprises Over Half Their Budget Q7: What percentage of your overall budget consists of state funding? 2% High Dependence (76% to 100%) 14% Moderate Dependence (51% to 75%) Low Dependence 16% (26% to 50%) 44% Minimal Dependence (0% to 25%) Don't Know 24% LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 15 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Appendix B: Survey Methodology and Questions The Little Hoover Commission partnered with the California Association of Nonprofits (CalNonprofits)—a statewide policy alliance of more than 10,000 organizations, which advocates for California’s nonprofit community—to help distribute the survey to its nonprofit members. The survey was first sent to members signed up to CalNonprofits’ email list on Thursday, January 9, 2025 and it was open until Friday, January 31, 2025. The Commission requested that respondents provide only one response per organization. A total of 394 responses were received. Those who have experience receiving state grants and contracts (“awardees”) responded to a maximum of 15 questions, while those who have applied by not yet received state awards (“applicants”) responded to a maximum of 14 questions. An additional subset of respondents (“other”) answered that they have either not yet applied or do not know if they have applied for state awards, or skipped question five altogether. This question asks respondents whether they have applied for any state grants or contracts in the past five years. This third group responded to a maximum of five questions. Below are the questions asked in the survey: Respondents % # Awardees 58% 229 Applicants 13% 51 Other: Haven't applied/Don’t Know/Exited Survey at Q5 29% 114 All Responses (Total) 100% 394 Q1. What is your organization’s primary focus? Awardees Applicants Other All Responses % # % # % # % # Arts & Culture 11.5% 26 13.7% 7 13.9% 14 12.1% 47 Higher Education 1.3% 3 2.0% 1 7.7% 6 2.6% 10 Environment & Animals 11.5% 26 3.9% 2 1.5% 7 9.0% 35 Healthcare (Physical and/or Mental) 8.4% 19 17.7% 9 1.5% 8 9.2% 36 Human Services 35.2% 80 13.7% 7 24.6% 29 29.7% 116 International Affairs 0.0% 0 2.0% 1 0.0% 0 0.3% 1 Religious 0.4% 1 3.9% 2 4.6% 3 1.5% 6 Public/Societal Benefit 16.7% 38 23.5% 12 27.7% 24 19.0% 74 Housing/Homelessness 6.6% 15 15.7% 8 9.2% 8 8.0% 31 Unknown, unclassified 8.4% 19 3.9% 2 9.2% 13 8.7% 34 Answered 227 51 112 390 Skipped 2 0 2 4 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 16 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Q2. What best describes your service area? Select all that apply. Awardees Applicants Other All Responses % # % # % # % # Urban Only 27.2% 62 31.4% 16 28.6% 30 28.1% 108 Urban, Suburban, and Rural 20.2% 46 31.4% 16 20.0% 21 21.6% 83 Rural Only 17.5% 40 9.8% 5 14.3% 15 15.6% 60 Urban and Suburban 15.8% 36 9.8% 5 6.7% 7 12.5% 48 Suburban Only 11.0% 25 13.7% 7 24.8% 26 15.1% 58 Suburban and Rural 5.3% 12 3.9% 2 2.9% 3 4.4% 17 Urban and Rural 3.1% 7 0.0% 0 2.9% 3 2.6% 10 Answered 228 51 105 384 Skipped 1 0 9 10 Q3. What was your organization’s annual budget in FY 2023-24? Awardees Applicants Other All Responses % # % # % # % # $50,000 and below 3.5% 8 23.5% 12 25.5% 25 11.9% 45 $50,001 to $250,000 10.5% 24 21.6% 11 15.3% 15 13.3% 50 $250,001 to $1,000,000 17.1% 39 23.5% 12 11.2% 11 16.5% 62 $1,000,001 to $5,000,000 36.8% 84 17.7% 9 23.5% 23 30.8% 116 $5,000,001 and $10,000,000 13.6% 31 3.9% 2 8.2% 8 10.9% 41 $10,000,001 and above 18.4% 42 9.8% 5 9.2% 9 14.9% 56 Don’t know 0.0% 0 0.0% 0 7.1% 7 1.9% 7 Answered 228 51 98 377 Skipped 1 0 16 17 Q4. How many people work or volunteer with your organization? Enter 0 if none or leave blank if unknown: Awardees 0 1 to 9 10 to 49 50 to 249 250+ (#/%) Volunteers Volunteers Volunteers Volunteers Volunteers 0 Staff 0/0.0% 1/0.5% 4/2.2% 1/0.5% 0/0.0% 1 to 9 Staff 1/0.5% 23/12.4% 20/10.8% 11/5.9% 1/0.5% 10 to 49 Staff 9/4.8% 17/9.1% 24/12.9% 15/8.1% 8/4.3% 50 to 249 Staff 3/1.6% 3/1.6% 11/5.9% 11/5.9% 11/5.9% 250+ Staff 2/1.1% 1/0.5% 4/2.2% 1/0.5% 4/2.2% Answered 186 Skipped 43 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 17 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Applicants 0 1 to 9 10 to 49 50 to 249 250+ (#/%) Volunteers Volunteers Volunteers Volunteers Volunteers 0 Staff 1/2.3% 4/9.1% 2/4.5% 1/2.3% 0/0.0% 1 to 9 Staff 2/4.5% 5/11.4% 8/18.2% 2/4.5% 1/2.3% 10 to 49 Staff 1/2.3% 5/11.4% 4/9.1% 4/9.1% 0/0.0% 50 to 249 Staff 0/0.0% 1/2.3% 0/0.0% 0/0% 1/2.3% 250+ Staff 0/0.0% 0/0.0% 0/0.0% 2/4.5% 0/0.0% Answered 44 Skipped 7 Other 0 1 to 9 10 to 49 50 to 249 250+ (#/%) Volunteers Volunteers Volunteers Volunteers Volunteers 0 Staff 2/3.9% 7/13.7% 3/5.9% 1/2% 2/3.9% 1 to 9 Staff 0/0.0% 7/13.7% 10/19.6% 5/9.8% 1/2.0% 10 to 49 Staff 1/2.0% 4/7.8% 3/5.9% 0/0.0% 0/0.0% 50 to 249 Staff 0/0.0% 1/2.0% 1/2.0% 0/0.0% 1/2.0% 250+ Staff 0/0.0% 0/0.0% 0/0.0% 0/0.0% 2/3.9% Answered 51 Skipped 63 All 0 1 to 9 10 to 49 50 to 249 250+ (#/%) Volunteers Volunteers Volunteers Volunteers Volunteers 0 Staff 3/1.1% 12/4.3% 9/3.2% 3/1.1% 2/0.7% 1 to 9 Staff 3/1.1% 35/12.5% 38/13.5% 18/6.4% 3/1.1% 10 to 49 Staff 11/3.9% 26/9.3% 31/11% 19/6.8% 8/2.8% 50 to 249 Staff 3/1.1% 5/1.8% 12/4.3% 11/3.9% 13/4.6% 250+ Staff 2/0.7% 1/0.4% 4/1.4% 3/1.1% 6/2.1% Answered 281 Skipped 113 Q5. Did your organization apply for any state grants or contracts in the past five years? Awardees Applicants Other All Responses % # % # % # % # Applied for and received state 100% 229 0% 0 0.0% 0 66.2% 229 grants or contracts Applied for state grants or 0% 0 100% 51 0.0% 0 14.7% 51 contracts but did not receive any Not applied for state grants or 0% 0 0% 0 89.4% 59 17.1% 59 contracts Don't know 0% 0 0% 0 10.6% 7 2.0% 7 Answered 229 51 66 346 Skipped 0 0 48 48 Note: Question five was mandatory. Respondents who did not answer or selected “No” or ”Don’t know” exited the survey. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 18 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Q6. How many state grants or contracts did your Q9. How long does it typically take (in calendar organization secure in the past five years? days) for your organization to receive payment of your state grants after submitting an invoice? Awardees % # Awardees % # 1 14.1% 32 1 to 30 days 10.2% 22 2 to 10 67.4% 153 31 to 90 days 54.9% 118 More than 10 16.7% 38 91+ days 22.8% 49 Don't know 1.8% 4 Don’t know 12.1% 26 Answered 227 Answered 215 Skipped 2 Skipped 14 Q7. What percentage of your overall budget consists of state funding? Q10. Which of the following challenges has your organization faced when managing state grants Awardees % # or contracts? Select all that apply: 0% to 25% 43.7% 97 Awardees % # 26% to 50% 24.3% 54 Burdensome reporting requirements 65.3% 139 51% to 75% 15.8% 35 Insufficient funding for indirect costs 59.6% 127 76% to 100% 14.0% 31 Complex application process 58.2% 124 Don't know 2.3% 5 Late payments 53.1% 113 Answered 222 Insufficient funding for program costs 52.1% 111 Skipped 7 Extended contract negotiation periods 32.9% 70 Unexpected agreement changes 27.2% 58 None of these challenges 6.1% 13 Q8. Have you ever received any state grant or Answered 213 contract that included any upfront payment, Skipped 16 rather than reimbursement? Awardees % # Yes 53.2% 118 Q11. If you have received late payments, how No 39.2% 87 have they impacted your operations? Don't know 7.7% 17 Awardees % # Answered 222 No impact 6.5% 11 Skipped 7 Minor impact 21.2% 36 Moderate impact 46.5% 79 Severe impact 25.9% 44 Not applicable 42 Answered 212 Applicable (answered - not applicable) 170 Skipped 17 Note: Percentages in question 11 are calculated from the 170 nonprofits for which late payments are applicable. LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 19 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Q12. If you have received late payments, how has Q15. When your applications were unsuccessful, your organization handled these delays? Select all what type of feedback did you typically receive? that apply: Applicants % # Awardees % # General form letter with no specific 47.1% 24 Used reserve funds 64.3% 135 feedback Reduced programs or services 21.0% 44 No feedback or notification received 21.6% 11 Took out loans/credit 21.0% 44 Offered debrief meeting/call 11.8% 6 Not applicable 20.0% 42 Detailed written feedback explaining 5.9% 3 scoring and areas for improvement Decided not to pursue other state 11.4% 24 funding or contract opportunities Don’t recall 5.9% 3 No action needed 11.4% 24 None of the above 7.8% 4 Reduced staff 11.0% 23 Answered 51 Froze or reduced employee salaries/ 9.5% 20 Skipped 0 benefits Answered 210 Skipped 19 Q16. What main challenges did you experience in the application process? Select up to three: Applicants % # Competition from other 58.8% 30 Q13. How many state grants or contracts has your organizations organization applied for in the past five years? Reimbursement-based funding 35.3% 18 Applicants % # structure 1 25.5% 13 Complex or unclear application 29.4% 15 2 to 10 68.6% 35 requirements More than 10 5.9% 3 Limited staff time/capacity 27.5% 14 Don’t know 0.0% 0 Short application timeframes 23.5% 12 Answered 51 Lack of communication from 21.6% 11 granting agency Skipped 0 Matching funds requirements 21.6% 11 Unable to meet eligibility 17.7% 9 Q14. What stage of the application process did requirements you typically reach? Lack of grant writing expertise 11.8% 6 None of the above 2.0% 1 Applicants % # Answered 51 Discovery of grant/contract 3.9% 2 Skipped 0 Full application review 0.0% 0 Proposal development 7.8% 4 Application submission 31.4% 16 Waiting period 11.8% 6 Rejection notice 45.1% 23 Answered 51 Skipped 0 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 20 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Q17. How did not receiving state funding affect your organization’s ability to serve your community? Select all that apply: Applicants % # Delayed launching new initiatives 76.5% 39 Eliminated or reduced programs/services 52.9% 27 Froze or reduced employee salaries/benefits 31.4% 16 Reduced staff 13.7% 7 No significant impact – maintained operations without changes 11.8% 6 No significant impact – received funding elsewhere 7.8% 4 None of the above 2.0% 1 Answered 51 Skipped 0 Q18. Did you pursue alternative funding sources after not receiving state funding? If so, which sources did you pursue? Select all that apply: Applicants % # Individual donors 54.9% 28 Private foundation grants 52.9% 27 Fundraising events 41.2% 21 Local government funding 37.3% 19 Corporate sponsors/donations 33.3% 17 Fee-for-service activities 23.5% 12 Loans or lines of credit 21.6% 11 Federal grants 19.6% 10 Did not pursue alternative funding 2.0% 1 Answered 51 Skipped 0 Note: Questions 19 to 22 show “skipped” responses for two groups: those who did not complete mandatory question five and those whose answers to question five directed them to exit the survey. Q19. Have you chosen not to apply for a state grant or contract due to any of the following concerns? Select all that apply: Awardees Applicants All Responses % # % # % # Administrative/reporting requirements 65.6% 99 54.8% 23 63.2% 122 Matching funds requirement 58.3% 88 59.5% 25 58.6% 113 Concerns about payment timing 36.4% 55 50.0% 21 39.4% 76 Answered 151 42 193 Skipped 78 9 201 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 21 Issue Brief: Survey on California State Funding for Nonprofits June 2025 Q20. Which changes would most help your organization apply for and/or manage grants or contracts? Select up to four: Awardees Applicants All Responses % # % # % # Full or partial upfront payments 60.2% 127 51.0% 26 58.4% 153 Simplified application process 55.0% 116 56.9% 29 55.3% 145 Simplified reporting requirements 57.8% 122 43.1% 22 55.0% 144 Higher indirect cost rates 56.9% 120 37.3% 19 53.1% 139 Faster reimbursement processing 47.4% 100 27.5% 14 43.5% 114 Electronic payment options 30.3% 64 13.7% 7 27.1% 71 Improved agency communication 18.5% 39 35.3% 18 21.8% 57 Additional training resources 5.2% 11 25.5% 13 9.2% 24 Online invoicing 12.3% 26 13.7% 7 12.6% 33 Extended application deadlines 14.2% 30 13.7% 7 14.1% 37 Multi-language support 1.0% 2 0.0% 0 0.8% 2 None of the above 1.0% 2 5.9% 3 1.9% 5 Answered 211 51 262 Skipped 18 0 132 Q21. How likely are you to pursue future state funding opportunities based on your past experience? Awardees Applicants All Responses % # % # % # Very likely 56.9% 119 30.0% 15 51.7% 134 Somewhat likely 30.1% 63 34.0% 17 30.9% 80 Neither likely nor unlikely 5.7% 12 16.0% 8 7.7% 20 Somewhat unlikely 5.3% 11 12.0% 6 6.6% 17 Very unlikely 1.9% 4 8.0% 4 3.1% 8 Answered 209 50 259 Skipped 20 1 135 Q22. Do you have any additional comments or concerns you would like to share? Please limit your response to 500 characters or less: Awardees Applicants All Responses % # % # % # Answered 44.5% 102 45.1% 23 44.6% 125 Skipped 55.5% 127 54.9% 28 96.1% 269 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 22 Issue Brief: Survey on California State Funding for Nonprofits June 2025 beyond-crisis-long-term-approach-reduce-prevent-and-recover-in- Notes timate-partner-violence/. Also, “Implementation Review: Intimate Partner Violence.” [Report #277]. December 2023. https://lhc. 1. CalNonprofits. “Causes Count: The Economic Power of California’s ca.gov/report/implementation-review-intimate-partner-violence/. Nonprofit Sector.” 2019. https://calnonprofits.org/wp-content/up- 15. Entities includes boards, commissions, conservancies, councils, loads/2022/11/CausesCount-NewFindings-2019.pdf. agencies, departments, and offices. Source: AB 2252 (Limón), 2. The mission must serve religious, charitable, scientific, public Chapter 318, Statutes of 2018. Also, California State Library. “A safety, literacy, educational, prevention of cruelty to children or New Way to Find Grants.” July 15, 2020. https://www.grants. animals, or developing national or international sports interests. ca.gov/a-new-way-to-find-grants/. Also, California State Library. “Annual Report – July 2023-24.” https://www.grants.ca.gov/annu- 3. Cornell Law School Legal Information Institute. “Non-Profit Organi- al-report-july-2023-2024/. zations.” Accessed October 9, 2024. https://www.law.cornell.edu/ wex/non-profit_organizations. 16. National Council of Nonprofits. “OMB Uniform Guidance Final Rule.” April 4, 2024. https://www.councilofnonprofits.org/files/ 4. California Department of Justice Charitable Trusts Sections. “Attor- media/documents/2024/ncn-analysis-omb-uniform-guidance-fi- ney General’s Guide for Charities.” Page 13. Accessed October 9, nal-rule-2024.pdf. 2024. https://oag.ca.gov/sites/all/files/agweb/pdfs/charities/publi- cations/guide_for_charities.pdf. 17. SB 336 (Umberg, 2024). Office of Governor Gavin Newsom. SB 336 Veto Message. September 29, 2024. https://www.gov.ca.gov/ 5. CalNonprofits counts 110,549 California 501(c)(3)s using Internal wp-content/uploads/2024/09/SB-336-Veto-Message.pdf. Revenue Service data that includes all registered organizations regardless of activity level. California’s Employment Development 18. CalNonprofits. “A Nonprofit’s Guide to Getting Your First Gov- Department gathers their figures from state employment tax ernment Grant.” https://calnonprofits.org/wp-content/up- filings, including primarily active employers. Source: CalNonprof- loads/2024/03/Nonprofits-Getting-Your-First-Government-Grant- its. See endnote 1. Also, California Employment Development Guide.pdf. Also, CalNonprofits, “Improving nonprofit-government Department. California Nonprofit Employers – Key Findings in contracting will benefit communities across California.” October 2024 3rd Quarter. https://labormarketinfo.edd.ca.gov/data/califor- 2022. https://web.archive.org/web/20230329113628/https://cal- nia-nonprofit-employers.html. nonprofits.org/images/CA_Contract_Coalition_Letter_10-22.pdf. 6. CalNonprofits. See endnote 1. Also, Strategic Growth Council. 19. AB 860 (Valencia, 2023). Also, AB 2322 (Hart, 2024). Technical Assistance Toolkit: Contracting Guidance. https://sgc. 20. SB 1246 (Limón, 2024). Also SB 557 (Limón, 2023). Also, Office of ca.gov/technical-assistance/toolkit/contracting-guidance.html. Governor Gavin Newsom. SB 1246 Veto Message. September 28, 7. CalNonprofits. “California Nonprofit Equity Initiative.” https://cal- 2024. https://www.gov.ca.gov/wp-content/uploads/2024/09/SB- nonprofits.org/california-nonprofit-equity-initiative/. 1246-Veto-Message.pdf. Also, Office of Governor Gavin Newsom. SB 557 Veto Message. October 8, 2023. https://www.gov.ca.gov/ 8. Little Hoover Commission. “Intimate Partner Violence: Getting wp-content/uploads/2023/10/SB-557-VETO.pdf. the Money to Those on the Front Line.” [Report #249]. May 2020. https://lhc.ca.gov/report/intimate-partner-violence-getting-mon- 21. Percentages calculated from the 170 nonprofits for which late ey-those-front-line/. payments are applicable. 9. AB 673 (Salas), Chapter 680, Statutes of 2021. 22. This analysis includes only respondents who have received or applied for state awards, excluding those who have not applied or 10. AB 1956 (Limón). Chapter 632, Statutes of 2018. Also, AB 1530 did not finish the survey. Also, percentages are rounded to whole (Gonzalez). Chapter 720, Statutes of 2017. numbers in the main text and one decimal place in the Appendix, which may create apparent inconsistencies. 11. California Department of Forestry and Fire Protection. “Advance Payment Report: Forest Health and Wildfire Prevention Grants.” 23. These numbers likely underestimate the experience of nonprofits https://bit.ly/3DjgqjE. with the award application process, as they have likely applied for other awards they did not receive. 12. AB 590 (Hart), Chapter 535, Statutes of 2023. 24. Size segment definitions vary by organization. The Commission 13. AB 2322 (Bennett & Hart, 2024) would have streamlined appli- used: Micro (< $250k), Grassroots ($250k to $1M), Small ($1 to cation and reporting requirements and allowed 100 percent $5M), Mid-Size ($5.1 to $10M), and Large+ ($10M+). Organisation advance payments for grants of $20,000 or less. AB 860 (Valencia, for Economic Co-operation and Development. Employees by 2023) would have for grant programs totaling $200,000. business size. https://www.oecd.org/en/data/indicators/employ- ees-by-business-size.html. Also, Karen Zapp’s Nonprofit Blog. 14. Little Hoover Commission. “Beyond the Crisis: A Long-Term “Votes Tallied. Classifications of Small, Medium & Large Nonprofits Approach to Reduce, Prevent, and Recover from Intimate Partner Set.” https://pkscribe.com/nonprofit_news/votes-tallied-classifica- Violence.” [Report #256]. January 2021. https://lhc.ca.gov/report/ tions-of-small-medium-large-nonprofits-set/. Issue Brief: Survey on California State Funding for Nonprofits June 2025 (916) 445-2125 | LittleHoover@lhc.ca.gov 925 L Street, Suite 805, Sacramento, CA 95814 LITTLE HOOVER COMMISSION WWW.LHC.CA.GOV | 23