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HomeMy WebLinkAboutStaff Report 2501-4038CITY OF PALO ALTO Policy & Services Committee Special Meeting Tuesday, February 11, 2025 7:00 PM     Agenda Item     3.Nonprofit Partnerships Workplan: Phased Approach Late Packet Report, Staff Presentation Policy & Services Committee Staff Report From: City Manager Report Type: ACTION ITEMS Lead Department: City Manager Meeting Date: February 11, 2025 Report #:2501-4038 TITLE Nonprofit Partnerships Workplan: Phased Approach RECOMMENDATION Staff recommends the Policy & Services Committee review and recommend City Council approval of a phased approach to enhancing nonprofits partnerships, beginning with process improvements for nonprofit requests for funding through the FY 2026 City Budget process, which fall outside currently-established funding processes. BACKGROUND In June 2022, the Policy and Services Committee received a report from the City Auditor focused on identifying risks related to nonprofit agreements and provided corresponding recommendations for improvement.1 Key recommendations included defining clear service level expectations and performance management and evaluation on all nonprofit and lease agreements, as well as quantifying non-monetary support to determine appropriate compensation for nonprofits’ use of City-owned properties. The City of Palo Alto’s nonprofit partnerships play a vital role in delivering essential community services, yet the existing policies and processes for managing these relationships lacks consistency, transparency, and accountability. The absence of standardized service level agreements, performance metrics, and predictable funding processes has resulted in inefficiencies and unclear expectations for both the City and nonprofit partners. Additionally, the need for flexibility in funding emerging needs must be balanced with long-term stability for nonprofit organizations. The nonprofit partnership workplan seeks to establish a clear framework that aligns nonprofit partnerships with Council priorities, ensures fairness and 1 June 14, 2022, Policy and Services Committee Meeting: https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=6282&compileOutputType= 1 inclusion in resource allocation, and strengthens financial and performance accountability while maintaining the agility to respond to evolving community needs. On October 28, 2024, the Council held a study session to provide feedback on a framework for strengthening the City’s practices in nonprofit partnership engagement, funding, support, and evaluation.2 The framework laid out a set of foundational principles that reflect fundamental goals and values that guide the establishment and pursuit of partnerships. Through their discussion, the Council provided feedback on principles presented, revised accordingly here: 1.Impact-oriented Focus and Accountability: Partnerships will identify intended outcomes and prioritize unmet needs, and incorporate appropriate measures and reporting, while reflecting the nature of the engagements and avoiding unnecessary administrative processes. 2.Service Alignment: Programs and services should align with the Council's priorities and identified community needs. 3.Fairness, Open Access, Equity, and Inclusion: The City will maintain visibility and consistency in its partnership processes, to both the nonprofit community and public at large. Resource allocations will consider and prioritize accessibility of the resulting services to all community members, with particular attention to underserved and vulnerable populations. 4.Flexibility for Special Circumstances: The City Council will need the ability to act quickly when needed to respond to special circumstances. As discussed at the study session, next steps would include returning to Council with recommendations for policy adjustments and new process and procedures. The Council provided feedback that the refinement of the principles happen at the Policy and Services Committee. Given that developing and implementing the workplan will take time, staff recommends a phased approach with a near-term goal of establishing an initial process improvement in time for the FY 2026 budget process. ANALYSIS Staff recommends that the Policy and Services Committee recommend an initial phase of process improvements for nonprofit requests for funding in the FY 2026 City Budget, which fall outside currently established funding processes. This would be similar to a grant program. Recognizing that actual submissions may vary widely in nature and amount of funding requested, this proposed first phase would set general expectations in alignment with the principles discussed above. 2 October 28, 2024, Council Study Session: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=14449 Staff seeks Committee feedback and a recommendation on whether to proceed with a phased approach to implementing the nonprofit partnership workplan as proposed. Each year, the Council receives a handful of nonprofit funding requests through the City’s annual budget. Unlike grants requested through the City’s Human Services Resource Allocation Program (HSRAP) or Community Development Block Grant (CDBG) processes, requests to the City’s budget have varying levels of clarity and justification. Further, there is currently no method for evaluating nor reviewing such requests beyond ad hoc consideration at the Finance Committee and/or full City Council. To address this gap, staff proposes taking a first step toward the overall goals of clarity in nonprofit partnerships through the upcoming budget cycle. This would be accomplished by establishing a process through which any nonprofit funding provided through the FY 2026 budget would adhere to the principles stated above. The remainder of this report details a proposal for how this can be accomplished. For ease in reference, this proposal is referred to as the “Nonprofit Partnerships Workplan Phase 1” or NPW Phase 1. Should the City Council agree to proceed with this approach, staff can develop a more intuitive title for this program. A key dimension of NPW Phase 1 would be to require that any nonprofit request for funding through the City budget process be submitted in a form and timeframe that would enable transparent and timely review. Recognizing that the FY2026 budget process will occur within the next few months, the proposed Phase 1 process would consist of the following elements: 1.Funding Availability - Determine and communicate the total funding expected to be available, as well as funding sources to the extent affecting eligible uses. 2.Eligibility and Criteria - Define any qualifications required to be eligible for funding. 3.Application and Evaluation Process and Timeframe – Establish and communicate a clear process for submitting and reviewing requests that nonprofits can reasonably participate in. 4.Monitoring and Reporting - Set as applicable any requirements for tracking use of funds, outcomes, and associated responsibilities. As a starting point for the Policy & Services Committee and Council consideration, staff has prepared suggestions under each of the elements. 1. Funding Availability While recognizing that a specific funding target for nonprofits has not yet been set by the City Council, action from last year’s budget process3 provides a starting place for NPW Phase 1 funding availability: A “City Events and Programming” line item was established with ongoing funding of $235,000. These funds have not been committed to specific nonprofits for FY 2026 or beyond, though a portion has been envisioned to support community event contribution requests. Staff would recommend that if used to advance the nonprofit partnerships workplan, $50,000 be allocated for community events and $185,000 be allocated more broadly for nonprofits under NPW Phase 1. The $50,000 would be available for grants similar to Know Your Neighbors grants, but for city- wide events planned by community members or local organizations for the benefit of the entire community at up to $5,000 per event. Funding would be allocated to qualifying proposers on a first-come-first-served basis. The Community Services Department is developing a grant process to distribute these funds. The remaining $185,000 would be available through NPW Phase 1, and available through the process description that follows. As the FY 2026 budget picture comes into focus, the City Council may wish to modify this amount based on funding availability. The planned Mid-Year Budget review on February 24, 2025 will provide the next opportunity to consider the overall fiscal context. 2. Eligibility and Criteria Eligibility. As the Committee explores this element, consideration should be given to applicant eligibility. Historically, requests for funding have come from a range of organizations including educational institutions and grassroots groups, many of which are nonprofits but not necessarily so. For FY 2025, the funding proposed to be used for NPW Phase 1 was allocated to one-time funding for the following organizations: United Nations Association Film Festival ($45,000), 3rd Thursdays ($40,000), Magical Bridge ($150,000), and Environmental Volunteers Foothills Nature Preserve ($11,000). While the FY 2025 allocations were categorized as city events and programming, staff is recommending that NPW Phase 1 specify that ALL requests for direct funding through the City budget follow the submittal process described here. Should the Committee and City Council wish to limit requests to specific uses (such as city events and programming) or continue the FY 2025 allocations, the funding availability and/or eligibility should be adjusted accordingly. 3 FY 2025 Budget Adoption June 17, 2024: https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=5334&meetingTemplateType=2&comp iledMeetingDocumentId=10470 In evaluating equity and access to funding, eligibility criteria could consider prior City funding received. Should existing grantees have the same level of access as new applicants? Should awardees be eligible to apply annually? Best practices in grant eligibility and access often address the question of balance between new and prior recipients. This includes ensuring fairness and access for new applicants-allowing for innovative programs and service delivery- while also considering the sustainability and continuity for existing grantees. Additionally, a nonprofit’s budget should reflect a diverse funding portfolio to reduce financial risk and ensure long-term sustainability. Given that NPW Phase 1 is a new concept, staff would recommend that prior grantees be eligible to receive funding and would be considered along with any new requests. However, staff recommends this should be revisited in the next year of funding. Criteria. Community grants are often evaluated by the expected service and value to the community, often referred to as public benefit; however, public benefit can be subjective and challenging to define and measure. One way to approach this discussion is to focus on aligning the program to Council Priorities. The Adopted 2025 Priorities are: Implementing Housing Strategies for Social & Economic Balance Climate Action and Adaptation, & Natural Environment Protection Economic Development & Retail Vibrancy Public Safety, Wellness & Belonging Other best practices to consider when evaluating requests are: Community reach- such as number of Palo Alto residents served. Equity impact- assess whether the organization serves underserved or underrepresented groups, if applicable. Alignment with goals- evaluate whether service/program aligns with Council Priorities. Program/service delivery- assess nonprofit’s capacity to deliver on program/service goals. New or existing grantee- does the organizational currently receive funds from the City and/or have a pending application through an established process? Should this funding be reserved for new organizations and initiatives? Or be limited to the number of consecutive years it can be awarded? Existing City process/program- is there an established program/process in place that could accommodate the request? Funding type- should the grant be considered for start-up seed money, capital projects, or limited to established programs or services? Funding/service alignment with other jurisdictions- is the program more aligned with services provided by the county or state? Acknowledging that the City already provides substantial grants to various social services and operates with limited resources, it is important to stay focused and clear on the goal and purpose of this grant program to maximize its effectiveness. Staff will use the criteria recommended by the Committee and approved by the City Council to develop an application form that identifies the information required from applicants in order to evaluate the relative impact of each application to meet the stated criteria. Again, as NPW Phase 1 is a new concept, staff recommends that the information and time required from applicants be minimized while providing the data needed to enable informed City Council decision-making. For example, the application form could allow for a narrative description of how a proposal advances Council priorities, limited to one page. 3. Application and Evaluation Process and Timeframe Application. Establishing NPW Phase 1 in time for the FY 2026 budget cycle will require expedited action by the Committee and City Council in order to provide clear guidance to nonprofit organizations enabling them to provide the information required, then ultimately City Council approval of funding allocations by June 2025. As envisioned at this point, funding would be available for the period July 1, 2025 – June 30, 2026. While this timeframe may not be ideal for all requests, it would establish a baseline process that could be expanded on in the future. Evaluation. Once an application process is defined, a corresponding evaluation process must also be established. This would implement the evaluation criteria. At this point, given the wide range of potential applicants, staff would propose that NPW Phase 1 funding be open to all 501c(3) nonprofit organizations. Similarly, given the range of potential applications staff has not developed proposed evaluation criteria, other than providing guidance on best practices referenced above. Should the Committee and City Council wish to focus potential applicants, staff can develop guidance and an evaluation process accordingly based on the available timeframe. A question for the Committee and City Council is the evaluation process. This could range from full City Council review and selection of proposals to Finance Committee evaluation, to establishment of an advisory body to develop recommendations. Recognizing the limited time available for the upcoming budget cycle, at this point staff is proposing the City Council review proposals and award grants directly. The City Council may also wish to specify any other procedural steps, such as the timing and method of disclosures on relationships with the nonprofits applying for funding. In determining what needs to be provided in a proposal for evaluation, a best practice to consider is establishing funding thresholds that would scale evaluation needs, for example smaller requests could be approved relatively quickly if they meet the defined criteria. As such, should the Committee and City Council wish to place a dollar limit on potential grants, staff would recommend streamlining the application and review process accordingly. Timeframe. In order to integrate with the FY 2026 budget calendar, the following outlines a potential timeframe for implementation of NPW Phase 1. Staff notes that this is an ambitious timeframe, which reinforces the importance of a streamlined process to the extent possible: Option 1. Action Date P&S recommendation to proceed with NPW Phase 1 March 11 City Council approval to proceed with NPW Phase 1 March 24 City release of a Notice of Funding Availability to local Nonprofits April 1 Proposals for funding due from Nonprofits May 9 City Council approval of funding awards June 2 City Council budget adoption includes funding appropriation and grantees June 16 Alternatively, the Committee and City Council could consider determining the funding available as part of the FY 2026 budget, then awarding the grants after budget adoption. This would provide nonprofits with more notice and a longer application period. The revised timeframe would reflect the following: Option 2. Action Date P&S recommendation to proceed with NPW Phase 1 March 11 City Council approval to proceed with NPW Phase 1 April 14 City release of a Notice of Funding Availability to local Nonprofits (90 days)May 1 Budget adoption includes funding allocation for NPW Phase 1 implementation June 16 Proposals for funding due from Nonprofits July 30 City Council reviews and approves funding awards August 25 4. Monitoring and Reporting One of the areas identified for improvement by the 2022 Nonprofit Audit Report is how the City measures nonprofit partnership effectiveness through monitoring and reporting requirements. Considering the nature of NPW Phase 1, a scaled approach to service outcomes and reporting requirements should be evaluated, as this would affect the level of detail expected on applications and responsibilities of grantees. This may also affect nonprofit organizations’ decision to apply for funding, so should be considered up-front. It is considered a best practice to require expenditure reporting for all grant funding, including one-time small grant awards, particularly if the goal is to ensure accountability and transparency. This includes any specific prohibitions on the use of grant funds. Having grantees report on how the funds were used and the outcomes achieved can help track its community impact, ensure the funds were spent as intended, and provide insights for future funding decisions. However, the reporting requirements can be scaled down to match the size and scope of the grant to avoid undue burden on grantees. For example: Small Grants (< $5K) Reporting requirement: brief annual report (1-2 pages) summarizing key activities and basic financial and impact highlights. Financial Reporting: self-certification of compliance with grant terms, which could include requesting financial reports. Medium Grants ($5K-$100K) Reporting requirement: semi-annual reporting including service outcomes and performance metrics. Financial Reporting: depending on risk*, recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA), or IRS Form 990 if applicable Large Grants (>$100K) Reporting requirement: quarterly or semi-annual service outcomes, performance metrics, and a year-end impact report. Financial Reporting: recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA). *Associated risks could include funding size and dependency (lack of diversified funding portfolio), fiscal stability and performance history, type of service and impact on vulnerable populations and nonprofit governance and operational capacity, to name a few. Consistent with the Nonprofit Audit, staff will also review the City’s administrative responsibilities associated with these grants to ensure adequate resourcing and expectations. Next Steps: Staff proposes that the Policy and Services Committee further develop NPW Phase 1 over the next two meetings, with final recommendations to be presented for Council review in late March or early April. Through this process, staff will fill in details on the process and expectations of all stakeholders involved. Subject to City Council authorization to proceed with NPW Phase 1 and its successful implementation, staff envisions that next phases of the Nonprofit Partnerships Workplan would include subsequent Committee and City Council consideration of the applicability of nonprofit partnership principles to other grants, as well as service and lease agreements. This would be initiated in the summer. Staff envisions that this may include recommending appropriate policy adjustments and programs that modify existing nonprofit partnerships over time to ensure alignment with the NPW principles. FISCAL/RESOURCE IMPACT No resources are required to support the discussion outlined in this report. Subject to City Council approval to fund the proposed NPW Phase 1 in the FY 2026 budget, the Citywide Events and Programming appropriation established by Council would be involved. Specifically, the FY 2025 Adopted Budget provided $246,000 in funding for the following citywide events and programming: United Nations Association Film Festival ($45,000), 3rd Thursdays ($40,000), Magical Bridge ($150,000), and Environmental Volunteers Foothills Nature Preserve ($11,000). Ongoing, $235,000 would be budgeted annually to fund citywide events and programming, and staff was tasked with developing a process in FY 2025 to evaluate and allocate the ongoing funding for citywide events and programming. As part of the FY 2025 budget wrap-up meeting with the Finance Committee, discussion occurred regarding the administrative responsibilities for developing a funding process for these cultural events, including reviewing applications, invoices, receipts, and processing payments, which could be managed by staff within the Community Services Department. No additional resources were added for FY 2025; however, if the program expanded in future years, additional staff resources may be required to sustain the increased workload, assuming 1.0 Administrative Associate III at a cost of approximately $125,000 annually. STAKEHOLDER ENGAGEMENT Stakeholder engagement is underway with nonprofit partners through dedicated listening sessions to gather feedback on the principles of the nonprofit framework. The first session was held in December 2024, with a second scheduled for February 10, 2025. To ensure ongoing transparency and participation, the City will launch a dedicated webpage to provide updates, highlight key developments, and share upcoming opportunities for nonprofits to engage and provide input. ENVIRONMENTAL REVIEW Council action on this item is not a project as defined by the California Environmental Quality Act (CEQA). CEQA Guidelines section 15378(b)(2). ATTACHMENTS Attachment A: None APPROVED BY: Ed Shikada, City Manager February 11, 2025 www.cityofpaloalto.org Nonprofit Partnership Workplan: Phased Approach 2 Policy & Services Recommendation Review and recommend City Council approval of a phased approach to enhancing nonprofit partnerships, beginning with process improvements for nonprofit requests for funding through the FY 2026 City Budget process, which fall outside a currently- established process. 3 Purpose of Nonprofit Workplan •Recommendations from 2022 Audit on Nonprofit Partnerships •Some of our existing policies and processes for managing nonprofit relationships lack consistency, transparency, and accountability (on both sides) •Absence of standardized service and lease agreements, performance metrics, and predictable funding process has resulted in inefficiencies and unclear expectations •Need a workplan that establishes clear framework that algins nonprofit partnerships with Council priorities, ensures fairness and inclusion in resource allocation, strengthens accountability while maintaining the agility to evolving community needs. 4 Nonprofit Partnership Workplan: Phased Approach FIRST PHASE- •near-term goal of establishing an initial process improvement for nonprofit requests for funding in the FY 2026 budget process, which currently fall outside currently established funding processes. SECOND PHASE- •will include subsequent Committee and Council consideration of applicability of nonprofit principles to other grants, service and lease agreements. •Implementation of any new policy adjustments and programs will happen over time. •Work to begin in the summer Guiding Principles www.cityofpaloalto.org 6 Proposed Sequence of City Non-Profit Partnerships Review •City Goals •Identification of ResourcesPrinciples •Individual Council Actions •Administrative practicesPractices •Defined Funding Programs •Administrative Policies •CommunicationsProducts 7 Nonprofit Relationship Principles 1.Impact oriented focus and accountability 2.Service alignment 3.Fairness, open access, equity, and inclusion 4.Flexibility for special circumstances Nonprofit Partnership Workplan Phase 1 www.cityofpaloalto.org 9 Nonprofit Partnership Workplan Phase 1: Requests for Funding •Funding Availability - Determine and communicate the total funding expected to be available, as well as funding sources to the extent affecting eligible uses. •Eligibility and Criteria - Define any qualifications required to be eligible for funding. •Application and Evaluation Process and Timeframe – Establish and communicate a clear process for submitting and reviewing requests that nonprofits can reasonably participate in. •Monitoring and Reporting - Set as applicable any requirements for tracking use of funds, outcomes, and associated responsibilities. 10 Funding Availability- Determine and communicate the total funding expected to be available $235,000 allocated to City Events and Programming: •$185,000 to be allocated through Phase 1 funding requests •$50,000 would be used to fund community events planned by community members or organizations that would benefit the entire community. Development of program is underway. 11 Eligibility and Criteria- Define any qualifications required to be eligible for funding. •Requests for direct funding through the City budget follow the outlined submittal process •Best Practices: Balance new and prior recipient requests, ensuring fairness and access for new applicants Allowing for innovative programs and service delivery Considering sustainability of existing grantees 12 Eligibility and Criteria- Define any qualifications required to be eligible for funding. Public benefit should alignment with 2025 Council priorities. Other best practices to consider: •Community reach •Equity impact •Capacity of nonprofit to deliver Service/program •Nonprofit overall budget portfolio •New or existing organization •Service redundancy evaluation •Is there an existing process or program that could accommodate this request? •Funding/service better aligned with other jurisdictions 13 Application and Evaluation Process and Timeframe – Establish and communicate a clear process for submitting and reviewing requests that nonprofits can reasonably participate in. •Establishing Nonprofit Workplan Phase 1 in time for the FY 2026 budget cycle will require expedited action by the Committee and Council. •Funding would be available for the period of July 1, 2025- June 30, 2026 •Staff recommends funding be open to all 501c(3) nonprofit organizations in the initial phase and, given time constraints, proposals be evaluated and awarded by the Council directly •Best practices to consider is establishing thresholds that would scale evaluation needs such as establishing dollar thresholds and streamlining review process accordingly 14 Application and Evaluation Process and Timeframe – Establish and communicate a clear process for submitting and reviewing requests that nonprofits can reasonably participate in. 15 Monitoring and Reporting - Set as applicable any requirements for tracking use of funds, outcomes, and associated responsibilities. Small Grants (< $5K) •Reporting requirement: brief annual report (1-2 pages) summarizing key activities and basic financial and impact highlights. •Financial Reporting: self-certification of compliance with grant terms, which could include requesting financial reports. Medium Grants ($5K-$100K) •Reporting requirement: semi-annual reporting including service outcomes and performance metrics. •Financial Reporting: depending on risk*, recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA), or IRS Form 990 if applicable Large Grants (>$100K) •Reporting requirement: quarterly or semi-annual service outcomes, performance metrics, and a year-end impact report. •Financial Reporting: recommend an independently prepared compilation report or reviewed financial statements (such as by a CPA). Next Steps www.cityofpaloalto.org 17 Proposed Engagement Process •Continue to engage nonprofit community via listening sessions to solicit feedback  Incorporate feedback throughout the process to inform staff and Council actions •Use City platforms to communicate on developments and upcoming meetings •Create and maintain a Nonprofit Workplan webpage 18 Staff Recommendation Recommend Council approve Phase 1 of the Nonprofit Workplan – establishing a process for nonprofit requests for funding through the FY 2026 City Budget process. This does not pertain to currently-established grant programs. Lupita Alamos, Assistant to the City Manager February 11, 2025 Nonprofit Partnership Categories Type Description Initiation of Partnership Grants A specified funding amount awarded to support an identified focus area or community goal Typically distributed through a Notice of Funding Availability (NOFA), where nonprofits apply by demonstrating alignment with funding priorities. Awardees must meet reporting and accountability requirements. Service Agreements A contractual arrangement in which a nonprofit delivers a City-specified service to address a community need Usually initiated through a Request for Proposals (RFP), where organizations submit proposals demonstrating their capability, experience, and approach to fulfilling the service need. Agreements outline scope, performance expectations, and evaluation metrics. Lease Agreements The use of City-owned facilities leased at a reduced or subsidized rate to provide community-serving programs Initiated at the request from Council or City process. Agreements specify lease terms, maintenance responsibilities, and performance expectations. 4 Existing Grant Programs Type Description Timeframe Community Development Block Grant (CDBG) The City receives funds annually from the U.S. Dept of Housing and Urban Development (HUD) for the Community Development Block Grant (CDBG) program, providing funding to implement activities, projects, and programs benefiting low-and moderate- income persons and community development needs. Annual application process due in January each year. Program allocation set by the HUD. In FY26, this is estimated to be $600,000 Human Services Resource Allocation Program (HSRAP) HSRAP is managed by the City’s Office of Human Services, it seeks proposals from organizations to provide professional services to meet the identified human service needs in the community. The selection of awardees and allocation of funding is a collaborative process with support of City staff, Palo Alto Human Relations Commission (HRC), and Council. The biennial program accepts proposals for new or existing programs over $5K, typically due in January every two years. The next funding cycle covers funding term of July 1, 2025-June 30, 2027. Funding for FY25 was $919,464. Emerging Needs Program The Emerging Needs Fund assists nonprofits serving Palo Alto residents with short-term and/or urgent funding to address emergency, critical or emerging human services needs. An agency may not receive funding more than once in a two-year period. There are typically four quarterly application periods in the FY for non-emergency needs. Organizations may request up to $10K. The next quarter submittals will be March 6, 2025. Annual funding is $50,000