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HomeMy WebLinkAboutStaff Report 2503-4241CITY OF PALO ALTO CITY COUNCIL Special Meeting Monday, March 24, 2025 Council Chambers & Hybrid 5:30 PM     Agenda Item     3.Nonprofit Partnership Workplan: Phased Approach City Council Staff Report From: City Manager Report Type: CONSENT CALENDAR Lead Department: City Manager Meeting Date: March 24, 2025 Report #:2503-4241 TITLE Nonprofit Partnership Workplan: Phased Approach RECOMMENDATION The Policy and Services Committee recommends that Council approve a phased approach to enhancing nonprofit partnerships, beginning with process improvements to nonprofit requests for funding through the FY 2026 Budget process that fall outside currently established funding processes. EXECUTIVE SUMMARY The City of Palo Alto's Nonprofit Partnership Workplan proposes a phased approach to enhance the City’s partnerships with nonprofit organizations, focusing on improving funding processes, accountability, and alignment with community priorities. This responds to recommendations from a 2022 City Auditor report, which identified risks and inefficiencies in current nonprofit agreements and processes. In the initial phase, the Policy and Services Committee recommends immediate process improvements for nonprofit funding requests submitted through the FY 2026 budget that fall outside of existing City grant programs. This pilot would utilize $185,000 in available funding for one-time funding requests, open to all 501(c)(3) nonprofit organizations that provide services to Palo Alto residents. This initial phase will guide the second phase of the Nonprofit Partnership Workplan, expected to begin in the summer, to strengthen nonprofit partnerships based on the guiding principles of impact-oriented focus and accountability, service alignment, fairness and inclusion, and flexibility to respond to special circumstances. 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 1 June 14, 2022, Policy and Services Committee Meeting: https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=6282&compileOutputType= 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 would benefit from enhanced 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 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 referred refinement of the principles to the Policy and Services Committee. 2 October 28, 2024, Council Study Session: https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=14449 Given that developing and implementing the workplan will take time, staff recommended a phased approach with a near-term goal of establishing an initial process improvement in time for the FY 2026 budget process. On February 11 and March 11, 2025, the Policy and Services Committee discussed and refined this phased approach, now recommended for City Council approval. ANALYSIS The recommended initial phase consists of process improvement for handling nonprofit requests for funding in the FY 2026 City Budget that fall outside currently established funding processes. The Policy and Services Committee recommends a process of evaluating such requests in parallel with the overall City budget, using funds allocated for this purpose in last year’s budget. 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 or reviewing such requests beyond ad hoc consideration at the Finance Committee and/or full City Council. To address this gap, the Nonprofit Partnership Workplan Phase 1 (NPW Phase 1) recommends a first step toward the overall goals of clarity in nonprofit partnerships 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 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. The following reflects Policy and Services Committee’s recommendations in each of the grant 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. This funding would be allocated in two parts: •$185,000 would be available for nonprofits under NPW Phase 1. •$50,000 would be available for community events up to $5,000 per event. The community event funding would be allocated on a first-come-first-served basis to community members or local organizations (not limited to nonprofits) for community-wide events. This will be similar to Know Your Neighbors grants (which continues to be a line item in the budget). The Community Services Department is developing a grant process to distribute these funds. 2. Eligibility and Criteria Eligibility. The Policy and Services Committee also discussed 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). Under NPW Phase 1, ALL requests for direct funding through the City budget will be required to follow the submittal process described here. In evaluating equity and access to funding, the Committee discussed best practices and considerations when addressing the question of balance between new and prior recipients. This included ensuring fairness and access for new applicants-allowing for innovative programs and service delivery- while also considering sustainability and continuity for existing grantees, 3 FY 2025 Budget Adoption June 17, 2024: https://cityofpaloalto.primegov.com/meetings/ItemWithTemplateType?id=5334&meetingTemplateType=2&comp iledMeetingDocumentId=10470 especially if the new funding allowed an organization the opportunity to leverage funds toward other funding opportunities. In its inaugural implementation year, the Committee felt it did not want to restrict eligibility and instead re-evaluate after the first year. 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. The Committee recommends that grant requests should mostly align with Council Priorities, however wanted ensure flexibility in supporting programming that could fall outside of the four identified 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 criteria to be used in evaluating applications are: •Community reach- such as the number of Palo Alto residents served •Equity impact- assess whether the organization serves underserved or underrepresented groups, if applicable. In addition, consider the cost of service to the client. •Program/service delivery- assess the nonprofit’s capacity to deliver on program/service goals. •Existing City grant program- is there an established City program/process in place that could accommodate the request? And if so, wanting to understand why the organization did or did not apply. This information will be helpful to understand the organization’s circumstances. •Grant funding use- should the grant be considered for start-up seed money, overhead and staffing, capital projects, or limited to established programs or services? The Committee expressed wanting to be open to all circumstances and would instead, evaluate request impact. Attachment A includes a draft application that identifies the information required from applicants in order to evaluate the relative impact of each application to meet the stated criteria. A template grant agreement will be added. 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. Recognizing the compressed timeframe to implement this program, staff will provide support in screening and evaluating applications for the Committee’s review. In the future, the Committee would like relevant Commissions to weigh in on recommendations, such as the Human Relations Commission. The Policy and Services Committee would then make recommendations for Council approval. The following rubric will be used to score applications. In the first year of implementation, the scoring would be relative to other requests. In the second year of the program, with a better sense of application requests, staff could recommend improvements to the rubric. Criterion Description Weight 1. Community Reach Measures the number of Palo Alto residents served and the significance of the services. 30% 2. Equity Impact Assesses whether the organization serves underserved or underrepresented groups. 30% 3. Alignment with Goals Evaluates alignment with the Council’s Priorities 20% 4. Program Sustainability Assesses the nonprofit’s capacity to deliver and sustain its programs effectively. 20% Timeframe. In order to integrate with the FY 2026 budget calendar, the following timeframe will be pursued. This is an ambitious timeframe, which reinforces the importance of a streamlined process to the extent possible. 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 P&S review and recommends awards June 10 City Council budget adoption includes funding appropriation and grantees June 16 The recommended timeframe provides nonprofits a 39-day application period, and award by FY 2026 Budget adoption timeframe of June. When surveyed, a total of 6 nonprofits, one of which includes the Chamber of Nonprofits with membership of about 30 nonprofits, supported and agreed with the timeframe. Only one nonprofit preferred a longer application period with a late August award timeframe. 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 is being recommended, as this would affect the level of detail expected on applications and responsibilities of grantees. 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. 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. Requests up to $5,000 •Brief annual report (1-2 pages) summarizing key activities and basic financial and community impact highlights. •Financial reporting will consist of a self-certification of compliance with grant terms, which could include requesting financial reports. $5,000-$25,000 •Annual report on service outcomes and performance metrics. •Independently prepared compilation report or CPA reviewed financial statements or IRS Form 990. $26,000-$100,000 •Semi-annual reporting including service outcomes and performance metrics. •Depending on risk*, recommend a CPA-prepared or reviewed financial statements Requests of $100K+ •Quarterly service outcomes, performance metrics, and a year-end impact report. •Depending on risk* recommend an CPA-prepared or reviewed financial statements. *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: Should the Council approve the Policy and Services Recommendations and authorize proceeding with NPW Phase 1 implementation, staff will communicate the new funding availability through its email distribution list and various City communication platforms. The next phases of the Nonprofit Partnership Workplan will 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 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 impacted. Of the ongoing $235,000 budgeted annually to fund citywide events and programming, $185,000 of the total will be dedicated to the implementation of the NPW Phase 1 grant program starting in FY 2026. The other $50,000 will be available for citywide 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, and the Community Services Department is currently developing a grant process to distribute these funds. As part of the FY 2025 budget wrap-up meeting with the Finance Committee, discussion of administrative responsibilities for developing a funding process for these cultural events, including reviewing applications, invoices, receipts, and processing payments, would be managed by staff within the Community Services Department. No additional resources were added for FY 2025; however, if the City Events and Programming 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 and the NPW Phase 1 grant program. 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: Draft Nonprofit Workplan Phase 1 Grant Application APPROVED BY: Ed Shikada, City Manager ATTACHMENT A Nonprofit Workplan Phase 1 Grant Application ORGANIZATION INFORMATION Are you a 501 (c)(3) nonprofit organization? ￿Yes ￿No Organization Name Year Funded EIN (Tax ID#) Contact Person Title Email Address Phone Number Mailing Address Website ABOUT YOUR ORGANIZATION What is the mission of your organization? Number of Employees ￿Full-Time Staff____ ￿Part-Time Staff___ ￿Volunteers___ In the last two years, have you been awarded a grant or other direct funding by the City? If so, explain. Are you qualified to apply for the Human Services Resource Allocation Program (HSRAP), Community Development Block Grant (CDBG), or Emerging Needs grant programs? If so, did you apply? Explain why or why not. PROGRAM & COMMUNITY IMPACT Name of Program:Grant Request Amount: $ Please provide a narrative describing your proposed program: Total Number of people estimated to be served by this program: Total number of Palo Alto residents estimated to be served by this program: Total number of Palo Alto residents estimated to be served by your agency: Total number of unduplicated Palo Alto residents estimated to be served by the requested funding amount: EQUITY IMPACT Does your organization serve historically underrepresented or underserved populations? If yes, please describe. (ex. Number or percent of demographic populations) What measures does your organization take to promote services to underserved populations? ￿Social Media ￿Website ￿Location of program/services ￿Direct mail Other: (Please describe) What fees will be charged for proposed services, if any? Will subsidized or fee waivers be offered to clients? ALIGNMENT WITH CITY COUNCIL PRIORITIES Briefly describe how your request supports one or more of the City Council Priorities (2-3 sentences). If not relevant indicate with “N/A.” Climate Action and Adaptation & Natural Environment Protection: ATTACHMENT A Economic Development and Retail Vibrancy: Implementing Housing Strategies for Social & Economic Balance: Public Safety, Wellness & Belonging: PROGRAM GOALS Please use the template below to list up to 3 goals related to the program(s) you are proposing with requested funding. For each goal identify 1-3 strategies your organization will implement to achieve this goal. For each strategy, provide an objective and an outcome. Attach your Program Goals. Example: Goal: A general statement about the desired long-term impact. Example: "Enhance STEM education access for underrepresented middle school girls in underserved areas.” Strategy: The overall approach or method used to achieve the goal. Example: "Partner with local schools to develop and deliver hands-on STEM workshops led by female science professionals.” Objective: Specific, measurable actions that need to be completed to reach the goal. Example: "Train 20 female STEM professionals to facilitate workshops reaching 100 middle school girls per year.” Outcome: The positive change or result that occurs as a direct consequence of the project activities. How will you know that the strategy is successful? Example: "An increase in the number of girls expressing interest in pursuing STEM careers post-workshop participation.” Describe your organization’s plan for evaluating the program’s effectiveness? Include any specific measurement tools to be used such as surveys or other tools. PROGRAM SUSTAINABILITY What amount and percent % of your organization’s budget is currently funded by the following: ￿Government Grants$_____, ___% ￿Private Donations$_____, ___% ￿Fundraising$_____, ___% ￿Membership Fees$_____, ___% ￿Fees for service$_____, ___% ￿Other$_____, ___% What percentage of your organization’s annual budget does the grant request represent? •Annual Budget: $____ •Grant Request Amount: $____ •Percent of Budget: (Grant request/Annual Budget) x100 = ___% If awarded, will the contribution be used to leverage other funding opportunities? Explain (1-2 sentences). Describe specifically how the requested funding will be used. REQUIRED ATTACHMENTS (Section in development) •Program Goals •IRS Determination Letter (501 (c)(3) status proof REPORTING REQUIREMENTS – (Section in development) Requests of up to $5,000- brief annual report (1-2 pages) summarizing key activities and basic financial and community impact highlights. Financia reporting will consist of a self-certification of compliance with grant terms. Requests >$25,000- -Annual report on service outcomes and performance metrics. -CPA-prepared or reviewed financial statements, or -IRS Form 990 Requests $25,000-$100,000- -Semi-annual reports on service outcomes and performance metrics. - CPA-prepared or reviewed financial statements. Requests $100,000+ -quarterly service outcomes and performance metrics, and a year-end community impact report. - CPA-prepared or reviewed financial statements.