Lack of Records and Transparency in City Funding and Nonprofit Wage Increases

By Karl Kramer, Michael Clancy, Quinn Kellner, Manush Mirzada, Gizelle Jane Rabi, Noah Cane, Domenique Servin, Bethany Amarillas, Estephanie Lua De La Torre

San Francisco Living Wage Coalition
November, 2022

Our City is facing a pending crisis of the implosion of its social infrastructure. There are nearly 5,000 non-profit workers who are performing public services under City contract. These include desk clerks and janitorial staff at supportive housing, and staff at homeless shelters, after-school and summer programs for youth, senior programs, homeless support, violence prevention and mental health services.
There is a mass exodus of workers from these low-wage positions because they are struggling to make ends meet with rising inflation and an increased cost-of-living. With the skyrocketing cost of gas, many can no longer afford the hours-long super-commute to work in San Francisco.
The Minimum Compensation Ordinance (MCO), which covers city-funded nonprofit workers, IHSS home health care aides and CalWORKs parents in community service jobs, provides a minimum rate increase on July 1 of each year based on the prior year’s increase in the Bay Area Consumer Price Index to keep up with inflation. But the wage increase can be deferred unless the City appropriates additional funds to nonprofits and the Controller certifies that such funds are sufficient to pay for the increase.
The Office of the Controller issued a report on May 4 on addressing nonprofit wage pressures among the 600 nonprofit service providers with which the City and County of San Francisco contracts to deliver $1.2 billion in safety net services.

The reason for the report was that “low wage levels have led to difficulty hiring and high turnover, impacting client services and service provider stability.”

Sources of funding from the City to address wage pressures are for the MCO wage increase and for the Cost-of-Doing-Business (CODB) increase. The CODB applies to other inflationary costs for a nonprofit such as rent, insurance, overhead, and wage increases for those at higher wage rates and the bookkeepers, receptionists and clerical workers who are not funded directly in the city contract.

The Controller’s report found that “operational challenges often delay roll-out of CODB funds, which can delay wage increases for staff or reimbursement for nonprofits” and that the “Minimum Compensation Ordinance (MCO) supports the lowest wage workforce but is difficult to implement.”

Our Purpose
The San Francisco Living Wage Coalition attempted to track the MCO and CODB allocations to nonprofit organizations.

The purpose for tracking these allocations is to confirm that the funds reach nonprofit organizations.

After launching a survey, a number of nonprofit organizations noted that they did not, or were unsure, that they received funding for the MCO and/or CODB increases.

We found the implementation of MCO and CODB allocations is uneven across departments; specifically, in the understanding of the process and purpose of MCO and CODB, and the transparency of record-keeping.

The Fiscal Year 2022-2023 will be much more complicated because there is funding in the budget for a 5.25 percent wage increase and a 3 percent CODB.

In a survey that gathered 21 respondents, two organizations reported that they did not receive a 3 percent CODB increase for FY 2021-2022. Four of the organizations responded that they were not sure or did not receive CODB funding for FY2020-2021. Six organizations were not sure or said that they did not receive funding for MCO wage raises in FY 2021-2022.

Amendments to the MCO in 2018 set up a process by the Controller’s office to set allocations to departments for the FY 2019-2020.

The allocation set by the Controller’s Office included funding for the direct costs of raising wages to the new minimum rate but also for wage increases for other employees already earning above the minimum rate up to $22.50 per hour, which the Controller’s Office calls “wage compaction.” After FY 2019-2020, setting allocations to nonprofits became the responsibility of each department.

A Nov. 5, 2019, memo from the Controller says “The Controller’s Office administered the FY 19-20 MCO application to support a fair and transparent process. For FY20-21, each funding department will be responsible for adjusting contracts to reflect costs associated with the MCO. The Mayor’s Office will adjust FY20-21 base budgets with appropriate General Fund allocations for these expenditures, and it will be each department’s responsibility to ensure FY20-21 contracts accommodate the direct and compaction impacts of the MCO.”

Problems in Record Keeping and Transparency
The Department of Children, Youth and their Families (CHF), Department of Public Health (DPH), First 5 Commission (CFC), and Human Services Agency (HSA) provided clear records of calculations of the MCO and CODB increases allocated to nonprofits; however, we found other departments were not transparent, did not track relevant information, and did not keep records of allocations for MCO and/or CODB.

Although numerous information requests were sent, we did not receive comprehensive figures on allocations, which would serve as evidence that funding went to nonprofit organizations.

Some departments reported that they did not keep records of the MCO or CODB allocations to nonprofits.

These included the Public Utilities Commission, the Office of City Administrator, the Mayor’s Office of Homelessness and Supportive Housing, the Art Commission, the Human Rights Commission, the Adult Probation Department and the Department of Public Works.

The Public Utilities Commission
The Public Utilities Commission Business Services staff wrote in an internal message on December 27 that “we don’t have a separate budget for these items so it’s impossible to say specially [sic] how much is budgeted.” [see appendix 1].

This message exchange only became available through filing a Sunshine Ordinance complaint. The PUC had responded that they had no responsive documents to the request.

Budget director Laura Bush told the Sunshine Ordinance Task Force Complaint Committee on June 21 that there is “no way for us to see detail level how much is budgeted. We don’t have a record of specific amounts to nonprofits.”

The Office of City Administrator
The Office of City Administrator had only total sums budgeted to nonprofits and threw out the records of figures they used to reach that total.

An email from the Office of City Administrator stated in response to an information request “However, it is important to note when contracts are amended or issued to distribute funds, our finance system will only have the information about the total funds allocated to each contract and would not be able to provide the specific breakdown, such as CODB increase, by contract, as other factors can affect the grant amount received by non-profits by each contract.” [see appendix 2]

In a May 17 meeting of the Sunshine Ordinance Task Force Complaint Committee, Vivian Po, representing the Department, said that “specific MCO and CODB information is information that we do not currently have,” and “we do receive a summary but what we don’t have is a specific breakdown of what increases are for MCO and CODB. We have information as a lump sum for each individually.”

The information is even more opaque since the MCO funding for FY2019-20 is listed as amounts to four programs – Grants for the Arts, Immigrant and Language Services, Labor Standards, and Treasure Island Development Authority. Each program funds different nonprofits.

The Mayor’s Office of Homelessness and Supportive Housing
The Mayor’s Office of Homelessness and Supportive Housing (HOM) was only able to provide the total budgets for nonprofits for FY 19-20 and FY 20-21.

After sending a spreadsheet that duplicated the calculations by the Controller’s Office for MCO increases for FY 19-20, HOM could not provide information on CODB increases for FY 19-20, nor MCO and CODB increases for FY 20-21.

Jeff Hamilton, Compliance Public Relations Officer, explained that once they added up all the component parts that make up a total allocation for a nonprofit, they enter in the total sum and do not keep records of the individual component amounts. Hamilton said they are not able to “reverse engineer” from the total to identify specific funding sources.

Hamilton told the Sunshine Ordinance Task Force Complaint Committee on June 21 that “he sat down with the contract manager and she walked through how they calculated the contracts. In order to provide the figures, she would have to pull data from 69 contracts. They do not have the capacity to pull a report.”

In late July, Hamilton provided copies of letters sent to nonprofits that informed them of their CODB increase for FY 21-22 that had ended at the beginning of the month. [see appendix 2b]

The Human Rights Commission
The Human Rights Commission’s records combine the MCO and the CODB, and they are not able to separate the figures.

In response to an information request to identify the groups that received funding for MCO increases for FY 19-20 and FY 20-21 and how much, Cathy Mulkey Meyer, Commission Secretary, wrote in an email on March 16 “we don’t have existing records that match your request.” [see appendix 3]

She told the Sunshine Ordinance Task Force Complaint Committee on June 21 “we sent records that we had. We do not have anything else to say.”

The Adult Probation Office
The Adult Probation Department responded to a request for MCO and CODB figures with “There are no Responsive Records for your request.” [see appendix 4]

In an email on January 25, Elisa Baeza, Senior Administrative Analyst, said that “in FY 2020-2021, SFAPD received $11,897 for MCO, and $80,189 for CODB. SFAPD does not have a breakdown of where these amounts go by agency.” [see appendix 4]

At a Sunshine Ordinance Task Force Complaint Committee meeting on May 17, Cristel Tullock, chief probation officer for APD, become combative in questioning the motivation of the information request. “Are you complaining that CBOs are not getting funding? On whose behalf are you asking for this information? What are you trying to prove?,” Turlock said.

“What is being requested cannot be aggregated and generated as a report,” Turlock further said. She also laid responsibility for funding allocations on the Controller. “The Controller’s Office manages all of the agencies,” Turlock said.

Confusion Related Problems
There were some departments that did not allocate funding to nonprofits because they were confused about how the MCO is implemented – and which workers are included.

Some did not understand the Controller’s directive to include wage raises for those above the minimum rate up to $22.50 per hour.

These departments included the Sheriff’s Office, the Department on the Status of Women and the Art Commission.

The Sheriff’s Department
The Sheriff’s Office responded that it “has no responsive records because no such records exist. The Minimum Compensation Ordinance (“MCO”) applies if an agency pays below the MCO rate. The Sheriff’s Office does not pay below the MCO rate, and does not set nor create MCO allocations.” [see appendix 6]

There was an ongoing confusion by the Sheriff’s Office in their responses that the MCO applied to city employees or civil servants, while it actually applies to non-public-sector employees of city contractors.

The Controller’s Office memo “MCO: Summary of FY19-20 Allocations to Nonprofit Suppliers” shows $9,380 allocated to the Sheriff’s Office for Community Works West and $7,990 for San Francisco Conservation Corps.

The allocation set by the Controller’s Office included funding for the direct costs of raising wages to the new minimum rate but also for wage increases for other employees already earning above the minimum rate up to $22.50 per hour, which the Controller’s Office calls “wage compaction.” Alison Lambert, Legal Assistant in the Office of the Sheriff, told the Sunshine Ordinance Task Force Complaint Committee on June 21 “we simply do not have all the records.”

The Department on the Status of Women
The Department on the Status of Women did not realize that the funding included raises for workers above the minimum rate.

Joseph Macaluso, deputy director at the Department on the Status of Women, wrote “please note that DOSW is not in possession of a record for MCO for FY 20-21 as per your request, noting that all contracts throughout city grants program line items have listed salaries at or above the MCO (as confirmed by DOSW at time of contract drafting as well as an additional manual check performed earlier this year), which negated the need to seek any additional funding and thus any corresponding calculations or amounts. As such, no record exists for MCO amounts for FY20-21.” [see appendix 7]

In response to an information request, the Controller’s Office said that the Department on the Status of Women was allocated $46,420 in FY 2020-2021 to provide to nonprofits for wage increases [see appendix 8].

The Art Commission
The Art Commission does not keep records of CODB allocations. The Art Commission also displays confusion about the difference between MCO and CODB.

An email from Sally Ma in the Mayor’s Office on January 19, 2021, said “ART’s allocation of MCO funds from the $1.5M is $1,442.” [appendix 9a] Jaren Bonillo of the Art Commission asks in a January 29, 2021, email to Kevin Quan “please advise on how best to administer AAACC’s COBD [sic] allocation of $1,442.” [appendix 9b]

Because of the Art Commission’s lack of understanding that it is their responsibility to calculate allocations to nonprofits, only the African American Art and Culture Complex receives MCO allocations from the Art Commission while other cultural centers go starving, even after Art Commission was advised by the Controller’s Office to provide MCO allocations to the other cultural centers.

Molly Barrons, compliance officer for the SF Arts Commission wrote in a January 29, 2021, email “I am wondering how we could make the MCO funds available to all the Cultural Centers? And/or if the controller’s office is going to release another application so that all of the Centers could apply now or in the future? It seems a little skewed that only the folks that applied 2 years ago would be eligible.” [see appendix 10]

The Art Commission (Cont.)
In response, Laura Marshall of the Controller’s Office wrote in a March 1, 2021, email “I want to remind you that the MCO applies to all grantees that meet the parameters of the ordinance, even if they didn’t apply for supplemental funding through the application process we conducted in 2019. It will be up to ART to ensure the amount allocated by the Mayor’s Office covers all MCO-related cost increases needed across MCO-eligible contracts, even if they didn’t apply for supplemental funding in 2019. The amount allocated is a proxy using that application process but does not define what each contractor needs (meaning you may not actually give it all to AAACC if other contractors in your portfolio also have MCO costs). You should look at the contracts to determine whether there are any employees across your portfolio earning $16.50 and requiring a raise to $17.05.” [see appendix 11]

The Office of Economic and Workforce Development
The Office of Economic and Workforce Development has an opaque process of record keeping that makes it difficult to ascertain whether nonprofits are receiving a funding increase that correlates to the percentage of the MCO or CODB.

“In FY 19-20 and FY 20-21, OEWD annually negotiated with nonprofit providers to ensure they had sufficient funding to comply with the associated cost of doing business. The increases related to the cost of doing business are negotiated through the cost per related to deliverables and outcomes.” [appendix 12]

Problems with Partial Funding
While in meetings with the Mayor’s Budget Office, the Budget Director has stated that their policy is that non-General Fund departments should find alternative sources of funding to provide CODB increases, we found departments such as the PUC and SF Environment did not do this.

There are other departments such as SF Works and the District Attorney’s Office that apply the CODB increase only to the General Fund part of a nonprofit’s budget, and not the other parts that are grants, federal or state funds that are passed through to the department.

We have not seen a clear directive to departments stating that they should find alternative sources of funding to augment the non-General Fund portions of budgets to nonprofits.

The Department of the Environment
Joseph Salem of SF Environment responded to an information request stating “As for cost-of-doing-business (CODB), the guidance states the following: ‘further, the adopted FY 2020-21 budget included $12.6 million for a one-time 3% CODB increase for General Fund non-profit contracts. In order to determine your department’s share of that appropriation, please provide our office with your department’s base FY 2020-21 General Fund contract amount by Thursday, January 21st.’ Because of this guidance, we did not provide any information on our General Fund contracts as we had none. Further, we do not have the discretionary budget to cover costs of that nature.” [see appendix 13]

The Department of Public Works
The Department of Public Works (DPW) applied the FY 21-22 CODB increase to General Fund community-based organizations (CBO) agreements only. [see appendix 14]

The Department of Public Works calculated CODB increases for FY 2020-2021 by program, without allocations to specific nonprofits [see appendix 5].

The Human Services Agency and The District Attorney’s Office
The Human Services Agency (HSA) did not apply CODB increases to “pass-through funds,” grants from outside the City that are designated for a specific purpose [see appendix 15].

The District Attorney’s Office (DAT) does not provide CODB adjustments for Non-General fund sources to CBOs, only to the General Fund portion of annual grants to CBOs. [see appendix 16].

The Department of Building Inspection
The Controller’s Office determined an allocation of $28,660 to the Department of Building Inspection for MCO increases for six nonprofits in FY 2019-20 with the understanding that non-general fund departments were asked to find the money in their own budgets instead of receiving an additional allocation.

The funding was not loaded into the department’s budget because they indicated it was not needed [see appendix 17].

The department provided $4,608 to one organization and the other organizations had to cover the MCO increase with their existing funds [see appendix 18].

The department did not find additional money in its budget, the nonprofits were required to find additional funding in their budgets.

Problems with Multi-Year Contracts
There are departments that do not provide a CODB increase in the first year of a multi-year contract, even if it is with an organization that had the contract the previous year.

DPW did not provide CODB increases to CBOs that had new contracts issued even if they were involved with a program the previous year, nor to CBOs that were not new to DPW but were new to a program [see appendix 19].

The Mayor’s Office of Housing and Community Development (MOHCD) only provides a CODB increase in the second year of a contract. MOHCD did a Request For Proposals (RFP) for most of their grants for FY20-21 [see appendix 20], then as part of a racial equity effort, did a RFP for most of their grants again for FY21-22, when those organizations would have been allocated a CODB increase [see appendix 21].

When compared to the allocations to each nonprofit estimated by the Controller’s Office for MCO wage increases for FY 2019-2020, on which figures the allocations to departments were based, departments altogether provided figures for allocations to 226 nonprofits, or 77.7 percent of the 295 nonprofits identified by the Controller’s Office as needing funding for MCO increases. These reported figures represent 79.5 percent of the $6.6 million budgeted for MCO increases.
For CODB increases for FY 2019-2020, assuming that all of the nonprofits should have received some increase, departments in total reported increases for 451 nonprofits, or ­­­­62.9 percent of the total 717 nonprofits identified by the Controller’s Office as contracting with the City. This works out to ­­­­­­­­­­93 percent of the $16.8 million budgeted.
For MCO increases for FY 2020-2021, all departments reported 164 allocations to nonprofits, or 56.2 percent of 295 nonprofits, assuming that those identified by the Controller’s Office to need funding in FY 2019-2020 would also need funding in FY 2020-2021. These reported figures accounted for 90 percent of the $2.125 million budgeted.
For CODB increases for FY 2020-2021, departments reported funding to 403 nonprofits, or 56 percent of the total number of 717 nonprofits, and 12 percent over the allocated budget of $12.6 million.
For FY 2021-2022, funding for MCO and CODB increases was lumped together. Altogether, departments reported 416 allocations to nonprofits, or 58 percent of the potential number of 717 nonprofits that should have received funding, assuming that all of the nonprofits identified by the Controller’s Office should have received an increase. This amounts to 90 percent of the $19.4 million budgeted.
Due to a lack of transparency in the allocation process by some departments, it is unclear whether funding is being allocated to all eligible nonprofit organizations and whether the amount being budgeted is adequate for providing funds to every nonprofit.