Oak Hill School in Hartford, the largest nonprofit agency serving the developmentally disabled.

Hundreds of nonprofit agencies in Connecticut are watching with great interest as Gov. Ned Lamont and legislators approve big raises and bonuses for state employees.

Lamont and lawmakers say this compensation is crucial to stem a staffing crisis in state departments. Nonprofits, who deliver the overwhelming bulk of state-sponsored social services — and still are struggling to secure a fraction of the funding dedicated to raises — say this applies to them as well.

State employees sacrificed repeatedly over the last 12 years to help close state budget deficits. Nonprofits check this box off as well.

But as negotiations on a new state budget wind down, nonprofits ask why a $72 million proposal to help their industry, which employs roughly 115,000, remains bogged down — while more than $400 million per year in raises and bonuses for state employees draws tons of support.

“What about our staff, who have been on the front lines, who have been showing up for work, who have been providing critical care over the last two years, who have been largely ignored over the last couple of decades?” asked Barry Simon, president and CEO of Oak Hill in Hartford, the state’s largest nonprofit social services provider.

For decades, the state has saved millions of dollars annually by hiring community-based nonprofits to deliver services for clients with intellectual and developmental disabilities, patients struggling with addiction or mental illness, poor families seeking help with housing, food and energy assistance, and others in need.

The roughly $1.5 billion the state spends annually contracting with these agencies effectively matches the budgets of the departments of Transportation, Motor Vehicles and Correction combined — making this mass of community nonprofits the largest unofficial state agency.

Yet the industry is the poor stepchild of the state budget, getting little more money than it did 15 years ago. The CT Community Nonprofit Alliance estimated one year ago that annual state funding is down $461 million from 2007 levels, once inflation is applied.

Lamont and lawmakers bumped spending in this area by about $180 million last June. But much of that increase was aimed only at providers serving clients with developmental disabilities and was particularly mandated to boost staff salaries, rather than to pay down debt, upgrade equipment or renovate facilities.

The Appropriations Committee recommended another $72 million increase in the new budget, but sources said final negotiations between the legislature’s Democratic majority and the Lamont administration haven’t produced a deal in this area yet.

But even as this is going on, Lamont has negotiated — and the House of Representatives has approved — new contracts with raises and bonuses that should boost state employee pay about 7% this fiscal year.

That package, which the Senate was expected to grant final approval Friday afternoon or evening, affects about 46,000 state workers, less than half the workforce of the nonprofit social services sector.

The state employee contracts, which run through at least the 2023-24 fiscal year and which include a provision that could lead raises to be extended through 2024-25 could cost the state almost $1.9 billion over four years, nonpartisan analysts estimate.

The uncertain fate of the $72 million for nonprofits is particularly frustrating, industry leads say, given that state government is sitting on a historic pile of cash.

The $3.1 billion rainy day fund is at its maximum legal limit at 15% of annual operating costs. Lamont disclosed earlier this week that this current fiscal year alone will end June 30 with a staggering $4 billion left over.

That unprecedented surplus, equal to one-fifth of the state’s entire General Fund, stems from an explosion of state income tax receipts tied to investment earnings and robust business tax collections.

“I hope that, given these kinds of record-breaking surpluses, that our political leaders see us as valuable as anybody else,” Simon said.

Lamont has not ruled out any funding increase for nonprofits. But even though state reserves are flush, Connecticut has a spending cap, and the governor insists that legislators stay under it. That means if nonprofits are a priority, something else might have to be cut.

And while the state has $7 billion in present and projected reserves, that still pales in comparison to the $95 billion in long-term, unfunded retirement benefit obligations and bonded debt on the state’s books.

Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee, has spearheaded the push to boost funding for nonprofits, said Connecticut needs to find the resources this year. 

Osten tried last year to win support for a five-year plan to close most of the $461 million funding gap the industry reported. 

And while she wanted more than a $72 million increase this fiscal year, Osten told the CT Mirror she believes that’s the least the state can do to help an industry whose workers risked their health to care for Connecticut’s most vulnerable during the worst of the coronavirus pandemic.

“We need to absolutely support the nonprofits who essentially are our safety net,” Osten said.

The Sprague lawmaker said she agrees with Lamont and unions that the raises and bonuses are needed to stem state employee retirements. More than 3,400 have left service or filed intentions to do so thus far this calendar year.

But Osten added that huge turnover is a problem nonprofits have been struggling with for decades, one that’s easily reached crisis proportions since the pandemic began.

In fact, many nonprofits are struggling to keep pay a few dollars per hour above Connecticut’s $14 minimum wage. That means the range of employers who can steal their workers away is far greater than the competitors poaching state employees.

“The nonprofits are losing staff every day to retail markets like Target and Walmart,” Osten added.

The nonprofit alliance recently released a survey that shows 28% of community agencies have a workforce vacancy rate of 20% or higher. For smaller nonprofits, those with an annual budget less than $1 million, the vacancy rate is 35%.

For those serving clients with intellectual and developmental disabilities, the rate is 48%.

Nearly 60% of the 267 agencies surveyed earlier this year by Fios Partners — a Chester-based consulting group specializing in the nonprofit sector — cited a lack of applicants. And almost half of respondents said their salaries were not competitive.

And those vacancies are taking a toll on the disabled and others in need.

Though 53% of smaller nonprofits reported increased demand for services, 23% say they are placing clients on wait lists or indefinitely declining services to some because of capacity limits.

Among larger nonprofits, with annual budgets larger than $1 million, 73% report increased service demands, and 36% say some clients can’t be helped right now.

Gian-Carl Casa, president and CEO of the nonprofit alliance, said agencies don’t have good answers for the families being asked to wait for help.

“I don’t know how we can go back to people who depend on nonprofit services and say, ‘They [state officials] made other choices.’”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.