Performance, compliance remain in focus as Austin reviews nonprofit funding

The in-depth evaluation of Austin's spending on social services is moving forward, and city leaders say more compliance monitoring and new rules for their relationships with contractors could be in the works.

Mayor Kirk Watson, who directed a social services review this summer, said the assessment and anticipated funding realignment coming next year should lead to better outcomes and oversight of $100 million-plus in annual city expenses.

“We can become accustomed to renewing contracts because we’ve always renewed them. We can focus too much on how much money we’ve spent, and not enough on what the money is accomplishing. And we can mistake a worthy mission for demonstrated performance," he said. "That’s why I think we ought to continue to follow a pretty simple rule, and that is that contracting something out doesn’t contract out our responsibility."

The big picture

Austin's comprehensive social services "reset" was based around city officials' desire to evaluate current needs in the community, what the city spends on social services in response, and whether agreement structures and funding should be adjusted.

Social services funding was largely maintained when City Council passed the current fiscal year 2026-27 budget in August. But the reset process continuing into next year will likely lead to more extensive changes, including the re-solicitation of many current contracts and potential recommendations for funding shifts in the city's FY 2027-28 spending plan.

Austin will spend over $101 million on homeless response, public health, housing and other areas in the year ahead. That work is spread across dozens of contracts, many of which went through a recent review that recommended no immediate funding changes.

Now, several city working groups are assessing Austin's full social service portfolio, community needs and service gaps, the structure and monitoring of city agreements, and public partnerships. That project is expected to be completed before January and will inform the changes expected next year.

“The working groups’ results will help ensure that the reset recommendations are based on evidence, current need, partnerships and best practices, not just what we’ve funded in the past," assistant budget director Daniel Culotta told council at an Oct. 21 briefing.

Zooming in

The performance of nonprofits and other vendors contracting with the city also remains a key issue as the reset advances. Compliance issues were raised in a recent city audit of nonprofit contracts and remain in focus as spending is reviewed.

Assistant City Manager Stephanie Hayden-Howard said the city has policies for vendors that fall short of city goals, with corrective actions like compliance plans to get work back on track. In more serious cases, she said city staff can stop payments or cancel contracts entirely.

“Over the years the departments have terminated contracts, uncovered infractions in billing and required agencies to reimburse the city," she said. "Our departments take compliance very seriously, and staff are committed to being great stewards of public funding.”

Several council members also pointed to the importance of contractor compliance in terms of financial responsibility, as well as public perception. Watson noted that state lawmakers were charged this year to study "safeguarding taxpayer funds," including social services spending and third-party influence in those processes. Watson and city CFO Ed Van Eenoo testified before a Texas House of Representatives oversight committee on those topics in September.

During the October council briefing, Watson said nonprofit contracting doesn't represent inherently good or bad government operations but is a tool that can be used to meet community needs. He also noted the practice can have drawbacks which partially prompted Austin's ongoing review.

Council member Marc Duchen echoed those sentiments, and said the reset can also be an opportunity to highlight the positive outcomes from nonprofit contracts—specifics he said aren't currently available to promote.

"Sometimes it’s the right tool because a nonprofit has specialized expertise, it has people, it has infrastructure, it has relationships that the government doesn’t have, and it may be able to provide that service better or more efficiently than building the capacity inside government. But I never want us to lose sight of the risks that are there as well," Watson said. "There are risks too. And I want to say, I think that’s part of why we need to be doing the drill-down that we’re doing."

Duchen and council member Ryan Alter, who supplemented Watson's call for social services evaluations in the summer, stated city oversight standards could be adjusted in the next year as well. Contract structures should be more performance-based, Alter said, and potentially grant more funding to more successful efforts.

"If it’s a $1 million contract, seems like if you’re doing OK maybe you get $900,000 but if you’re knocking it out of the park maybe you get $1.1 million. So we’re helping advance the work and the organizations that we know are highly successful," he said. "We should try to continue to prop up and expand someone who has proven to do more with less.”

On the flip side, Duchen said any changes related to contract performance should guard against "perverse incentives" for false reporting. He pointed to the city's ending of a homeless shelter contract with nonprofit Urban Alchemy in 2025 due to its staff inflating some operational metrics, saying new standards shouldn't encourage similar activity.

What else?

Separate from the contracting reset, some officials suggested another change to City Council's oversight of nonprofit spending could be in the works.

Today, Austin bans lobbyists for entities involved with city solicitations from communicating with city officials about that process, and from lobbying for or against actions related to the solicitation. However, social services solicitations are fully exempt from that policy.

A 2019 city contracting audit had recommended reconsidering whether social services procurement should be subject to the anti-lobbying ordinance. At the time, city management said a revision would be presented to council—but a change was never made.

Duchen said he'd now like to see council taken out of the contracting process as much as possible, and rely instead on city staff evaluations to avoid nonprofits petitioning officials for funding. Watson said the policy may be revisited soon.

"We don’t do [anti-lobbying] when it comes to nonprofit contracts, but yet we spend more than $100 million on those nonprofit contracts. We ought to do that. We ought to have that as part of our approach," he said.

What's next

Within the next few months, staff involved in the reset initiative will bring several policy areas for City Council committees to consider:

• Validation and prioritization of city contracts, and the issue areas they're responding to

• An accountability framework for contractors to ensure compliance and full performance

• Funding levels and new agreements ahead of final grant and contract approvals

Results from those next steps will play into the start of new city agreements with nonprofits and other local organizations, and overall FY 2027-28 budget deliberations next summer.