New Government-Nonprofit Contracting Reform Resources Available
On December 5, the Urban Institute and the National Council of Nonprofits released separate reports on the state of government-nonprofit contracting and on proven solutions to recurring problems. View the webcast.
- Scope of the Problem: Nonprofit-Government Contracts and Grants: Findings from the 2013 National Survey from the Urban Institute provides key data on the problems experienced by charitable nonprofits in performing work under contracts and grants with governments, including findings on late payments, failure to pay the full costs of services provided on behalf of governments, changes to written agreements in mid-stream, and unnecessarily burdensome application and reporting requirements. Full Report, Brief
- Common Sense Solutions: A Dozen Common Sense Solutions to Government-Nonprofit Contracting Problems from the National Council of Nonprofits explains why reforms are so important right now and provides a menu of proven, replicable solutions that states and localities can utilize to fix broken contracting and grantmaking systems, save money for taxpayers, and work better with nonprofits to serve communities.
The Federal Budget Deal: What It Does, What It Means
Presuming that the Senate approves the bill this week, as expected, the fractured Congress will reach bipartisan, bi-cameral agreement on how much the federal government spends in coming years and how to pay for it, all while maintaining commitments to deficit reduction. By a lopsided vote last week, the House approved the budget deal reached by Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI), chairs of the two Budget Committees. The legislation sets stable spending levels for Fiscal Years 2014 (current) and 2015, effectively averting a federal government shutdown that would have occurred again absent an agreement. Importantly, the deal temporarily turns off $65 billion in additional arbitrary sequestration cuts looming in the New Year and next by raising other revenue (airport fees) and reducing spending on federal employee retirement plans, among other things.
The deal does not address the December 28 expiration of supplemental unemployment insurance for 1.3 million recipients nor the federal borrowing limit (debt ceiling), which could lead to another government shutdown in the spring. Also left undone was action to renew 50 or more expiring tax provisions, collectively known as “extenders,” that include such charitable provisions as the IRA rollover and enhanced giving incentives for donations of food and land conservation.
The resolution of the fiscal disputes, however temporary, means that the field is clear for the debate over comprehensive tax reform to commence in earnest. The Senate Finance Committee Chairman has released several draft reform proposals dealing with tax administration and other issues, and is expected to make public two more provisions before the end of the year. The House tax committee could float draft reform legislation early in the New Year. All of these may include changes to charitable giving incentives and address unrelated business Income taxes (UBIT), executive compensation, payout requirements, and more issues that could affect the ability of charitable nonprofits to pursue their missions.
Regulating Political Activities of Non-Charitable Nonprofits
Two weeks after the Internal Revenue Service and Treasury Department published proposed regulations to address concerns about “political activities” by 501(c)(4) social welfare organizations, the substance is becoming clearer, if not a consensus on what they mean. The draft proposals seek to define the types of political activities that 501(c)(4) social welfare organizations can engage in without running the risk of losing their tax-exempt status. They do not ban any such activities, provide a spending limit, or remove donor confidentiality for partisan spending that would otherwise be made public by entities organized under different sections of the Tax Code. As written, the draft rules do not apply directly to 501(c)(3) charitable nonprofits. Opinions on the proposals are mixed, ranging from cautious optimism by the League of Women Voters, to a balanced review of the progress and dangers of the proposal from Nonprofit VOTE, and a mostly critical analysis from Diana Aviv of Independent Sector and Gary Bass of the Bauman Foundation. Readers are encouraged to read the proposed regulations and these opinion pieces and to submit comments (to IRS REG-134417-13) by February 27, 2014.
Maine Task Force Offers Split Decision on Taxing Nonprofits
Neither “feasible nor desirable” is how the Maine Nonprofit Tax Review Task Force unanimously judged a proposal to allow the State to tax charitable nonprofits on either a temporary or ongoing basis to fill the state’s budget shortfall, as reported in a preliminary report. The Maine Legislature created the Task Force at the end of last session to come up with revenue-generating alternatives of up to $100 million annually when legislators rejected a tax on the revenues and assets of nonprofits. However, by a five-to-three vote, the Task Force recommended that any future discussions o f government extracting monies from tax-exempt nonprofits be limited "solely" to consideration of allowing municipalities to impose new, previously impermissible, fees on charitable nonprofits, and only then after considering multiple factors. The Task Force's draft proposal calls for consideration of factors such as thresholds, caps on assessments, appropriate offsets for community benefits provided by local nonprofits, “and/or consideration of other impacts to communities and the nonprofit entities.”
Taxes, Fees, PILOTs
- Tax Exemptions: The Board of Supervisors in Loudoun County, Virginia has lifted a local moratorium on new nonprofit tax exemptions. Following a fierce debate about the effects new property tax exemptions would have on government revenues, the Board voted to allow local nonprofits to apply for tax exemptions in the spring. “You’re worried about losing revenue from nonprofit, 501(c)(3) organizations, but aren’t we supposed to be fiscal conservatives? Are we supposed to encourage the private sector to do stuff, not have the government do everything,” County Supervisor Suzanne Volpe asked. Board Chairman Scott York, who proposed lifting the ban, says the County should thank nonprofits for their work rather than burdening them with property taxes.
- Property Taxes: The City of Woonsocket, Rhode Island will send a total of $382,040 in tax bills to 13 local nonprofits in July of 2014. Local nonprofits worry about the effects the new property taxes will have on their work in communities: "We're very empathetic to the people in the community and we want to make our contribution," the Executive Director of the local YWCA said. "But in terms of our ability to pay the tax bill, it will certainly hinder our ability to provide services."
- Fees: A top budget watch dog group in New York City is encouraging policymakers to revoke a longstanding (1887) waiver of water and sewer fees for religious nonprofit groups. Under current law, thousands of religious organizations receive up to $242 of free water daily, and a 50 percent discount on charges above that. These discounts for nonprofits total $22 million in lost revenue according to the watch dog group, but defenders of the waiver say that amounts to less than one percent of the city’s $2.8 billion total revenue from water and sewer services.
DC Tax Reform Gives Local Nonprofits Cause for Concern
The Tax Review Commission of the District of Columbia is reportedly promoting a package of recommendations containing several provisions that could negatively affect nonprofits and their work. The most controversial provision would levy a new fee on all DC employers, including nonprofits. The new fee would charge organizations with five or more employees $25 for each employee per quarter. Another provision would increase the District’s phase out of itemized deductions for individuals making more than $200,000 a year from the current five percent to 7.5 percent. Finally, the proposal under consideration would align DC’s estate tax threshold with the federal level, increasing the exemption to $5.25 million from $1 million. The Commission will vote on the proposals this week, before sending its final recommendations to the DC City Council.
Additional State and Local Issues
Washington State Survey Findings: Public Policy is Important for Nonprofits
Washington Nonprofits released the first Washington State of the Sector Report this month, providing essential information about the diversity, economic well-being, and policy perceptions of the state’s nonprofits in 2013. Among other things, the report found that larger organizations and those working on health, human services, and environmental issues were more likely to identify public policy as important to their work. Larger nonprofits also expressed more confidence in achieving positive public policies, likely because these organizations have more capacity to work on policy issues.
Interestingly, all nonprofit survey respondents ranked their own voices and their roles in policy development lower than the importance of the policy process itself, acknowledging perhaps their own need to incorporate advocacy in their pursuit of mission.
“Because of grown-ups fighting, hundreds of miles away,” she remembered saying. “It’s hard to explain to these kids, because that kind of behavior would never be tolerated in a Head Start classroom.”
- quoting Rebecca Hopkins, mother of a child displaced from a Kentucky Head Start class due to sequestration, “How sequester cuts divided the winners from the losers — including Head Start children,” The Washington Post, December 11, 2013.
“Restricting dollars for the administrative costs of programs is akin to giving someone a car but no money for fuel! Scrimping on the basics makes it impossible to reach the intended destination.”
- Keith Cooley, Chairman of Greening of Detroit, in a persuasive op-ed, “Nonprofits need proper funding to succeed,” Crain’s Detroit Business, December 8, 2013. Cooley’s bottom line: “Investing in infrastructure and administration provides the nonprofit sector with the foundation and tools needed to get the job done well.”
The Great Recession, tax policy, and the future of charity in America, Arthur C. Brooks, American Enterprise Institute, December 3, 2013, estimating that a 28 percent limit on the federal charitable tax deduction would result in a loss of giving of about $9.4 billion in the first year.
“Opportunities and Challenges for Nonprofits in California’s Budget Surplus,” Nonprofit Quarterly, December 13, 2013, quoting Kris Lev-Twombly, CalNonprofits Director of Public Policy, explaining what he calls “three truths” about the budget process and how nonprofits can best advocate for themselves, their clients, and causes.
Senator Wyden defends charitable donation tax breaks, KATU News, Portland, OR, December 2, 2013, TV news report of Oregon Sen. Wyden’s public efforts to promote the charitable giving incentive (that tall fellow in the background is Jim White, Executive Director, of the Nonprofit Association of Oregon).