Nonprofit Advocacy Matters Archive

Nonprofit Advocacy Matters | Special Edition: Game-Changing Grants Guidance from OMB

December 19, 2013

Special Edition

New Federal Grants Guidance Addresses Nonprofit Concerns, Streamlines Reporting and Accounting

The White House Office of Management and Budget (OMB) today released its long-anticipated overhaul of federal grants policies and procedures, and charitable nonprofits achieved several important goals that will strengthen organizations performing work in communities on behalf of governments and the nonprofit community as a whole.

Titled “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” the final guidance [pre-publication copy] will require state and local governments using federal funds to reimburse nonprofit contractors and grantees for reasonable indirect costs, sometimes called administrative or overhead expenses. The guidance will allow nonprofits to focus more on delivering services in their communities, and spend less money on wasteful paperwork by raising the Single Audit threshold to $750,000, eliminating duplicative and unnecessary audit criteria, and clarifying cost allocation rules.

In a statement, the National Council of Nonprofits summarized the significance of the new OMB guidance this way:

“The new guidance means that nonprofits should be able to focus more on their missions and should be under less pressure to raise additional funds to essentially subsidize governments. In turn, charities with no government contracts or grants could see less competition for scarce philanthropic dollars. This is a major win for the entire charitable nonprofit community.”

At issue is the clear requirement in the guidance that pass-through entities (typically state and local governments) reimburse their nonprofit contractors and grantees for their reasonable indirect costs. A nationwide study published December 5th by the Urban Institute found that governments arbitrarily limit indirect costs for necessary program and organizational expenses; one in four nonprofits (24 percent) reported that governments refuse to pay any indirect costs of the organization, and half (49 percent) reported that they were limited to 7 percent or less. This will no longer be tolerated when federal funds are involved.

Highlights from the Grants Guidance

Here are a few highlights of the new OMB Grants Guidance:

  • Indirect Costs: The OMB Guidance explicitly requires pass-through entities (typically states and local governments receiving federal funding) to either honor a nonprofit’s negotiated indirect cost rate if one already exists or negotiate a rate in accordance with federal guidelines. Nonprofits will be empowered to elect an automatic indirect cost rate of 10 percent of modified total direct costs (MTDC) – which can be used indefinitely if they so choose – or negotiate a higher rate.
  • Direct Costs: The guidance makes clear that, in certain circumstances, program administration (e.g., secretarial staff dedicated to a specific program) can be reported as direct, rather than as indirect, costs.
  • Audit Rules: The new guidance also raises the threshold for a single audit (A-133) requirement from $500,000 to $750,000, thus reducing costs for smaller contracts and grants.
  • Streamlining Federal Guidance: The new guidance consolidates and streamlines eight OMB circulars, including OMB Circulars 110 and 122 that relate to charitable nonprofits. As a result, applications and reporting will be standardized and streamlined to provide more consistency across various federal agencies.
  • Effective Date: Unclear, but presumably a year after publication in the Federal Register on December 26, 2013.

The network of the National Council of Nonprofits actively promotes reforms to government contracting and grants such as these being implemented by the federal government. Readers are encouraged to contact their state association of nonprofits to learn more about their efforts to streamline and improve contracting and grants in your state. Learn more about ongoing government-nonprofit contracting reform efforts across the country at www.govtcontracting.org

Nonprofit Advocacy Matters | December 16, 2013

December 16, 2013

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.

Federal Issues 

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.

State and Local Issues 

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

Advocacy in Action 

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.


Worth Quoting

“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.”

Worth Reading

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.

Worth Watching

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).

Nonprofit Advocacy Matters | December 2, 2013

December 2, 2013

Federal Issues

Treasury, IRS Propose Major Shift in Electioneering Rules for Non-Charitable Nonprofits

The Treasury Department and Internal Revenue Service issued proposed regulations last week that would restrict the types of political activities that 501(c)(4) social welfare organizations could engage in without running the risk of losing their tax-exempt status, but stopped short of providing a clear percentage or “bright line” for determining how much political activity would be considered too much. The proposed rules would create a new term, “candidate-related political activity,” that is drawn from federal election campaign laws to distinguish what activities will not be considered related to promoting social welfare. In addition to retaining current restrictions on election-related activities (e.g., prohibition on direct contributions to candidates), the proposed definition of “candidate-related political activity” would include running ads that name candidates shortly before elections. The rules would also apply to a broader array of offices beyond elective offices under current rules to also include activities in support or opposition of the appointment or confirmation of executive branch officials and judicial nominees. Also falling under the definition would be partisan and nonpartisan activities such as voter registration drives, get-out-the-vote efforts, candidate forums, and voter guides. The proposal asks for public comments on what types of activities should be exempted from this blanket inclusion of measures many organizations consider essential to their missions of promoting civic engagement and democracy.

On the controversial question of how much “candidate-related political activity” is too much, Treasury and the IRS toss that hot potato to the public which is asked to weigh in with comments on what is an acceptable level (beyond the current vague regulatory standard of engaging “primarily” in social welfare activities) and how to measure those activities. The public is also asked to opine on whether rules similar to the proposed rules should be applied to 501(c)(3) charitable nonprofits, 501(c)(5) labor unions, and 501(c)(6) chambers of commerce and trade associations. Comments should be submitted to the Internal Revenue Service by February 27, 2014.

Budget Negotiators Aiming Low, May Hit the Target

A grand budget bargain, it’s not, but budget negotiators working on a deal to keep the government operating into the New Year reportedly are close to reaching an agreement on two important issues: (1) setting overall spending levels for the rest of the current and 2015 fiscal years, and (2) curbing some of the second wave of arbitrary sequestration cuts that otherwise go into effect on January 15, 2014. To date, the House and Senate have been nearly $90 billion apart on how much to spend this fiscal year that started in October. Negotiations have been stuck in the same partisan positions from the past three years – raising taxes versus cutting spending in entitlement or mandatory programs. The leaders of the budget negotiations, Senator Patty Murray (D-WA) and Representative Paul Ryan (R-WI), reportedly are seeking to reduce the additional automatic and arbitrary sequestration cuts by coming up with a combination of non-tax revenue gains, including user fees and sale of wireless spectrum, and modest cuts in mandatory spending in such areas as federal employee retirement plans. The legislation that funded federal programs after the government shutdown gave the budget conference committee until December 13 to strike a deal. That legislation, known as a Continuing Resolution, expires on January 15 and another federal government shutdown is possible unless the House, Senate, and President can agree on a spending plan.

Influential Senators Make Bi-Partisan Call for Support of Charitable Giving Incentive

The charitable giving incentive should be protected during the rewrite of the federal tax code, according to a letter to leaders of the Senate Finance Committee signed by Senators Ron Wyden (D-OR) and John Thune (R-SD). “It is the only provision that encourages taxpayers to give away a portion of their income for the benefit of others,” the Senators wrote, stressing, ”For this reason, it is not a loophole, but a lifeline for millions of Americans in need.” The letter is significant both because of what it says, and because of the influence that the writers wield in the Senate. Senator Wyden is scheduled to become the top Democratic tax writer in 2015 upon the retirement of current Finance Committee Chairman Max Baucus (D-MT). Wyden is a long-standing supporter of tax incentives for giving, including retaining the charitable deduction in a bi-partisan comprehensive tax overhaul bill he sponsored with Senator Dan Coats (R-IN). Senator Thune serves as Chairman of the Senate Republican Conference, the number three position in Senate Republican leadership, and has been a consistent critic of efforts to curb or eliminate charitable giving incentives. Both Senators Wyden and Thune are members of the Senate Finance Committee.

Additional Federal Issues

State and Local Issues 

States Can’t Show Job Growth from Tax Incentives Given to Businesses

Half of states lack the ability to measure the outcomes of the incentives they hand out to for-profit companies in the name of creating new jobs, and only a quarter have workable measures, according to a study from the Pew Center on the States. Every state has at least one jobs tax incentive, according to the report, “but no state regularly and rigorously tests whether those investments are working and ensures lawmakers consider this information when deciding whether to use them, how much to spend, and who should get them.”

News reports appear to confirm the Pew findings and suggest further that incentives to for-profit businesses may not be effective. For example, Georgia has given $106 million in tax breaks to companies that failed to deliver 42 percent of the jobs they promised. Tennessee’s Jobs Tax Credits programs are being criticized after an audit last month revealed that state officials were unable to prove many of the businesses receiving credits had produced the required number of jobs or capital investments. The Illinois Governor’s $527 million worth of tax breaks are also under fire: "Politicians love these types of programs because they can point to the jobs they created," one economics professor warns. "But the problem is it's hard to measure the jobs lost through higher taxes paid by other businesses that pay for these programs." After a drawn-out jobs incentive race with neighboring Kansas, the Governor of Missouri has called for a moratorium on certain business incentives that he says have moved jobs around the state rather than creating new ones.

Government-Nonprofit Contracting Updates
Kansas Shifts Human Service Delivery from Nonprofits to For-Profit Companies

Kansas will become the first state to shift responsibility for delivery of services to developmentally disabled people away from the current network of community-based nonprofits to for-profit companies based out of state. As a result of the change, three insurance companies will be making final decisions about who is eligible for care and which services are appropriate and reimbursable. Currently, community-based nonprofits and county agencies have that responsibility. Families and advocates reportedly are worried that the insurance companies lack experience in managing statewide programs of this complexity and may make decisions based on profit motives rather than on the wellbeing of disabled individuals. The switch from government and nonprofit oversight to for-profit management is under consideration in Louisiana and New Hampshire.

Late Payments, Management Problems Cost Pennsylvania Taxpayers $7 million

Lax management, unfair bidding practices, and late payments to contracted home care providers cost Pennsylvania taxpayers $7 million, according to a new report from the Commonwealth’s Auditor General. The identified problems stemmed from a new contract between the Department of Public Welfare and a financial service provider that the Auditor General found was awarded based on preferential treatment. During the transition to the new provider, contracted home care workers did not receive payments for up to four months. These contract payments, which amount to the home care worker’s paychecks, cover medical services allowing elderly and those with disabilities to remain in their own homes. The lack of payments resulted in 1,600 patients obtaining services elsewhere, at a higher cost, when their home care providers were forced to leave their jobs.

Incoming Pittsburgh Mayor Opts for Confrontation, Collaboration - Simultaneously

The Mayor-Elect of Pittsburgh is pushing for changes that could have both negative and positive effects on local nonprofits. Even before being sworn in as Pittsburgh’s new Mayor, Bill Peduto is calling for an aggressive approach to extracting payments in lieu of taxes (PILOTs) from larger nonprofits by replacing the City’s annual agreements with the Pittsburgh Public Service Fund (PPSF) for millions of dollars with a longer-term agreement that would demand even more money. At the same time, he reportedly is creating a nonprofit liaison office focused on working collaboratively with local nonprofits to improve the work being done in low-income communities. "We need to be able to create a city government that enables you to carry out your mission," the Mayor said to an annual convening of area nonprofits.

Additional State and Local Issues

Advocacy in Action 

Reality-Driven Policy Priorities

In Montana and elsewhere, it has proved difficult this year to gauge the effects on charitable nonprofits of congressional actions and inactions on such issues as the federal government shutdown, the fiscal cliff, arbitrary sequestration cuts, and the Affordable Care Act, to name only a few. In October, the Montana Nonprofit Association (MNA) asked charitable nonprofits “How are you faring?” Seventy organizations responded, and the results will be used to inform and motivate the State Association’s policy and advocacy work on the largest federal policy issues affecting nonprofits.

Here’s what MNA learned from survey participants:

  • More than two-fifths of nonprofit survey respondents say they were directly affected by the federal government shutdown. More than twenty percent of respondents said the services they provide were affected.
  • More than 40 percent of respondents also said they were directly affected by sequestration, the arbitrary, across-the-board federal spending cuts that started going into effect in March.
  • Only 56 percent of nonprofits say they understand and are prepared for the implementation of the Affordable Care Act.

MNA also received compelling, real-world stories from nonprofits. Here is one example:

“After having two years of primarily flat funding, sequestration reduced our funding levels by 5.27%. It was a major hit to our budget. The bills continue to come in and the cost of business continues to increase at a rate not adequately addressed by our funding. The needs in the community by low-income families continues to increase and demand for services is ongoing.”

MNA plans to continue offering surveys in the coming year so that it can develop and pursue public policy priorities based on its members’ experiences in the ever-changing operating environment in which nonprofits work.

Worth Reading

State Expenditure Report, National Association of State Budget Officers, November 2013, reporting that overall spending by states in 2012 declined for the first time in the 26-year history of the annual report that provides state-by-state data.

Recommitting to the Nonprofit Sector: Creating a Path to Sustainability through Policy Change,” Human Services Council of New York, proposing a series of 15 policy recommendations to address underlying flaws in the human services delivery system and to help ensure nonprofit providers can continue to provide quality services to New York’s most vulnerable populations.

Worth Quoting

"There's been no letup since the Great Recession hit. We're talking about people who have to decide between buying food and paying the rent, or between food and medicine. It's a very difficult situation."
- Michael Flood, president of the Los Angeles Regional Food Bank, quoted in “Food insecurity shows no sign of improvement,” Los Angeles Times, November 25, 2013.

“It is difficult to swallow that nonprofits are being taxed in order to give for-profit businesses a tax break,”
- John Ellis, director of the Diana Wortham Theater in Asheville, NC, quoted in “Tax reform seems more like a tax shift,” editorial in Asheville Citizen-Times, November 22, 2013.

Nonprofit Advocacy Matters | November 18, 2013

November 18, 2013

Federal Issues

Budget Negotiations Show Little Progress, Tax Reform Delayed

Little progress has been made over negotiations to set federal spending levels for the current fiscal year; other priorities like comprehensive tax reform are slowing as a result. A Senate-House budget conference committee was empaneled as part of the deal to reopen the federal government and given a deadline of December 13 to produce a federal budget for fiscal year 2014. Talks appear to have stalled over how much to spend – the two chambers of Congress are $91 billion apart – and about whether and how to replace the second year of across-the-board spending cuts, known as sequestration, with alternative cuts and new revenue, either from closing tax loopholes or reforming some mandatory programs. Without an agreement, the federal government could face another shutdown on January 15 when the current, temporary spending law expires and the second phase of sequestration cuts automatically go into effect. A victim of the slow budget negotiations appears to be disclosure of draft tax reform packages, which the chairmen of the Senate and House tax committees had pledged to release this year. Some legislators have expressed concern that budget negotiators would take a list of tax reforms and “cherry pick” ones that could be used to replace spending cuts.

Additional Federal Issues

State and Local Issues 

Tax Reforms Could Undermine the Work of Nonprofits in Nebraska and Vermont

Proposals to impose caps on all itemized deductions, including the charitable giving incentive, have surfaced and could be considered early next year in Nebraska and Vermont as part of their states' comprehensive tax reform initiatives. Nebraska’s Tax Modernization Committee, which began a series of hearings in September, released a package of recommendations last week that includes a cap on all itemized deductions at $25,000 for individuals with annual incomes of $400,000 and more. The committee will vote on the proposal on December 3 and must submit its final recommendations to the Legislature by December 15. The Nonprofit Association of the Midlands in Nebraska submitted testimony to the committee in October providing community-based perspectives and remains active on the issue.

Taking a slightly different approach in Vermont, a proposal from earlier this year would curb all itemized deductions, including the charitable giving incentive, at 2.5 times the standard deduction (about $15,250 for individuals and $30,500 for joint filers). Vermont’s Property Tax Exemption Summer Study Committee also recently considered property tax reform provisions from an older bill that would affect nonprofits in two ways: 1) require nonprofit colleges to negotiate payments in lieu of taxes (PILOT) agreements with local governments, and 2) replace existing requirements for education tax exemptions with a more burdensome process that requires both state and municipal approval. Common Good Vermont held a special call-in television show featuring the chairs of the House Ways and Means and Senate Finance Committee to discuss the two proposals and their implications for the work of nonprofits.

Taxes, Fees, PILOTs

  • Business Taxes: The City Council of Bellingham, Washington unanimously voted in favor of drafting an ordinance to repeal an exemption and impose the business and occupation tax on nonprofit religious health-care providers. PeaceHealth St. Joseph Medical Center, the only organization affected and the only hospital in Bellingham, would be required to pay roughly $1.2 million more in taxes per year. The tax exemption based on religious preference had been in effect since 1955. Similarly, New Hampshire policymakers are likewise expected next year to consider a proposal to levy business taxes on larger education and hospital nonprofits.
  • Property Tax: The Board of Supervisors in Loudoun County, Virginia rejected a call by several nonprofits – including a nonprofit helping disabled persons, another serving wounded veterans – to end a moratorium on tax exemptions imposed in 2008, thereby requiring the organizations to continue paying property taxes.
  • Fees: North Dakota’s Interim Taxation Committee has asked legislative council to draft a bill for the 2014 session that would empower localities to assess fees or taxes against nonprofits to pay for city services. The North Dakota Association of Nonprofit Organizations (NDANO) opposed similar legislation that failed during the 2013 session. The Committee will meet again about the proposed legislation early next year.

Judge Hints Private Foundations Should Pay In Detroit Bankruptcy

In what could be a dangerous precedent-setting decision for other financially strapped cities, the federal judge mediating Detroit’s bankruptcy case seems poised to pressure private foundations in Michigan and elsewhere to divert up to $500 million from their private assets to pay for public obligations. Under the proposal floated at a closed-door meeting and recently hinted at in public settings, the private foundation boards would have to take limited charitable assets to create a new fund to help shore up Detroit's significantly underfunded public employee pension plans. Nominally it is being positioned publicly as being done not to replace government obligations but to save the art collection of the Detroit Institute of Art (DIA) from the auction block to preserve the City’s famous privately-donated arts and cultural assets. The proposal is raising many concerns, including that private foundations, like public charities, are independent entities under federal and state law with the right to make their own decisions about how to use their assets. Read more about nonprofit independence in the Council of Nonprofits’ public policy agenda.

Additional State and Local Issues

Advocacy in Action 

Washington Nonprofits Partner with the State’s First Lady to Demonstrate Nonprofit Impact

The First Lady of Washington State, Trudi Inslee, is teaming up with Washington Nonprofits in a series of community visits designed to demonstrate the impact of the nonprofit community and discuss the importance of the public and private sectors partnering for a stronger, collective impact. "This day provided a great example of how nonprofits, working across sectors, play a vital role in making a measurable difference on health outcomes," said Washington Nonprofits Executive Director Alison McCaffree after a series of meetings at a health facility. "Our broad goal for the 'Trudi visits' is to facilitate a conversation about how nonprofits can develop a closer working relationship with the public and private sectors in communities across the state. A key element of that conversation is finding ways to help nonprofits demonstrate and communicate their impact at both the sector and cross-sector scales."

The meetings support the First Lady’s efforts to improve public health outcomes through the Thurston Thrives Initiative. "Health is a complex issue, with many interconnected pieces," the First Lady said. "Nonprofits provide many of the services that support a healthy community. I believe a closer partnership between the public, private, and nonprofit sectors will help communities and the state make measurable improvements in people's lives."



Worth Reading
Governments Giving Nonprofits Angst,” New York Times, November 7, 2013, reviewing the impact of government spending cuts on the people nonprofits serve, the failure of charitable giving to keep up with demand, and challenges at the federal and state levels to the charitable giving incentive.

Options for Reducing the Deficit: 2014 to 2023, Congressional Budget Office, November 13, 2013, providing revenue estimates for a menu of 103 different mix-and-match options for reducing the deficit, including placing a 2% floor on charitable giving before a deduction could be claimed ($212 billion), limiting the value of itemized deductions to the 28% tax bracket and other changes ($71 to $146 billion), but without providing detailed analysis of reductions to giving or the negative effects on the work of nonprofits in communities.

As Washington keeps sinking, governors rise,” New York Times, November 9, 2013, reporting on the efforts of Governors across the country to enact reform in their states while policymakers in Washington, DC, struggle with partisan gridlock.

America's Big Cities in Volatile Times,” American Cities Project of the Pew Charitable Trusts, November 11, 2013, analyzing the effects of the Great Recession on the 30 largest cities, and including an interesting chart on the sources of revenue for those cities.

Worth Quoting
“The need is tremendous in Northern Michigan and homelessness is epidemic here. There is so much need and so little we can do for people, and the government people are not meeting people’s needs, so it takes a lot from the faith-based community or private entities to help people survive.”
- Pastor Ginger Stevens discussing the impact of recent cuts to supplemental nutritional assistance program (SNAP, formerly known as food stamps), as quoted in thePetoskey (MI) News-Review, November 8, 2013.

Nonprofit Advocacy Matters | November 4, 2013

November 4, 2013

Federal Issues

Creative Solutions Floated as Budget Gridlock Continues

Both chambers of Congress and political parties remain far apart on the major questions of how much to spend, tax, and raise the debt limit; whether and how to replace arbitrary spending cuts known as sequestration; and what reforms, if any, are needed to reduce the costs of mandatory spending programs like Medicaid, Medicare, and Social Security. Yet, amid such gridlock, and perhaps out of frustration arising from the 16-day federal government shutdown, elected officials are openly proposing targeted solutions. Three Democratic Senators are introducing a measure to change how Congress deals with the need for additional federal borrowing – from laws raising the federal debt limit to legislation that disapproves of debt ceiling hikes. “The way it works right now, the debt ceiling is like a ticking time bomb that threatens huge economic destruction,” Senator Schumer (D-NY) told reporters. “This bill would defuse it.” Separately, a Republican and a Democratic Senator are reviving proposals to give federal agencies more flexibility in managing the sequestration cuts to replace the current arbitrariness with some degree of informed needs assessment. Members of a budget conference committee of the House and Senate met last week, espousing enthusiasm for bi-partisanship and acknowledgement that the era of government-by-crisis has to stop. However, persistent lines in the sand – no new taxes vs. no changes to mandatory programs without new taxes – presage more of the same.

Victimized Nonprofits Draw Scrutiny from Congress

A few Members of Congress are following the lead of the Washington Post in launching investigations into nonprofits that disclosed "diversions of assets" in recent years. On October 27, the Post published a front-page “exposé” of 1,000 nonprofits that checked "yes" on a question on the Form 990 that asks “Did the organization become aware during the year of a significant diversion of the organization’s assets?” Unfortunately, the story is framed in an inflammatory way that makes it look like nonprofits are active participants in fraud, rather than victims of the acts of others. Yet, as pointed out in an op-ed by the National Council of Nonprofits in the Chronicle of Philanthropy, a review of the statements in the Form 990s compiled by the newspaper reveals that some bad actors were external to the nonprofits (such as outside for-profit entities caught submitting false invoices) and sometimes internal (such as employees caught stealing). Other times the situations simply involved unfortunate circumstances (such as nonprofits innocently paying outside vendors that went bankrupt). Members of Congress and nonprofits concerned about a backlash against the victims of diversion of assets would do well to read the careful analysis by Rick Cohen of the Nonprofit Quarterly.

Additional Federal Issues

State and Local Issues

Expiration of Food Aid Increases Pressure on Nonprofits

Charitable nonprofits across the country are bracing for increased demands to help millions more people this month and beyond because of the expiration of a temporary boost to the federal Supplemental Nutrition Assistance Program (SNAP) enacted in 2009 to help alleviate the effects of the recession. About 47 million Americans (14 percent of all U.S. households) receive food aid through SNAP, formerly known as food stamps. Weekly SNAP support is expected to decline by about $10 per person; a single mother with two children will receive $29 less per week. State and local governments either cannot or will not step in to replace the assistance that has expired. Some government officials reportedly are encouraging people to seek help from local charities and churches, demonstrating a failure by policymakers to recognize that nonprofits and foundations already have been stretched far beyond capacity since the Great Recession began. For instance, the Nonprofit Finance Fund’s nationwide research found that in 2012, for the first time in the history of that organization’s surveys, a majority of nonprofits reported that they could not meet the increased demand for their services.

Nonprofits have been speaking out about what the expiration means for their organizations and their ability to provide services. The director of a New Jersey food bank warned, “To put it bluntly, we can’t come in and make up $90 million across the state.”  A representative at the Oregon Food Bank agreed, saying "The timing of these cuts is really unfortunate because we are going into the cold weather season and this is where we see some of the greatest demand.” The concerns extend far beyond food banks to other charitable nonprofits, including religious congregations. In 2012, more than 70 percent of churches surveyed reported increased demand for services. “Charities cannot fill the gap for the cuts being proposed to SNAP,” Maura Daly of Feeding America warned, stating further, “We are very concerned about the impact on the charitable system.”

District of Columbia Weighs Tax Reform Options

The DC Tax Revision Commission is considering several proposals for raising revenues for the District that could adversely affect charitable nonprofits. As part of property tax reforms, the Commission is reviewing a variety of options, including a proposal to create a Boston-like PILOT scheme for larger nonprofits in the District. The Commission is also examining a proposal to impose a fee or tax on most DC employers, including nonprofits, requiring them to pay $50 to $100 per employee annually. Exceptions could include DC and federal government workers and low-income/part-time workers. The Commission met last week and is expected to offer its recommendations in December.

Other Taxes, Fees, PILOTs News

  • Property Taxes: The Vermont Supreme Court has ruled that a local nonprofit church must pay property taxes on its camp. The court held that “[I]f the Legislature had intended that the pious-use exemption be available to any property, building or storefront used to propagate a religious message or for a worshipful purpose, as suggested by the Church, it would have said so, and would not have enacted a specific and limited list of property subject to the exemption.”
  • SILOTs: A Middlebury, Vermont Planning Commissioner is calling on local nonprofits that do not pay property taxes or payments in lieu of taxes (PILOTs) to instead contribute to the City by adopting public gardens. Known as services in lieu of taxes (SILOTs), this sort of proposal also surfaced last year in Reading, Pennsylvania, where the Mayor asked nearly 240 nonprofits to participate in cleanups or adopt city blocks and parks.
  • Fees: Nonprofits in Maryland and Illinois are pushing back against a new type of fee some localities are levying on properties to pay for stormwater remediation. The American Civil Liberties Union (ACLU) of Maryland expressed concerns to the Anne Arundel County Council this month about the unequal treatment of religious and non-religious nonprofits under the County’s new stormwater fees. The Anne Arundel County Council set the fees at only $1 a year for churches and religious nonprofits and later voted to cut by one-third (to about $600 per acre) the stormwater fees for all other nonprofits. The ACLU warned that in order to “eliminate any preferential treatment based on religion,” all tax-exempt organizations should be offered the same discount on their fees. The Village of Westmont, Illinois is currently considering whether to levy a similar stormwater fee on local nonprofits. Nonprofits in a neighboring town are protesting similar fees enacted earlier this year.

Government-Nonprofit Contracting News
New York Governor Vetoes Prompt Payment Reform

New York Governor Cuomo vetoed legislation designed to ensure nonprofits were treated as fairly as for-profit contractors who received interest in a timely manner on late payments for services performed on behalf of the state. Currently, New York law does require interest to be paid to nonprofits when payments for services are made late, but no time frame exists for when these must be paid. The legislation would have required interest payments to be made within 30 days of issuing the late payment.

What Nonprofit CFOs Have to Say About Government Contracts

More than nine out of ten nonprofit chief financial officers agree that government grants and contracts add a new level of challenge to their work, according to a survey conducted by Blue Avocado. The CFOs responding to the survey cited late payments from governments as a cause for their limited cash flow, with 80 percent reporting that having enough cash on hand to make payroll is difficult. The survey also found that nonprofits with significant government contracts tended to have more difficulty finding trained staff to hire (70% vs. 30%), more difficulty getting staff to comply with accounting procedures (69% vs. 31%), and more difficulty working with contracts (73% vs. 27%).

Contracting Reforms and Grantmaking Goals Converge

Real Talk About Real Costs videoGovernments and private funders alike are getting the message that good outcomes require investments, that charitable nonprofits must spend on infrastructure and administrative expenses to be most effective and efficient. A longstanding concern of nonprofits that contract with governments is that the governments fail to pay the full costs for what it takes to provide services, and in particular that indirect costs are not reimbursed at rates in line with reality and best practices. (See National Council of Nonprofits report: Investing for Impact.) Over the past year, Donors Forum in Illinois, in partnership with the Bridgespan Group, has been working to change the usual conversation with foundations and individual donors about overhead costs to asking the question, “What do good outcomes cost?” To support their efforts, Donors Forum created a video, If We Want Our Funding to Change the World …, to serve as a conversation starter.

Additional State and Local Issues

Advocacy in Action 

Advocating Responsibly this Election Season

New Jersey’s gubernatorial race is just a day away (November 5) and the Center for Non-Profits, the state association of nonprofits in the Garden State, has seized the occasion to remind its members that charitable nonprofits are permitted to work on ballot initiatives, voter engagement, and other policy-focused activities during the period of time before an election. In a message to members, the Center shares some simple rules to keep everyone engaged and legal:

  • No Endorsements: Nonprofits are not allowed to endorse, promote, or oppose candidates.
  • Be Nonpartisan: Nonprofits can encourage people to vote and provide voter education, but they cannot influence who someone votes for. As trusted organizations that exist for the public good, nonprofits must be unbiased and nonpartisan.



Worth Reading

Nonprofit and Public Sectors Work Together,” Lisa Maruyama, president and CEO, Hawai`i Alliance of Nonprofit Organizations, writing in Transform Hawai’i Government, September 2013, cataloguing some of the many benefits of a government-nonprofit task force: “enhanced communications, coordination, transparency and accountability between departmental agencies, within agencies and between agencies and nonprofit providers.”

11 questions about the next front in the Washington budget war,” Lori Montgomery, Washington Post, October 29, 2013, providing clear, slightly bemused answers to questions about the federal budget deadlock.

Worth Quoting

“Many charities stepped up in this time of need.”
- Elaine Kaplan, acting director, U.S. Office of Personnel Management, in a October 24 letter extending the solicitation period for the Combined Federal Campaign to compensate for the time lost during the government shutdown.

“Where we are is the case of so many nonprofits: We have not returned to pre-recession levels. I think the whole sector is trying to regain lost ground, and we are one of those organizations.”
- Sherrie Brach, executive vice president for investor relations at United Way Worldwide, quoted in the Chronicle of Philanthropy, October 20, 2013.

Nonprofit Advocacy Matters | October 7, 2013

October 7, 2013

Paying for Indirect Costs Essential to Success, New Report Finds

Investing for ImpactPrevailing government policies and practices render many charitable nonprofits less efficient and effective, according to findings presented in a new report by the National Council of Nonprofits. Investing for Impact: Indirect Costs are Essential for Success details how a combination of inconsistent terminology by governments, arbitrary application of those terms, and unrealistic expectations impair the ability of nonprofits to deliver services that governments at all levels contract with them to provide and weakens the viability of the entire sector to provide services to the public on behalf of governments. Among other findings, the report challenges outdated thinking and demonstrates that actual indirect costs range from 20 percent to 40 percent at charitable nonprofits.

Investing for Impact offers practical solutions that governments at all levels can adopt to strengthen the government-nonprofit contracting relationship while ensuring higher-performing partners and cost savings for taxpayers. Charitable nonprofits are invited to help ongoing contracting reform efforts by sharing your experiences and problems with contracting with local and state governments. For more on the report and on the Council of Nonprofits’ government-nonprofit contracting reform initiative, go to www.govtcontracting.org.

Federal Issues 

Long Federal Shutdown Means Greater Demands, Impact on Nonprofits

When the federal government shut down on October 1 due to the failure of politicians to reach agreement on a bill to fund federal programs, many people presumed that the government would be closed for only a few days and the impact would be relatively light. However, the widening chasm between the political parties suggest that the shutdown could continue for weeks, perhaps even spilling over to and beyond the October 17 date when the federal government will hit the statutory debt limit. Every day of shutdown increases the tally of adverse effects for nonprofits and the people they serve. Many federally funded, community-based programs that provide food for infants, children, veterans, and seniors, such as Meals on Wheels and WIC (Women, Infant, and Children Supplemental Nutrition), report having only enough resources to continue operating for a few more days. At least 23 Head Start programs in 11 states have already run out of money, leaving children without access to vital educational programs and their parents scrambling for options. People who could be applying for Social Security, Medicare, Medicaid, veterans' benefits, or other essential programs -- all of which have been idled during the shutdown -- turn to charities for help. Members of the VISTA national service program continue to accrue their stipends during the shutdown, but they won’t be paid until government operations resume, according to the Corporation for National and Community Service; yet, VISTA participants reportedly are prohibited from taking second jobs to earn other income while they wait to be paid. 

Government shutdowns – just like arbitrary sequestration cuts – may stop funding, but they do not stop human needs. Indeed, they actually increase needs. When people are in need, they turn to charitable nonprofits for help – yet nonprofits have been stretched beyond capacity the last several years since the Great Recession due to higher demands for help and reduced revenues.

State and Local Issues 

Dealing with the Federal Government Shutdown at the State Level

The National Governors Association has made clear that state governors oppose the federal government shutdown and are concerned about whether and how the states will backfill reduced federal support, especially if the political impasse goes on for long. “We will not be acting as the federal government's bank,” said Michigan Budget Director John Nixon, suggesting that individuals will have to turn elsewhere for help. Arizona took it a step further, cutting off welfare assistance to the very poor. To avert additional pressures on nonprofits and their communities, State Associations across the country are working to prepare nonprofits for the range of effects the government shutdown could have on their work and the people they serve:

Nonprofits Prepare for 2014 State Tax Reform Discussions

Tax reform discussions for the 2014 legislative sessions are already underway across the country. Last week New York Governor Cuomo announced the creation of a new tax reform committee tasked with reducing sales taxes for individuals and businesses. The new tax committee must submit its report to the Governor by December 6, 2013. The Nebraska Legislature’s Tax Modernization Committee kicked off a series of tax reform hearings in September that seek to gather input from the public on tax reform topics. The Committee has until December 15 to submit its recommendations to the Legislature. The Nonprofit Association of the Midlands is working to engage local nonprofits in the state tax reform dialogue to ensure the organizations have a seat at the table on tax changes that could negatively affect their work in communities. Vermont policymakers during their 2014 session are also expected to discuss a tax reform proposal that would cap all itemized deductions, including the charitable giving incentive, at 2.5 times the standard deduction. Common Good Vermont and several other nonprofits in the state have already voiced concerns about the proposed change.

Taxes, Fees, PILOTs

  • Property Tax Exemptions: The New Jersey Supreme Court ended a decade-long battle over property taxes, ruling that nonprofit organizations that provide housing and other services to mentally ill and disabled persons do not owe property taxes on their residential facilities. The Court’s unanimous decision stressed the importance of protecting nonprofits’ tax-exempt status because it decreases the demands on government. The case represents a crucial precedent in New Jersey, where the state and local governments have tried on several other occasions in recent years to levy taxes, fees, or PILOTs on charitable nonprofits.
  • Property Tax Exemptions: The Ohio Tax Commission ruled that a hospital must be reimbursed for more than $1 million in property taxes assessed by a local school district. The nonprofit hospital had been paying property taxes for five years despite having applied for tax-exempt status in 2008. The Commission ruled that the hospital is classified as a nonprofit organization and, therefore, should have been exempt from property taxes during this period.
  • Business Taxes: A New Hampshire State Representative is considering submitting a bill that would apply the state’s Business Enterprise Tax to nonprofit colleges and hospitals. The tax currently charges businesses above a certain size a 0.75 percent fee on interest, dividends, and compensation, but exempts charitable nonprofits. Some nonprofits in New Hampshire are pushing back against the idea: “They provide a public good, which is why they’re exempt from the Business Enterprise Tax and generally exempt from taxes,” a nonprofit representative said. “It would be a direct challenge to their tax-exempt status.”

Government-Nonprofit Contracting News
Illinois Implements Reforms that Benefit Nonprofits and Taxpayers

Illinois taxpayers, individuals receiving vital services, and nonprofit service providers are the beneficiaries of ongoing contracting reform efforts. Key areas of progress include creation of an electronic document repository, reduction of nonprofit monitoring from annual reviews to once every three-to-five years, and adoption of a common contract agreement template that five separate state agencies can use, according to a report to the Illinois General Assembly from the Management Improvement Initiative Committee (MIIC). The Centralized Repository Vault (CRV) is generating savings by allowing nonprofits to electronically upload standard documents like an organization’s articles of incorporation and IRS Form 990 only once, when previously they were required to submit as hard copies to each state agency multiple times – thus saving taxpayers the costs of storage and retrieval. The MIIC is also working on a process for accepting deemed status of service providers to reduce regulatory burdens on nonprofits and a new standardized billing system and reporting format. MIIC was created in 2011 by the General Assembly to improve government-nonprofit contracting practices and procedures across Illinois’ five human services agencies

Denver Strengthens Partnership with Nonprofit Contractors

Nonprofits in Denver are seeing positive results from the City’s efforts to improve contracting and partnerships. The Denver Office of Strategic Partnerships (DOSP), which serves as a liaison between the City and local charitable nonprofit service providers, last week began posting a listing of funding opportunities on DOSP’s website and expanding its newsletter to highlight City funding opportunities for their nonprofit partners. The Office also released a guide for City agencies on the selection process for nonprofit funding streams to support efforts to structure a clear and transparent selection process, and is providing training to City employees on working effectively with nonprofits. Denver’s commitment to streamlining contracting processes is demonstrated by DOSP Executive Director, Dace West: “As a City, we elect to work with the nonprofit community to complement and support services already provided by City agencies or to meet needs that the City does not have the capacity, resources or expertise to address. As a result, the City is able to more effectively and efficiently execute its vision of creating a world-class city where everyone matters.”

Additional State and Local Issues

Advocacy in Action

Nonprofits Take to Advocacy to Avoid Another Round of Sequestration

Nonprofits nationwide are actively engaging with policymakers in efforts to prevent a second round of sequestration cuts from taking effect in January of 2014. The Maine Association of Nonprofits is hosting a discussion with Senator Angus King to end sequestration and demonstrate how the arbitrary and across-the-board cuts are limiting the ability of nonprofits to serve their communities. Similarly, the National Head Start Association held a rally on October 2nd at the US Capitol to demonstrate the adverse effects of current and future sequester cuts. Those cuts have already forced Head Start programs nationally to drop 57,000 children from their early education programs in addition to firing teachers, cutting schedules and reducing transportation for low-income families. The advocacy efforts of nonprofits like these are essential for ensuring that policymakers and the public see the true cost of these arbitrary cuts and recognize the impact they have on charitable nonprofits and the communities they serve. Readers can share stories about how sequestration has affected their communities and read others, from every state, at www.GiveVoice.org.

Worth Reading

Business as Usual: A Tale of Two Sectors,” by Tim Delaney, Huffington Post, September 30, 2013.

When Government Shuts Down, the Nonprofit Community Pays,” by Tim Delaney, Foundation Center, October 4, 2013.

Charitable Giving Tied to State Tax Deduction Decisions,” Stateline, September 24, 2013, analyzing the consequences of actions by legislatures to reconsider and largely to retain charitable giving incentives in Hawai’i, Kansas, Michigan, Missouri, North Carolina, and Vermont.

Worth Quoting

“Due to the absence of either an FY 2014 appropriation or Continuing Resolution for the [federal agency], I am out of the office on furlough and I am not able to read or respond to your message.” Automatic reply message from a federal employee.

Nonprofit Advocacy Matters | September 23, 2013

September 23, 2013

National Voter Registration Day is September 24th

Join hundreds of organizations across the country in promoting democracy on the second annual National Voter Registration Day. Here are two easy things you can do:

  • Use September 24th to ensure that all eligible voters in your office are registered. Put forms in shared spaces, send an email to staff and board members, and get creative when celebrating National Voter Registration Day. 
  • Promote Nonprofit Voter Registration Day within your network and encourage your affiliates and partners to celebrate. Dedicate one (or more) email, social media post, or other communication to spreading the word about voter registration and NVRD. 

Visit the Nonprofit Voter Registration Day website. Download graphics, view communications samples, and more. 

Federal Issues 

Congressional Agendas Clash as Government Shutdowns Loom

Facing opportunities to avoid or cause a federal government shutdown twice in the coming weeks, lawmakers appear more committed to long-term political positioning and less focused on immediate priorities. By early next week, Congress and the President must reach agreement on legislation to fund (at least temporarily) the federal government into the new fiscal year or allow the government to shut down due to a lack of spending authority. On Friday, the Republican-controlled House passed a measure, known as a continuing resolution or “CR,” that would maintain spending levels for ten weeks and added the party’s highest priority – defunding the Affordable Care Act or “Obamacare.” The Democratic-controlled Senate is expected to strip off the health care provision and send the “clean” CR back to the House, likely only days (or hours) before the October 1 deadline. It is uncertain whether the House will accept the Senate version of the CR or send back to the Senate another alternative bill in time to prevent a shutdown of the government.

Approximately two weeks later, the Treasury Department will have exhausted its legal authority to borrow money and the federal government will default on its obligations – unless Congress passes and the President signs a law lifting the limit on borrowing. The House debt-ceiling bill reportedly will extend borrowing authority and delay the 2010 health care law for a year, provide an outline and impose a timeline for enactment of a comprehensive tax reform law, and include cuts to mandatory spending programs, all of which are top Republican priorities. The President and Senate Democrats are once again rejecting each of the proposed debt-limit “add ons” and the President is insisting that he will not negotiate over terms for extending the borrowing limit to pay for previously authorized spending.

Sequestration Spotlight
Special Education

The new school year brings into focus the effects of arbitrary spending cuts to special education. The federal budget gimmick known as “sequestration” is reducing funding by $579 million for programs serving children under the Individuals with Disabilities Education Act (IDEA), according to the U.S. Dept. of Education. IDEA is a federal program designed to meet the learning needs of special education children to prepare them for further education, employment, and independence. Education advocates say the cuts could mean fewer social workers and school psychologist, fewer speech, occupational, and physical therapists. With government funding cut for special education, it is likely that some of the burden will shift to nonprofits to fulfill those needs. See 50-state chart of projected cuts to special education.

Additional Federal Stories

State and Local Issues 

Michigan Bill Sentences Public Assistance Recipients to Community Service

Legislation requiring people receiving food stamps or other welfare benefits to perform unpaid community service in order to get public assistance checks passed the Michigan Senate last week. While the bill sponsor feels there is “absolutely nothing wrong with requiring folks to have a little skin in the game,” the stigmatization is clear since typically “community service” is meted out as a punishment for criminal behavior. The bill does not define “community service,” making it unclear whether the mandated hours would be for “volunteer” time spent working in the Governor’s Office, legislators’ offices, and throughout state and local governments, or whether the bill seeks to impose unfunded mandates on charitable nonprofits to accommodate the hundreds of thousands of people suddenly showing up on their doorsteps seeking unscheduled and unsolicited service opportunities. Name-brand nonprofits and foundations in particular could be overwhelmed by sheer volumes of people if such a bill were passed into law. The National Council of Nonprofits supports programs that promote volunteering activities that mutually benefit individuals and the people served through nonprofits. However, the Council of Nonprofits’ Public Policy Agenda expressly opposes proposals to condition receipt of government-provided benefits on requirements that individuals volunteer at nonprofit organizations. Such a policy, sometimes called “mandatory volunteerism,” unfairly imposes increased costs, burdens, and liabilities on nonprofits by an influx of coerced individuals.

Taxes, Fees, PILOTs

  • Taxes: Beginning October 1, Kansas City, Missouri nonprofits will no longer be exempt from the City’s 7.5 percent convention and tourism taxes. Following the enactment of a Missouri law in 2012 that made the changes possible, Kansas City residents voted in April to end the tax exemptions for nonprofits and other tax-exempt entities, such as schools and state agencies, but excluding the US government. 
  • Fees: City officials in Fort Lauderdale, Florida approved a law that will, for the first time ever, charge nonprofit organizations, including churches, and government agencies with revenue-producing operations an annual fire assessment fee. The City expects to reap $540,000 in new revenues from the expansion of the fire fee, $22,542 of which will come from the local Salvation Army alone. "It will have a significant impact on the needed services we provide," a Salvation Army representative warned.

“Heads Up” to Nonprofits About Keeping Their Tax Exemptions 

In an effort to protect thousands of nonprofits across the state, the Maryland Comptroller has begun notifying six thousand organizations that they are at risk of losing their tax exempt status or have already done so because they failed to file the proper IRS forms. “I want to do everything in my power to ensure that each and every Maryland nonprofit organization, and its mission, is not placed in jeopardy by this matter," said the Maryland Comptroller. In 2006, federal law mandated that the IRS begin requiring small nonprofit organizations with annual gross receipts equal to or less than $50,000 electronically file IRS Form 990-N, also called an e-Postcard. The law also requires that all nonprofits that fail to comply with the annual filing requirement after three years will suffer automatic revocation of their tax-exempt status. Donors to nonprofits that lose their tax-exempt status also lose the ability to deduct their contributions. “The services provided everyday by local nonprofit organizations are vital to the health and safety of countless Marylanders, especially during this difficult economy,” U.S. Representative Dutch Ruppersberger (D-MD) said. “It’s our duty to protect these organizations as they help our friends and neighbors.” The IRS has revoked the tax-exempt status of more than 535,000 former nonprofits nationwide, including more than 11,600 in Maryland, since it started implementing the law passed by Congress. Check the IRS database to make sure your organization has not been automatically revoked and see additional resources from the National Council of Nonprofits.

States Seek to Improve Food Safety without Burdening Nonprofits 

The Indiana health department has until the end of October to make recommendations to state legislators on what changes can be made to state law or practices to reduce the incidence of food-borne illness while also protecting nonprofits from burdensome food safety regulations. Under current law, churches and other charitable nonprofits are permitted to serve food only a limited number of days each year; otherwise they are considered “food establishments” and required to adhere to food safety rules. As a result of a food-safety law enacted in 2001, church potlucks and similar food-related events at nonprofits were effectively banned. Earlier this summer, Georgia legislators also clarified the meaning of “food service establishments” with a new law that exempts nonprofits and government entities from state requirements for food service permits if the event involving food lasts five days or less. 

Advocacy in Action 

In Praise of Government Outreach to the Nonprofit Community

The City Council in Salt Lake City, Utah has been debating a proposal to broaden the criteria for engagement by community organizations and is going above and beyond the norm to hear what the public really thinks. The City’s current definition of community-based groups normally applies only to neighborhood-based community councils that focused on geographic interests rather than broader issues of city-wide concern. The proposed ordinance would acknowledge many more nonprofits than neighborhood-focused citizens groups, all with the goal of encouraging more citizens of Salt Lake City to be more engaged in the City’s operations through nonprofits with broader interests. 

And instead of simply posting the draft bill and debating it during a public hearing, the City Council has embraced outreach by maintaining a comprehensive webpage to solicit public opinion. A truly worth seeing brief educational video explains the proposal and ends with the phrase “but before the Council makes a decision, they want to know what you think about the possible changes.” 

Utah Nonprofits Association (UNA) is applauding the City Council’s efforts to include more community-based organizations in the processes of city government. In a statement, UNA thanked Council members for their “recognition of the value that these organizations add to life in our community,” and observed that “additional voices in the democratic process create greater transparency and more functional projects as well as more satisfied community members.”



Worth Reading

501(c)(3)s and Campaign Activities: Analysis Under Tax and Campaign Finance Laws, Congressional Research Service, September 10, 2013, providing a useful summary of the rules for partisan and nonpartisan election-related activities.

Curbs on Social-Welfare Groups Would Deprive Everyday Citizens of a Voice,” Nan Aron, President of Alliance for Justice, op-ed in Chronicle of Philanthropy, September 16, 2013, making the case for social welfare 501(c)(4) nonprofits retaining the right to engage in partisan electioneering activities while reiterating the important distinction between those entities and 501(c)(3) charitable nonprofits.

Poverty Rates in the States 2012, Stateline, September 19, 2013, providing an interactive map identifying the percentage in each state of people with income below the poverty level rates.

The Economics of Expanding National Service, Voices for National Service and Civic Enterprises for the Franklin Project at The Aspen Institute, September 18, 2013, reporting on research showing that for every $1 of taxpayer spending on national service, there are returns to the taxpayer of $2.20 in terms of higher taxes on output produced and lower spending on government programs.

Worth Quoting

“The impact of the proposed [food stamp] cuts on low-income communities, as well as on poor individuals, would be substantial. The increased demand on already-strained local services and charities would be large — either squeezing support for other needy residents or leaving many people who are cut off SNAP without sufficient food.”

Cuts Contained in SNAP Bill Coming to the House Floor Would Affect Millions of Low-Income Americans, Center for Budget and Policy Priorities, September 17, 2013, making the point that cuts to food assistance will shift additional burdens to charitable nonprofits

Nonprofit Advocacy Matters | September 9, 2013

September 9, 2013

Congress Returns to Face Foreign Policy, Fiscal Decisions

Congress returns from its summer recess this week deeply divided over whether to authorize military action in retaliation for Syria's alleged use of chemical weapons on its citizens. Once the votes are counted on a Syria Resolution, various deadlines will force Congress to turn to urgent fiscal matters:

  • Federal Spending: The Syria debate almost certainly guarantees that Congress will not enact spending bills before the new federal fiscal year begins on October 1. Lawmakers are predicting approval instead of a three-month stopgap appropriations measure, known as a Continuing Resolution or CR. That resolution would simply continue existing levels of spending through mid-December with few if any modifications.
  • Sequestration: The new fiscal year means that the next wave of arbitrary spending cuts of more than $100 billion go into effect unless Congress and the President reach an agreement on an alternative plan, which is not expected in the coming weeks. While a short-term CR would give policymakers more time to negotiate a more rational spending plan, some in Congress are using the crisis in Syria to call for exempting the Pentagon from the sequester, perhaps shifting more arbitrary cuts to domestic programs.

Debt Limit: A government shutdown could occur if Congress does not take action by mid-October to extend the federal government’s ability to borrow. Options on the table are agreeing to additional spending cuts to match any increase in the debt limit (the so-called “Boehner rule”), raising the debt limit to a specific dollar level, or granting new borrowing authority for a limited period of time.

Nonprofit Health Care Navigators Targeted by House Committee

Many of the 100+ nonprofits serving as health care Navigators under the Affordable Care Act have begun receiving letters from the House Energy and Commerce Committee demanding detailed responses and documentation related to their work under federal grants from the U.S. Department of Health and Human Services. Navigators work with uninsured individuals to help them enroll in the new health care exchanges. The letters, signed by 15 Republican members of the Committee, ask for written responses by September 13 providing details on, among other things, the names, duties, and pay of the nonprofit’s employees; training requirements and policies governing employee oversight; and all documents related to the bidding and receipt of the grant. Suggesting that politics are not far from the minds of the inquiring Committee members, the letters ask for any communication between the grant recipients and Enroll America, a nonprofit working with the White House to encourage people to enroll. Some are criticizing the review and charging that the letters are part of a “devious plan” by Republicans to obstruct the new health care law. ​Rep. Henry Waxman (D-CA) charged that the purpose of the GOP demand “was not to enlighten the Committee but to intimidate and divert resources from the effort to implement the law.”

In West Virginia, a nonprofit reportedly refused a federal grant to serve as a navigator after receiving a similarly extensive information request from the state Attorney general. Across the country, at least 16 states have passed or are considering laws to regulate navigators’ work.

Sequestration Spotlight
Impact on Housing and Homelessness

In an attempt to stave off the most severe effects of sequestration cuts, the US Department of Housing and Urban Development (HUD) has begun issuing $103 million dollars in emergency funds to struggling housing authorities throughout the country. The amount is less than one percent of the total allocations to housing programs this year and will cover only a fraction of the shortfall caused by arbitrary spending cuts. HUD estimates it will eventually remove 100,000 individuals from housing and shelter programs, one-sixth of the current homeless population. The loss could partially reverse the 17 percent reduction in homelessness achieved nationwide between 2005 and 2012. "I think housing authorities across the country are going to be in dire straits," the director of a city housing department in Iowa said. “The cuts have no correlation with demand for rental assistance, which is only increasing. The elderly, the disabled, and the very poor -- they don't have a lot of alternatives. This is it." Readers can share stories about how sequestration has affected their communities and read others, from every state, at www.GiveVoice.org

Sequestration and the States: Round Two

The second round of arbitrary sequestration cuts will reduce federal funding to the states by $4.2 billion in the new fiscal year, according to the Federal Funds Information for States (FFIS). The new cuts will interfere with the budgets many states have already implemented, although the extent to which it will do so in each state is not yet known. Federal dollars represent about 30 percent of state revenues, the single largest source of revenue for many states. While the second round of sequestration would result in slightly smaller cuts compared to this year (reductions totaled $4.6 billion in 2013), the across-the-board cuts are expected to do even more damage in FY 2014 because many states say there is little left to cut coming on top of five years of fiscal cuts combined with population increases. 

Taxes, Fees, and PILOTs

  • PILOTs: The City Council in Allentown, Pennsylvania will meet with local hospitals and colleges soon to discuss whether these and other large nonprofit property holders should make contributions to the city in the form of payments in lieu of taxes (PILOTs). City officials proposed the idea after watching several other nearby cities make similar requests (or demands in some cases) of their nonprofits in recent years.
  • Tax Exemptions: The City Council in Suffolk, Virginia enacted an ordinance that places a moratorium on all nonprofits’ applications for tax-exempt status for nonprofit property. One City Council member defended the decision because local tax-exempt property accounts for 13.5 percent of would-be tax revenues, and the value of tax-exemptions has increased by 70 percent. Other Council members objected to the moratorium as a gimmick to avoid making tough decisions.

Government-Nonprofit Contracting News
North Carolina Budget Creates Challenges for Nonprofit Contractors

In an otherwise successful legislative session where North Carolina nonprofits secured preservation of the charitable giving incentive and sales tax reimbursements, nonprofit contractors will see new restrictions on their independence among other challenges. The budget approved last month prohibits nonprofits from using more than $120,000 in state funds to pay any employee. The Legislature enacted a separate measure that requires a study of the use of state funds for compensation. The budget also eliminates funding for nonprofit community development corporations, replacing it with a small competitive grant program. Additionally, the budget postponed the planned transitioning of direct appropriations to human services nonprofits to a competitive grant program from 2013 to 2014.

Additional State and Local Stories


Advocacy for Contracting Reform Comes Full Circle

Maryland Nonprofits and its members have for years worked to streamline government contracting policies and practices. The State Association, in particular, has been active at the State House and in government departments promoting legislative and regulatory solutions. One of the outcomes of this advocacy work was legislation that created the new state Council on the Procurement of Health, Education, and Social Services.

The Council is looking at a key streamlining question: whether a new optional document vault implemented by one state governmental department can be expanded to include additional documents, be used by multiple state agencies, and be made mandatory. In keeping with the past efforts, the items under consideration are designed to simplify operations for governments, nonprofits, and the taxpayers who often have to pay for needlessly duplicative systems.

Maryland Nonprofits sits on the Council and is reaching out to its members seeking their input on how to make this new streamlining and cost-saving tool as helpful to them as possible. This information will be shared with the entire Council to assist them in determining the viability of moving forward with more extensive use of document vaults.

The work in Maryland is a great reminder that advocacy doesn’t just mean talking to legislators and it doesn’t end with a legislative win. Here, advocacy means engagement to ensure that the implementation of the new law is as great as it can be – for the people and missions served by charitable nonprofits. Maryland Nonprofits, the state association of nonprofits in the “Old Line State,” is leading the way.




Help the IRS - Interactive Form 1023 Open for Review

The Internal Revenue Service is developing an “interactive” version of Form 1023 for applications for charitable tax-exempt status. The Service has posted a “review only” version of i1023 through September 20, and interested parties are encouraged to take a look and give the IRS feedback on the form.

Worth Quoting

“The sequester is an arbitrary, non-programmatic approach that will actually retard economic growth in the short run and most likely negatively effect revenues as a result.”

Former Senator Judd Gregg (R-NH), “Now or never for Congress on debt issue,” The Hill, September 9, 2013.

Worth Reading

Five Years After Crash, States Still Picking Up Pieces, Stateline, September 4, 2013, reviewing the states with the strongest and weakest economic recovery since the beginning of the Great Recession.

Household Food Security in the United States in 2012, U.S. Department of Agriculture Economic Research Service, September 2013, annual report (with state-by-state data) finding an estimated 14.5 percent of American households were food insecure at least some time during the year in 2012, meaning they lacked access to enough food for an active, healthy life for all household members.

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