OMB Proposed Guidance
Toward Full Reimbursement of Nonprofits
The federal government may soon be helping nonprofit organizations receive full (or at least, more) reimbursement of indirect costs from states and local governments for services they perform under federal programs. The White House Office of Management and Budget (OMB) released its long-awaited proposed guidance on February 1, 2013 that, among other things, would explicitly require pass-through entities (typically states and local governments receiving federal funding) to either honor a nonprofit’s negotiated indirect cost rate, negotiate a rate in accordance with federal guidelines, or pay a minimum rate of 10 percent for up to four years while a nonprofit works to obtain a negotiated rate. The proposal would also consolidate and streamline eight OMB circulars, raise the Single Audit (A-133) threshold from $500,000 to $750,000, and eliminate duplication and unnecessary audit criteria. OMB invited the National Council of Nonprofits and representatives of the states, CPAs, research institutions, and Native Americans to participate in a webcast on February 8. In response to our questions, OMB provided clarity on how it arrived at 10 percent as an appropriate minimum indirect cost rate, and federal officials expressed support that pass-through entities would pay this amount fairly and not by reducing direct cost rates. The public is invited to offer comments on the proposed regulations before May 2, 2013.
Fiscal Cliff Update
Sequestration Cuts on March 1 to Burden Work of Nonprofits
Unless Congress acts before March 1, spending cuts will automatically eliminate about nine percent from almost every program funded by the federal government, taking billions away from states, localities, and charitable nonprofits providing services in local communities across the country and increasing demand on the work of nonprofits. Congressional Republican leadership has called for replacing the across-the-board cuts, known as “sequestration,” with targeted cuts with no new revenue, but no specific plan identifying the cuts has been offered. During the last week of February, Senate Democrats reportedly will consider a package to temporarily delay sequestration that entails a balance of spending cuts and revenue increases.
The common perception that the cuts will hit only the Pentagon and “federal agencies” in the form of people sitting behind desks in large government buildings in D.C. is troublesome as the sequestration cuts will reach deep into local communities across America, including adding to the number of unemployed who often turn to nonprofits for help. In an analysis released Friday, the White House projected that as a result of the sequester, 70,000 children would no longer participate in Head Start, 373,000 people would lose access to mental-health treatment, about 600,000 women, infants, and children would be dropped from the WIC nutrition program, and 4 million fewer meals would be served to seniors. State and local governments, already facing very tight budgets with their fiscal years usually ending on June 30, will have to quickly redo their budgets to absorb the significant dollar losses. As has been seen over the last several years, many governments may opt to abandon programs on the false presumption that nonprofits can “pick up governments’ slack.” Charitable nonprofits can take action by learning of the impact of the cuts in their states and telling their individual Members of Congress during the upcoming District Work Period (February 15-24) how the automatic cuts will hurt their constituents and communities. Learn more about the sequestration cuts and what your organization can do.
Hawai’i Governor Joins the Fight in Favor of the Charitable Deduction
Hawai’i Governor Abercrombie is joining the fight for a bill to exempt the state’s charitable giving incentive from the existing cap on itemized deductions. Imposed in 2011, the cap provides that no more than $25,000 may be deducted for individuals with adjusted gross income of $100,000 or more; $50,000 for couples with AGI of $200,000 or more. “After having taken a close look at the impact this particular section of the law is having on charitable donations made to Hawaii's nonprofit organizations, we support carving out this portion of the law,” the Office of the Governor said in testimony before a Senate hearing. “We recognize that support for nonprofit and charitable organizations is an important policy goal and priority as these groups perform critical services for and within our community.”
Taxes, Fees, and PILOTs
- Taxes: The FY 2014-2015 budget proposal from Minnesota’s Governor calls for lowering the sales tax rate and broadening the base to include sales taxes on certain services provided by nonprofits, such as swimming lessons and other services. The Governor clarified that nonprofits would not be required to pay sales taxes on the purchase of office supplies, accounting services, or other similarly taxable items.
- Property Taxes: In a closely watched case, the Maine Supreme Judicial Court ruled in favor of a nonprofit private boarding school whose property tax exemptions came under fire when the town of Hebron sued the school for taxes on the ice rink and other campus facilities the school had been renting out. The school successfully pointed out that the revenue generated from these properties was “incidental” and much less than its operating costs.
Government-Nonprofit Contracting Updates
- Massachusetts: Legislation will soon be advanced to establish a permanent Interagency Coordinating Group to work collaboratively to identify and implement practices that improve the impact, efficiency, and accountability across the government-nonprofit partnership and to report on how those practices have increased the state’s ability to address important community needs and persistent challenges. Much of the work would focus on best practices and innovative approaches used in the Commonwealth and across the country, which can dramatically improve the social and economic outcomes of government-nonprofit contracting.
- North Carolina: Legislation in the North Carolina House would allow state agencies to withhold up to two percent of grant awards to fund their oversight of nonprofits, essentially taxing service providers to pay for their own administrative oversight. The bill would also require state agencies to use performance-based contracts with nonprofits that compare organizations' actual outputs and outcomes against pre-determined benchmarks. In a direct affront to nonprofits, the legislation does not require the same of for-profits contracting with the state, local entities contracting with or receiving funds from the state, or even state agencies themselves.
Additional Articles on National Council of Nonprofits Website
Nonprofits at their State Capitols
Capitol Days for nonprofits – an excellent way for nonprofits to connect and build relationships with their state legislators – are showing progress and creativity in 2013. Nonprofits in both Montana and Maine this year have spotlighted the importance of developing an early dialogue with elected officials. More than 120 nonprofit leaders attended the Montana Nonprofit Association’s Nonprofit Day to meet, visit, and lunch with their legislative officials. Mainers turned out on January 31 to build relationships with state and local policymakers at the Maine Association of Nonprofits’ 10th Annual Nonprofit Day at the State House. Unique features included a series of buttons highlighting that Maine nonprofits employ one in seven citizens in the state and a virtual Capitol Day that allowed nonprofits to use social media to meet and share ideas. The Kentucky Nonprofit Network meets in Frankfort tomorrow to leverage the voices of the state’s nonprofits to oppose a proposal from the Governor’s Blue Ribbon Tax Commission to cap itemized deductions at $17,500, which would have a particularly negative impact on the charitable deduction. KNN has put together a survey to collect nonprofits’ voices and concerns on the issue.
Take the Nonprofit Survey
The Nonprofit Finance Fund is conducting its fifth annual nationwide survey examining the current state of issues facing the nonprofit sector. Please add your experience. The survey is open through February 15. Take the 2013 survey.
Charitable Giving Incentive Hearing
The House Ways and Means Committee is conducting a hearing on “Tax Reform and Charitable Contributions” on Thursday, February 14, starting at 9:30 am ET. Get information on the hearing.
“Can the Safety Net Survive the ‘Idiocy’ of Sequestration?” Rick Cohen, Nonprofit Quarterly, February 1, describing a webinar last month hosted by CalNonprofits and California grantmakers that featured Jonathan Greenblatt of the White House and Tim Delaney of the National Council of Nonprofits.
"Where will it end? Snow removal fees? Street maintenance fees? Lighting fees? You could take the entire municipal budget and divide it into a thousand pieces. Then the whole concept of tax exempt is gone." --Jon Pratt, executive director of the Minnesota Council of Nonprofits addressing the trend of Minnesota communities to re-label taxes as new fees for services.