Arbitrary Spending Cuts Scheduled to Start March 1
Unless Congress and the President reach agreement on an alternative plan by this Thursday, $85 billion in arbitrary, across-the-board spending cuts go into effect, causing disruptions for governments, nonprofits, and ordinary citizens in every community across the country. The cuts, known as sequestration, are the result of a budget deal in 2011 that purposefully designed cuts so painful that politicians would be forced to compromise – a result that appears unlikely at present. This week the Senate is expected to consider competing bills, one by Democrats and another by Republicans, to prevent sequestration, but due to a combination of partisan and procedural reasons neither is expected to pass. No votes are expected in the House prior to the cuts taking effect.
Despite the apparent impasse, pressure is building for Congress to take action by the end of March. The Congressional Budget Office recently predicted that the sequester will cost 750,000 jobs, changing the debate from arcane budget terms to the impact on real lives. This weekend, the White House released state-specific details of what the cuts mean in terms of local jobs and services to individuals. Starting March 1, federal agencies will inform governors, private contractors, grant recipients, and other stakeholders of the dollars they will lose. But realistically, it will take a few weeks for most of the cuts to be felt. That timing coincides with the expiration of the current “Continuing Resolution” on March 27, at which time authority for funding the entire federal government runs out, forcing Congress to enact legislation to prevent the government from shutting down. Some observers are predicting that the threat of a shutdown, rather than the sequester, will be the sufficient impetus to get Congress and the President to finally reach agreement on a deal to address the recurring fiscal challenges.
Witnesses at House Hearing Link Charitable Giving Incentive to Community Needs
On February 14th, the House Ways and Means Committee, the tax-writing committee with jurisdiction over charitable giving incentives and tax-exemption policies, held a hearing on “Tax Reform and Charitable Contributions.” Of vital interest, the testimony and questions focused almost exclusively on the people and communities that benefit from the work of nonprofits, rather than on rich donors or rich institutions. Most witnesses focused on the need to enhance giving to support the work of nonprofits in communities, but some academics and economists offered various tax-law changes, such as allowing all taxpayers to deduct charitable giving – but only above a certain floor (e.g., one- or two-percent of adjusted gross income) – and further restricting non-cash contributions like household goods. While mostly praising the work of charities, a few individual Representatives through their questions exhibited misunderstandings about the relationship between government and nonprofits (contracts and grants) and between nonprofits and for-profits (alleging unfair competition), and expressed interest in narrowing the scope or changing incentives to target giving in support of immediate needs. Nonprofit organizations are encouraged to provide comment to the Committee on any and all of these issues by February 28. SeeNational Council of Nonprofits testimony for background information and testimonials from more than 130 charitable nonprofits in support of the giving incentive.
States Considering Local Options for Dealing with Nonprofits
Legislatures appear to be responding to budget complaints by local and county officials by considering legislation to turn over some taxing and other authority to local governments that will likely shift those same burdens onto charitable nonprofits. A Missouri law enacted last year paved the way for a Kansas City ordinance setting up a public vote in April on a package of tax reforms that include repeal of certain nonprofit exemptions from convention and tourism taxes. Legislation under consideration in Maine would expand the ability of municipalities to assess service charges in lieu of property taxes against tax-exempt properties, which would include all nonprofits except educational institutions and churches. Seeking to limit nonprofit tax exemptions in other ways, Montana leaders are considering a bill to authorize county governments to place a cap on the percentage of county lands that can be owned by a nonprofit organization and to approve or deny proposed property acquisitions by nonprofits. Meanwhile, North Dakota recently provided clear leadership to other states on this issue by resoundingly rejecting a measure that would have allowed cities to set up improvement districts to levy special assessments (or taxes) against tax-exempt nonprofit properties for safety and emergency services. The bill would have unfairly shifted these costs to and increased budget woes for nonprofits while mandating tax cuts for property tax payers.
Taxes, Fees, and PILOTs
Illinois Town Shifts Tax Burden onto Nonprofits
Nonprofit property owners in Downers Grove, Illinois are now required to pay stormwater fees that are being used in place of property taxes to pay for the village’s stormwater sewer projects. The new fees impose on nonprofit property owners an average of $1,950 in costs per year. Leaders from the village’s churches and other nonprofits are voicing opposition to the so-called “fees.” "The bottom line is this is not something that's budgeted for the church. It's going to come right out of the collections," one church committee member said.
Connecticut Makes Efforts to Streamline Licensing for Nonprofits
Legislation pending in Connecticut would create a one-stop process that permits private community-based providers and nonprofits to obtain licensure from numerous health-related agencies, including the Departments of Mental Health and Addiction Services, Children and Families, and Social Services through completion of a single application. The goal is to ease the licensure burden currently faced by private providers while achieving efficiencies and cost reductions in administrative expenses for both the state and the private providers.
Nonprofit and Foundation Executive, Board Compensation Limits Under Review
Massachusetts legislators are considering three bills that would end pay to board members and limit compensation to executives and officers of charitable nonprofits and private foundations. The first measure would prevent nonprofits from paying board members unless they obtain a waiver from the Attorney General. Under the legislation, nonprofits with annual gross revenues of more than $1 million would also not be allowed to pay officers, directors acting in an executive capacity, or senior managers more than $500,000 a year. Another bill would prohibit nonprofits from paying independent officers, directors, or trustees for their board service without approval from the Attorney General. The third bill singles out nonprofit contractors by imposing compensation caps on the salary of the executive director/CEO of nonprofits that receive at least 30 percent of their annual budget from state funds. Separately, abill in New York would amend the definition of what constitutes "excessive" executive compensation, make free board trainings available to nonprofits contracting with the state, and add notification requirements.
Additional Articles on the National Council of Nonprofits Website
Using the Courts to Promote Nonprofit Tax Exemptions
In recent years, New York City’s Department of Finance has been challenging the tax exemption of real property of targeted tax-exempt nonprofits and forcing them to fight tax assessments in court. Nonprofits have every right to advocate on behalf of their missions in the judicial arena. For example, the Government Relations Committee of the Nonprofit Coordinating Committee of New York (NPCC) recently filed anamicus curiae brief in opposition to a state Supreme Court ruling in favor of New York City’s revocation of the tax exemption of certain property owned by a nonprofit development corporation. The City had long recognized and classified the property (a parking facility) as exempt from taxes because the property is considered crucial to the nonprofit’s mission of revitalizing the area. The issue of the City challenging the exempt status of properties owned by nonprofits is not new. Indeed, NPCC was created in 1984 when Symphony Space, Asia Society, and other arts organizations suddenly faced daunting tax bills for property that previously had been tax-exempt.
“A Comprehensive Sequester Primer,” Washington Post, February 24, billed as answering “absolutely everything you could possibly need to know, in one FAQ,” the article summarizes the history, highlights notable program cuts, and reveals strategies of the partisans.
“Fear of U.S. Cuts Grows in States Where Aid Flows,” New York Times, February 23, providing state-specific examples of the impact of automatic cuts on programs and operations in the states, many of which affect the people served by charitable nonprofits.
"Why Tax Revision is an Inexact Science," Stateline, February 19, addressing the difficulty of producing reliable estimates for tax reform proposals by reviewing reform efforts in KS, LA, MA, MN, NE, OH, and VA.