Nonprofit Advocacy Matters Archive

Nonprofit Advocacy Matters | May 20, 2013

Posted:

May 20, 2013

Political Scandal Focuses on IRS Decision-making

The Internal Revenue Service is acknowledging that it applied inappropriate political considerations by flagging for extra scrutiny the applications of conservative groups seeking tax-exempt status as section 501(c)(4) social welfare organizations. At a hearing Friday before the House Ways and Means Committee, the first of several scheduled hearings in the House and Senate, Members of Congress initially expressed bipartisan outrage but then appeared to split along partisan lines. Generally, Republican Representatives sought to determine when the Obama Administration learned of the investigation and whether politically-appointed officials were involved. Democratic Members tended to focus on the vagueness of the law that requires the IRS to apply subjective scrutiny to 501(c)(4) applications, due in part to the Supreme Court’s Citizens United decision which struck down many prohibitions on political activities of such groups. Left unclear after the hearing is whether the scandal and ensuing investigation will delay or undermine efforts in this Congress to enact comprehensive tax reform.

Equally unclear is the extent to which the headlines linking the terms “political scandal” and “nonprofits” will hurt the work of section 501(c)(3) charitable nonprofits, which cannot engage in political activities. The IRS scandal relates to IRS decision-making regarding section 501(c)(4) social welfare nonprofits, which may engage in some political activities without being required to disclose the names of donors, as is required of section 527 political organizations that are devoted primarily to influencing partisan elections.

To protect charitable nonprofits from becoming collateral damage in the fallout from the IRS scandal, the National Council of Nonprofits issued a statement pointing out that “federal law is crystal clear that ‘charitable nonprofits,’ which are tax exempt under section 501(c)(3) of the Tax Code, may not lawfully engage in partisan political electioneering activities.” The statement calls on policymakers and the news media to note with clearer distinction the laws governing the nonpartisan work of charitable nonprofits in communities across the country.

Combined Federal Campaign Changes Threaten Donations

The U.S. Office of Personnel Management (OPM) releasedproposed regulatory changes to the Combined Federal Campaign (CFC), a giving program that allows federal employees to donate to eligible charitable nonprofits. Many nonprofit groups have expressed concern that several proposed changes would harm the effectiveness of the giving program. For instance, one OPM proposal would shift the burden of the cost of the campaign by imposing an up-front flat application fee for participating charitable nonprofits rather than continuing the past practice of charging 10 percent of donations actually collected. This approach could hurt smaller charities unable to pay the higher “entry” or “participation” fee. The proposed changes would also restrict giving options to electronic ones, and move administration of the program from local to regional or centralized offices, potentially creating a disconnect between local nonprofits and the federal employees making the donations. The proposed changes are open for public comment until June 7, 2013 and, if approved, would take effect in 2014.

Charitable Giving Incentives at Risk in the States

This year’s tax reform efforts in Minnesota and North Carolina have threatened to turn the two states with the best package of charitable giving incentives – where they have provided incentives for individuals to give to their local communities even if they don’t itemize their tax deductions – into some of the most restrictive states. Last month the Minnesota House approved a tax reformproposal that would have eliminated the state’s charitable deduction and replaced it with an eight-percent, nonrefundable tax credit available only to those who gave more than $400 ($800 for married joint filers) or two percent of their adjusted gross income. In response to intense advocacy on the part of the Minnesota Council of Nonprofits and many other organizations. The House passed the bill that preserves current charitable incentives and Senate approval is expected on May 20.

In North Carolina last week, leaders in the House unveiled a flat-tax reform plan that would eliminate the non-itemizer tax credit and cap all itemized deductions (including not only charitable giving, but also home mortgage interest and more) at $12,500/individuals and $25,000/couples. The new legislation is one of several comprehensive reform packages that changes nonprofit exemptions and incentives for charitable giving that the North Carolina Center for Nonprofits is tracking (see comparison of legislative proposals).

New York Considers New Nonprofit Governance and Compensation Regulations

The New York Attorney General and several state legislators released two bipartisan bills last week that seek to reform nonprofit governance and compensation practices. The Nonprofit Revitalization Act would require nonprofit boards to perform financial audits and better oversee insider transactions and contracts. The proposal also would impose an obligation that the nonprofit adopt conflict of interest policies and prohibit any employee from serving as a board chair. A separate measure, theExecutive Compensation Reform Act, would require nonprofit boards to review CEO and staff pay to determine the appropriate compensation level. The bill also would mandate that boards at nonprofits with more than $2 million in revenue must review and approve the compensation of the five highest paid employees each time compensation is changed or employment is renewed.

Government-Nonprofit Contracting Reform

Texas Steps Closer to Permanent Nonprofit Council

In recent years, Texas has been aggressively pursuingnonpartisan solutions to government-nonprofit contracting problems, setting up task forces with nonprofit representatives, and recommending cost- and time-saving contracting reforms that improve accountability and results. Having twice created temporary task forces, the Texas Legislature this year is considering establishment of a permanent body to ensure the ongoing involvement of charitable nonprofits in streamlining contract processes and procedures. Legislation would set up theTexas Nonprofit Council to advise the heads of several state agencies, with a goal of improving relationships with faith-based and community nonprofits. The measure passed the Texas Senate without controversy. Thanks to quick advocacy work by the Texas Association of Nonprofit Organizations and others, a last-minute snag in the House Human Services Committee was averted last week and the bill has been sent to the House floor, where it is scheduled for a vote on May 20, 2013.

When Charity Replaces City Services

Nonprofits, volunteers, and donors in Detroit are stepping up toprovide public services that the City has abandoned. Members of a local church boarded up vacant houses that the City is supposed to demolish, while volunteer landscapers repaired dilapidated City parks. The Kresge Foundation paid for the City’s emergency vehicles ($1 million) and pledged contributions for needed economic and infrastructure improvements ($150 million). Yet, while the story is hope-inspiring in some ways, others point out that government’s reliance on charity to deliver core public services is a major problem: "The idea that we are now outfitting first responders through charitable contributions should be very concerning," a representative from the Center for Effective Government said. "There are certain functions that you want government to perform that should not be at the whim of individuals or charities." What do you think? We’d like to know.

More Stories on National Council of Nonprofits Website

Nonprofit Engagement: Statewide, Nationwide

Charitable nonprofits across Washington State recently were given the opportunity to engage with key congressional staffers on the leading federal issues of the day (sequestration and tax reform), thanks to innovative outreach efforts conducted byWashington Nonprofits, the state association of nonprofits in the Evergreen State. Participants learned the latest about the arbitrary federal spending cuts known as “sequestration” from a senior budget and policy advisor for Senate Budget Committee Chairman Patty Murray (D-WA). Three-quarters of the nonprofits on the program reported experiencing or knowing another nonprofit that has experienced cuts under sequestration.

During the second half of the call, the legislative director and tax counsel to Representative Dave Reichert (R-WA) discussed federal tax reform, including the examination by the House Ways and Means Committee’s charitable working group of the charitable deduction, non-cash contributions, and other issues affecting nonprofits. Webinar participants were able to weigh in on various tax reform proposals and discuss the effects on the charitable work of their nonprofits. For instance, more than 90 percent of the nonprofits on the policy forum call identified the charitable giving incentive as a priority for them in federal tax reform.

Both presenters, one representing a Senate Democrat and the other resenting a House Republican, expressed a shared request: to help them to do their jobs, they need input from charitable nonprofits – your stories, your data, and your passion for what communities need.

Worth Reading

“Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review,” Treasury Inspector General for Tax Administration, May 14, 2013, finding that IRS staff singled out organizations with conservative-oriented names for more detailed review of applications for 501(c)(4) social welfare tax-exempt status.

“Minnesota tax proposal could cut charitable giving,” by Jon Pratt and Sarah Caruso,Minneapolis Star-Tribune, May 13, 2013, making the case for charitable tax deductions and against conversion to tax credits, proposals adopted by the Minnesota House but, following publication of this op-ed, were eliminated from the tax reform legislation.

State and Local Governments’ Fiscal Outlook: April 2013, Government Accountability Office, April 29, 2013, providing a gloomy outlook for the widening gap between revenues and expenses and predicting that governments must cut expenditures by 14.2 percent to avoid deficits.

New Nonprofit Resource

The National Council of Nonprofits has created the new Nonprofit Audit Guide to provide charitable nonprofits with the tools they need to make informed decisions about independent financial audits. Because state laws vary in the scope of their regulation of charitable nonprofits, this Guide includes a 50-state chart that shows whether a state's laws require an audit, and if so, under what conditions. The Guide explains what independent audits are and helps nonprofits prepare for the audit. Additionally, the Guide includes information about special audit requirements that apply to nonprofits that receive funding from the federal government.

Nonprofit Advocacy Matters | May 6, 2013

Posted:

May 6, 2013

Tax Reform Working Group Report Released Today

Comprehensive federal tax reform took a step forward with the release today of a 568-page report by the Joint Committee on Taxation (JCT) to the House Ways and Means Committee. The report does not include specific policy recommendations, but does provide an extensive analysis of all aspects of the Internal Revenue Code and summarizes suggestions for reforms submitted to eleven bi-partisan tax reform working groups. The working group on charitable issues, led by Rep. Reichert (R-WA) and Rep. Lewis (D-GA), conducted meetings with experts to investigate subjects such as the private foundation excise tax, unrelated business income, and commercial operations of nonprofits. Regarding the law relating to charitable nonprofits, the JCT report provides background information (at pages 19-58) about the present law, and specifically identifies (at pages 491-497) comments the Committee and Working Group received on charitable deductions (including to retain or change the deduction as it relates to donations of finances, property, and inventory); tax-exempt status (including unrelated business income tax and operating rules for public charities and private foundations); reporting, disclosure, and tax administration; and the IRA charitable rollover incentive. All of the suggestions and comments submitted to the working groups remain available at the Ways and Means Committee website.

Issue In Focus: Sequestration

Tracking the Impact of Cuts

Nonprofit organizations and individuals are feeling the effects of government budget cuts and increased demands for services, but they are finding it difficult to determine whether the changes are caused directly by sequestration – the $85 billion in federal spending cuts that went into effect on March 1 – or other local, state and, federal spending cuts. In New York, nonprofits working with developmentally disabled persons took a $90 million hit in the state budget following the discovery of a shortfall in federal funds for Medicaid, a program largely exempted from the sequester.Nonprofit Quarterly points out that many of the cuts made under sequestration cross so many budget lines that the implications are often difficult to track. Likewise, the challenge is heightened by the differing responses of the states to sequestration. In administering cuts to long-term unemployment benefits, for instance, Illinois is reducing benefits by as much as 16.8 percentat the end of the month; Maine will instead reduce from 63 to 54 the number of weeks benefits are available. In both cases, pain will be felt by individuals and the economy, but in different ways. The National Council of Nonprofits is collecting stories from nonprofits affected by sequestration and other cuts atwww.GiveVoice.org to help nonprofit leaders explain to policymakers the human consequences of the many cuts.

States Recognizing, Restoring Value of Charitable Giving Incentives to Communities

Hawai’i Governor Abercrombie is expected to sign legislation that removes the cap on charitable deductions the state enacted in 2011 as part of limitations on how much upper-income taxpayers could claim for itemized deductions. After seeing how the cap on deductions adversely affected communities, the Governor himself championed the bill to restore the full incentive for giving to the work of charities in Hawai’i. The effects of the cap, and the need for corrective legislation, were clear: “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.

Hawai’i is not alone in reversing course after seeing the harmful impact of trying to trim back on tax incentives for charitable donations. Missouri, which allowed a series of charitable tax credits to lapse, recently restored them for food pantries, pregnancy resource centers, and the Children in Crisis program. Also this spring, Montana renewed its charitable endowment tax credit that only a few years ago was on the chopping block. Last month, the Oregon House passed reform legislation that limits itemized deductions, but expressly exempts charitable giving from the caps. On the other hand, Michigan has not yet restored tax credits repealed in 2011 that promoted donations to the work of food banks, homeless shelters, state colleges, and community foundations. As in Hawai’i, reports from Michigan suggest another failed experiment resulting in reduced giving to communities far in excess of the revenue gains.

Work of Nonprofits at Risk as States Revise Tax Systems

While Hawai'i is correcting mistaken tax policy, efforts in other states to enact comprehensive tax reform this year are creating challenges to charitable giving incentives, tax exemptions, and program revenues that help nonprofits serve their communities. Indiana lawmakers approved a two-year budget last month that cuts income taxes by five percent and repeals the inheritance tax retroactive to January 1, 2013. Missouri legislators are coming down to the wire in reaching an agreement with the Governor ontwo tax reform packages that would cut income taxes and increase the sales tax. North Carolina’s General Assembly is pursuing several tax reform proposals, including a bill that, among other things, would reduce individual and corporate income taxes, require nonprofits to charge sales taxes on entertainment and recreation, and eliminate the tax credit for charitable contributions available to individuals that do not itemize on their federal taxes.

A comprehensive tax reform bill that passed the Minnesota House in April would eliminate current charitable deductions and replace them with an eight-percent nonrefundable individual income tax credit for charitable contributions made in excess of the greater of $400 ($800 for married joint filers), or two percent of the taxpayer’s adjusted gross income. The Senate companion bill does not include the provision, so a fight is being waged in the conference committee. In Maine, legislators are reportedly drafting a bi-partisan bill that would remove two important motivators of charitable giving (the charitable deduction and estate tax) and partially eliminate tax exemptions for some nonprofit property owners.

Chicago Mayor Backs Away from Nonprofit Water Fees

Chicago Mayor Rahm Emanuel received national attention for working to revoke waivers that exempted city nonprofits from paying water fees. The effort was seen by some city and county officials elsewhere as a sign that nonprofit resources were becoming fair game to fill budget holes. Nonprofits, led by Donors Forum and others, correctly pointed out that the amounts charged for water fees exceeded costs and were essentially a tax on tax-exempt entities. In response to pressure, the Mayor is now offering a compromise that would reinstate water fee exemptions for nonprofits with net assets of less than $1 million and phases in discounts of 60 percent for nonprofits with between $1 and $10 million in assets and 25 percent for nonprofits with between $10 and $250 million in assets. Museums would maintain a 20 percent exemption regardless of net asset level. Religious leaders in Chicago remain dissatisfied with the Mayor’s offer and arepushing for a broader reinstatement of the exemptions.

Other Taxes, Fees, PILOTs Updates

PILOTs: A group of New York City business and labor leaders known as the Partnership for New York City recently released a 69-page “NYC Jobs Blueprint” recommending that the City, among many other things, re-examine $1.8 billion in nonprofit tax exemptions and review whether nonprofits should be making payments in lieu of property taxes.
PILOTs: A Pittsfield, Massachusetts committee tasked with studying the feasibility of a Boston-like PILOTs scheme for the City has decided against the plan due to concerns about the impact it would have on the "additional safety net of services" that committee members discovered many local nonprofits provide. Pittsfield officials say the plan is not compatible with the city’s nonprofits. Instead, a City Councilor is suggesting sending nonprofits letters that acknowledge their contributions and invite dialogue about other types of collaborations.

Government-Nonprofit Contracting Reform Update

Ohio: The Center for Community Solutions (CCS) recently released three policy reports exploring ways that public human service agencies in Ohio can improve services and contain or reduce costs. After reviewing the processes and procedures in the different counties, one report found, “the diversity in contracting and service provision across the state’s children services agencies presents both opportunities and challenges in moving forward.” The first installment of the reports, prepared in partnership with the Greater Ohio Policy Center (GOPC) with financial support from the State of Ohio, examined collaborative and cost-saving opportunities in child welfare, adult protective services, and public health.
Hawai’i: After recognizing that government-nonprofit contracting reform is more extensive than previously believed, the Hawai’i Government Contracting Task Force requested an extension to complete developing recommendations to address contracting issues that affect nonprofit human service providers and others. New resolutions in the House and Senate were adopted in April, extending the Government Contracting Task Force until Dec. 31, 2013.

Additional Stories on the National Council of Nonprofits Website

R-E-S-P-E-C-T

Charitable nonprofits in Hawai’i are getting respect from government and business, and it’s worth singing about (a la Aretha Franklin). As reported above, the giving incentive will soon be restored because the Governor was willing to reverse himself. Why? “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,” Governor Abercrombie’s office testified in March.

Nonprofits are also at the policy problem-solving tables in Hawai’i with government and business representatives addressing deep-seated contracting problems. Plus, the Governor recently created a Sequestration Impact Response Team that includes two nonprofit officials to provide the community perspective on how the cuts are affecting citizens and the services on which they rely. Said Lisa Maruyama of the Hawai’i Alliance of Nonprofit Organizations: “It’s important for nonprofits to have a seat at the table to remind people of the priorities and impacts of funding cuts on community health and welfare.”

Government-Nonprofit Contracting Survey in the Field

If your nonprofit received the government-nonprofit contracting survey recently sent out for the Urban Institute by Social Science Research Solutions to scientifically-selected organizations, please fill it out. It is your chance to be heard and make a difference for nonprofits everywhere. The survey results will guide the work of the Government-Nonprofit Contracting Reform Project in fixing contracting policies and processes. Learn more about government-nonprofit contracting reform.

Nonprofit VOTE Webinar

Voter Registration Modernization

Thursday, May 16th at 2:00pm Eastern

Join this webinar for a review of voter registration updates and reforms, such as online registration, election day registration, and portable registration. Register now.

Worth Reading

“Nonprofits and State Tax Systems: The Big Picture,” Rick Cohen, Nonprofit Quarterly, April 18, 2013, reviewing how the mix of tax rates, deductions, and credits in the various states affect the work of charitable nonprofits.

“Nonprofits Need Solutions to Illinois' Budget Crisis,” Valerie Lies, President & CEO, Donors Forum, in Huffington Post Blog, May 2, 2013, chronicling the severe budget crisis in Illinois that is exposing government-nonprofit contracting challenges and hurting nonprofits delivering basic human service to 2 million people in need.

Nonprofit Advocacy Matters | April 22, 2013

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April 22, 2013

President’s Budget Proposal Released

The Obama Administration released its proposed budget for Fiscal Year 2014 on April 10. The proposal is not expected to change actions on Capitol Hill, in part because it was submitted after both the House and the Senate had already adopted their own separate Budget Resolutions for Fiscal Year 2014. However, the proposal contained elements signaling an openness for negotiations on a “grand bargain” to avert the next known fiscal crisis: when the nation reaches the debt ceiling in late summer.

The budget proposal reveals potential good news and bad news for people and communities that rely on charitable nonprofits. On the positive side, the Administration’s budget blueprint shows it is possible to replace the mindless, across-the-board sequestration cuts with intentional spending cuts and revenue provisions. However, the proposed budget repeats once again the White House’s desire to impose a 28 percent cap on itemized deductions, including deductions for charitable giving, which would effectively take billions away from the work of charitable nonprofits and instead send those dollars to the federal government.

In Focus:

OMB Grantmaking Reforms

When releasing its budget proposal, the White House highlighted as a positive policy development for nonprofits the pending grantmaking reforms from the Office of Management and Budget (OMB). Those proposed reforms, if implemented, would require governments to reimburse nonprofits for the indirect costs they incur when performing services on behalf of governments. Rick Cohen of the Nonprofit Quarterly, in his detailed article, “President Obama’s FY2014 Budget: The Issues for Nonprofits,” underscores the significance of the proposed reforms in relation to the overall budget proposal:

Given the limited dollars for many of the President’s flagship nonprofit ventures, improving the playing field for nonprofit grant and contract recipients could be the most significant new initiative for 501(c)(3)s, or for nonprofits qua nonprofits, in the entire package.

Changing how government treats the nonprofit sector, ensuring that we get closer to reasonable overhead calculations, avoiding shortchanging nonprofits on the full costs of service delivery, and setting the tone on federal grant and contract behavior as a model for the cacophony of state and local practices … even if the budget regarding revenues and expenditures goes nowhere, the President deserves credit for launching what could be a systemic repair of contracting and reimbursement issues through the Office of Management and Budget rulemaking.

The National Council of Nonprofits website provides more information about OMB’s proposed reforms, which also is available at www.regulations.gov under docket OMB-2013-0001. OMB has extended the public comment period until June 2, 2013 on the proposed new guidelines that would make it easier for nonprofits to negotiate and receive reimbursement for indirect costs. See earlier article in Nonprofit Advocacy Matters.

Legislators Recognize Value of Charitable Giving Incentives

Realizing the benefits that charitable giving incentives generate for communities, policymakers in Oregon and Hawai’i are moving away from potential and existing limits on charitable tax deductions. An Oregon House bill would have eliminated the standard and all itemized deductions for some taxpayers. The tax committee heard testimony from the Nonprofit Association of Oregon about a similar policy change that proved disruptive to the work of nonprofits in Hawai’i. After extensive comment and concern expressed by the charitable community, the bill’s sponsor has reportedly agreed to preserve the charitable giving incentive by exempting it from the tax-law changes. In Hawai’i, the Governor is now supporting a bill that exempts charitable giving from the cap placed on itemized deductions in 2011.

Taxes, Fees, PILOTs

Fees: Maryland enacted a law last year that requires several of its higher population counties to impose stormwater remediation fees on all private property owners, including nonprofits, for-profits, and residences. In April, the state considered but did not pass a bill that would havelimited the burden on nonprofits by capping their stormwater fees at $250 per half acre of impermeable surface. Now several of the counties that will begin imposing the fees on July 1 are taking concerns about the impact on nonprofits into their own hands. In Baltimore County, nonprofit property owners will receive a 48 percent discount on stormwater fees. Similarly, payments of stormwater fees by Montgomery County nonprofits will be capped at $2,000 and can be reduced further for nonprofits that apply for and receive hardship waivers.
Fees: Churches and other nonprofits in East St. Louis, Missouri are calling for an end to an annual fee of $100 that was enacted in January to pay for safety inspections of the properties.

Government-Nonprofit Contracting Update

Connecticut: A key state government office has issued a series of important recommendations to build upon the contracting reforms undertaken in recent years. Among other things, the report from the Purchase of Service (POS) Contracting Efficiency Project Office advises that each state agency develop central contracting units, create standardized budget and financial reporting, and implement automated contracting systems. Additionally, the report calls for increased and joint training for government staff and nonprofits, consolidated and multi-year contracts, and streamlined payment processes. The recommendations come after an extensive evaluation of the processes and procedures used by six state agencies that contract with charitable nonprofits for services to the public.
Government Accountability Office: For three states and three programs reviewed, state governments are making payments on time and the amounts they withhold for administration and monitoring is within acceptable limits under federal law, according to a new report by the Government Accountability Office (GAO). GAO cautions, however, that the findings cannot be generalized to all states and all programs. In a previous report, GAO found that state governments were retaining some or all of the indirect costs allocated for the work of sub-awardees (typically nonprofits). The new findings that states are obeying the letter of the law despite paying little or no administrative costs to contractors further highlights the need for the reforms that the OMB is proposing. (See story above.)

L3Cs Face Uncertainty in Several States

The momentum behind the new corporate form known as low-profit limited liability companies (L3Cs) appears to be waning in several states. North Dakota rejected legislation that would have recognized L3Cs this year, and similar bills in Tennessee andTexas have experienced no movement since early February and March, respectively. North Carolina Senate leaders are considering a bill that would repeal legislation enacted a few years ago authorizing the existence of L3Cs. The legislation does, however, allow existing L3Cs to retain their corporate classifications. L3Cs are for-profit businesses that make charitable purposes a primary goal, which they achieve in part by attracting program related investments from private foundations.

Additional Articles on the National Council of Nonprofits Website

Happy Nonprofit Service Month

In the ongoing effort to demonstrate to policymakers that charitable nonprofits are vital to the economic, social, and cultural wellbeing of their communities, it helps to have the highest-ranking official in state government agree. Washington Nonprofits, the state association of nonprofits in the Evergreen State, successfully advocated for April to be recognized as Nonprofit Service Month. The proclamation by Governor Jay Inslee makes clear that the state’s charitable nonprofits enrich the quality of life in communities, find “creative and effective solutions” to the challenges faced by individuals and communities, and must succeed for the sake of “the special character of this place we call home.” Like similar proclamations in Alabama, Idaho, and North Carolina, the public recognition is helpful in the ongoing campaign of nonprofits to secure and utilize a seat at the policy table to promote positive community solutions.

Worth Reading

“Flaws in the Social Impact Bond/Pay for Success Craze,” Jon Pratt, Executive Director of Minnesota Council of Nonprofits, in Nonprofit Quarterly, April 18, 2013

“State Tax Collections Reached Record High in 2012,”Governing, April 15, 2013, providing a state-by-state breakdown of tax revenues from 2008 through 2012, and identifying which states have yet to return to pre-recession revenues.

Worth Quoting

"I think it helps everyone here in the building to take that vote, because we all have charities and nonprofits in our districts, and there's a real value in supporting those organizations." Oregon House Speaker Tina Kotek discussing the reasons for exempting charitable giving from a cap on itemized deductions pending before the Legislature.

Nonprofit Advocacy Matters | April 8, 2013

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April 8, 2013

Solutions, Not Politics: Results from Nonprofit and Government Task Forces

Nonprofits and governments can reduce their own costs, improve services provided to constituents, and return greater value to taxpayers by creating government-nonprofit task forces to develop and implement recommendations to reform contracting practices and procedures. That is the key finding of a new report by the National Council of Nonprofits, Partnering for Impact: Government-Nonprofit Contracting Task Forces Produce Results for Taxpayers, which provides a first ever how-to guide for nonprofit leaders and government officials wanting to streamline the government-nonprofit contracting process. It also provides practical guides for building collaborative relationships with government officials and offers details on the most frequently cited solutions that task forces recommend to improve the contracting process. See more resources at www.GovtContracting.org.

President’s Budget Could Reshape Debate on Fiscal Priorities

The White House is scheduled on Wednesday to release the President’s budget proposal for fiscal year 2014, and early reports suggest that it will offer something of a middle ground between the opposing budget blueprints approved last month by the House and Senate. The White House budget reportedly will call for replacing the $1.2 trillion in arbitrary spending cuts, known as “sequestration,” with spending cuts and revenue increases that would result in $1.8 trillion in deficit reductions over 10 years. Although the details remain secret, officials suggest that the budget will reflect a reduced revenue demand – $580 billion instead of the $975 billion assumed in the Senate budget resolution. It is presumed that the President’s revenue raiser will include a cap on all itemized deductions that he has consistently proposed since 2009, but it remains unclear whether limiting the charitable giving incentive will also be included, as usual, or largely exempted. The White House’s budget reportedly will also call for reducing spending on entitlement programs the President offered in earlier negotiations – proposing a lower inflation adjustment for Social Security and other reforms to Medicare.

Charitable Giving Incentive Meets a Mix of Views in State Legislatures

Tax incentives for giving to support the work of charities are in play for worse and for better in numerous states. The Oregon Legislature is considering multiple tax-reform bills that would sunset, totally repeal, or cap at $30,000 all itemized deductions, including the charitable giving incentive. Most notably, the bill introduced by the Speaker of the Oregon House would repeal all itemized deductions at the end of 2018 and allow for changes only with a two-thirds majority vote. New York Governor Cuomo’sbudget, which the legislature approved last month, extends for another three years the caps currently in place on charitable deductions by upper-income taxpayers. On the positive side, the Kentucky Legislature resolved a pension funding issue without adopting a sweeping tax reform plan that would have capped itemized deductions, including charitable deductions, at $17,500. One state has succeeded and two states are working to undo the damage of recent limits to tax incentives. Missouri’s Governor recently signed into law a measure that restores giving incentives for food pantries, pregnancy resource centers, and the Children in Crisis program, and repeals certain requirements under the Rebuilding Communities tax credit program. The Hawai’i Legislature is considering a bill to restore the full deduction for charitable donations that had been curtailed in 2011. Likewise, efforts are underway in Michigan to reinstate and enhance the state’s charitable giving incentive that was eliminated in 2011 as part of legislation to reduce corporate taxes.

Trend in Focus: Fees in Lieu of Taxes

Local governments are risking long-term consequences by charging charitable nonprofits fees for services that have traditionally been seen as a basic function of government, according to an article by Jeannie Fox of the Minnesota Council of Nonprofits, published in the Nonprofit Quarterly. A growing number of localities are attempting to levy various new fees on local nonprofits, charging charitable organizations for everything from streetlights to tree maintenance. From the nonprofit perspective, these “short-term budget fixes, combined with relatively short election terms, can result in decision makers going for more immediate rewards.” Fox points out that nonprofits, by virtue of their reliance on individual donors, foundation support, and government contracts, have no funds from which to draw payment for these fees other than directly out of program budgets. She warns that the growing number of fees targeting nonprofits are, among other things, limiting their community impact, weakening communities’ social service delivery systems, eroding their constitutionally-protected tax exemptions, threating nonprofit-government partnerships, pitting small nonprofits against larger ones, creating an unlevel playing field for nonprofits across city and state lines, and reducing nonprofit jobs.

Other Developments

Taxes and PILOTs: Efforts by the Pittsburgh Mayor to overturn nonprofit tax exemptions have been rebuked by another official in the City. Last month, Mayor Ravenstahl sued the University of Pittsburgh Medical Center (UPMC) seeking to invalidate the nonprofit’s property and payroll tax exemptions. The chairman of the task force that the City appointed to examine PILOTs criticized the tax fight, saying, “The lawsuit that was filed... has certainly dramatically complicated the discussion. … The spirit of openness and collaboration has been wounded.”
Fees: The Gloucester, Massachusetts City Council voted to close discussion on whether to include trash pick-up for local nonprofits in the City’s new contract with the trash collection agency. A 2011 ordinance abruptly removed local nonprofits from the City’s trash collection services, forcing them to pay instead for private trash pick-up. The cities of Newton, Massachusetts, Richmond, Virginia, and New York City have sought similarly in recent years to shift the costs of trash collection onto nonprofits by charging them extra fees for the services.
Fees: Two bills in Maine would permit municipalities to charge tax-like fees for the services they provide to nonprofit property owners, despite their tax exemptions. One version would require approval of voters in the city; another version would allow the city to assess service fees of up to two percent of the nonprofit’s revenues.
PILOTs: A provision included in a North Carolina bill would create a commission tasked with studying the feasibility of levying PILOTs. The committee would focus on payments from state properties, but the scope of the study could be expanded to include PILOT proposals for nonprofits.

Government-Nonprofit Contracting Update

Illinois Late Payments: Due to late payments from state government, Lutheran Social Services of Illinois has been forced to curtail treatment for 1166 substance abusers and lay off 20 percent of its staff at one facility. Since 2008, the state has contracted with the nonprofit to provide services on behalf of the state, and the amount the state owes the nonprofit under legally-binding contracts has soared from $5 million to as much as $11 million, fully 10 percent of its $112 million in total annual revenues, the Gatehouse News Service reports. An official with the nonprofit defined the broader impact on the community: “When we’re not providing these folks services, they will be served in an emergency room, which is not a good situation.” The state’s failure to honor its contract has created a negative ripple effect, as the organization has closed or reduced many of its needed services, laid-off staff, and reduced employee benefits, among other harms.
Texas Nonprofit Council: A new bill in the Texas Legislature would implement a key recommendation that many state government-nonprofit contracting reform task forces have proposed: creating a Nonprofit Council to work with the task force to strengthen collaboration between government agencies and the nonprofit sector. As recognized in Partnering for Impact, discussed above, close collaborations between nonprofits and governments are producing cost savings and policy changes that improve service delivery by nonprofits.

Additional Stories on the National Council of Nonprofits Website

Advocacy Continues, Even After Sine Die

The Kentucky Nonprofit Network (KNN) used the recent ending of Kentucky’s 2013 legislative session as an opportunity to reach out to state policymakers and remind them about the issues most important to nonprofits and the communities they serve. Knowing that advocacy never sleeps, KNN shared a memo with General Assembly members as they were leaving Frankfort that reiterated the importance of charitable giving incentives to the communities nonprofits serve and the need for state revenues to fund the programs and services that nonprofits and government work together to provide.

In the advocacy piece, KNN reminded legislators that “Kentucky’s nonprofits exist to solve problems in our communities and they do so because they care about this Commonwealth and its people. Nonprofits are also businesses and like any business, operating requires adequate resources – whether those funds come from providing services under government contracts, charitable contributions, earned income or a combination.”

KNN provided a strong voice and leadership on several tax reform and revenue-related measures this year that stood to dramatically affect local nonprofits and the communities they serve. As stated in an earlier article, these efforts met with success last month when the General Assembly adjourned without taking up a tax reform package that had proposed capping all itemized deductions, including the charitable giving incentive, at $17,500.

Nonprofit Advocacy Matters | March 25, 2013

Posted:

March 25, 2013

Be Sure to Fill Out the Survey

Government-Nonprofit Contracting Survey in the Field

The latest government-nonprofit contracting survey is in the field, and the results will determine whether and how quickly problems in contracting policies and processes will be fixed. If your nonprofit receives the survey recently sent out for the Urban Institute by Social Science Research Solutions to randomly selected organizations, please fill it out. The data collected will be used to guide the work of the Government-Nonprofit Contracting Reform Project. Learn more about government-nonprofit contracting reform.

Congress Acts on Current Spending, Future Budgets

The House and Senate enacted a $982 billion spending bill that funds federal government operations and programs through the end of the current fiscal year (September 30), and each chamber has approved its own budget blueprint for the next ten years. The appropriations legislation kept in place the $85 billion in cuts to domestic and defense spending that automatically went into effect under sequestration, but policymakers did make some adjustments to the across-the-board cuts to prevent a few hardships and anomalies that had received media attention.

The 2014 Budget Resolutions approved separately by the House and Senate reflect the fiscal priorities of the two political parties. The House version of the non-binding resolution would achieve balance by retaining the $1.2 trillion in sequestration cuts, adding more spending cuts, repealing the Affordable Care Act, converting Medicaid and food stamp programs to block grants to the states, and revising Medicare. It calls for comprehensive tax reform that removes undefined tax loopholes, but that does not raise new tax revenues. The Senate resolution calls for replacing the sequestration cuts with other spending cuts and tax revenues, including raising $975 billion over 10 years by closing “loopholes” and cutting “wasteful breaks that primarily benefit the rich.” House and Senate budget leaders must now sit down and try to fashion a compromise budget from the radically different texts.

Charitable Giving Incentive: Not a Loophole

The debate on the Senate Budget Resolution reiterated a point that most charitable nonprofits have been stressing for years: the charitable giving incentive is not a loophole but an important policy decision that is vital to communities. Senator Ron Wyden (D-OR) explained at a Budget Committee hearing that the charitable deduction should not be considered a “loophole” in the tax code, but a “lifeline” that encourages individuals “to give more than they would otherwise give.” Senator John Thune (R-SD) stressed during the Senate floor debate that the charitable deduction is essential to enabling the private sector to fill the needs in communities that “otherwise would have to be met by government spending.” Likewise, economist Martin Feldstein explained in aWashington Post article, “The full deduction for charitable contributions should be retained, because the money that taxpayers give to charity benefits those organizations rather than the individual taxpayer.”

Volunteer Mileage Rate Legislation Introduced

A bill in the House would raise to the business rate of 56.5 cents/mile the rate that volunteers would be able to deduct from their taxes. Under current law, volunteers who drive their vehicles when they perform work on behalf of a nonprofit are restricted in tax law to deducting only 14 cents per mile, a rate that is set in statute and has not been changed in decades.

OMB Extends Comment Deadline

The White House Office of Management and Budget is extending the comment period for the Proposed Guidance on Federal Grantmaking until June 2, 2013. The new deadline gives interested parties additional time to analyze the issues and prepare their comments. The proposal is available at www.regulations.gov under docket OMB-2013-0001. Seeearlier article in Nonprofit Advocacy Matters.

States Consider Curbs on Nonprofit Compensation

Policymakers are again invading nonprofit and foundation boardrooms and the independence of private nonprofits. Among the proposals that would hamper the work of nonprofits with new compensation requirements, legislation proposed in Hawai’i requests that nonprofit contractors working with the homeless review and reduce employee compensation to less than three-fourths of the Director of Human Services’ pay. A bill in Maine would require nonprofits to disclose the salaries of their employees. Even more hostile to nonprofits and foundations are three Massachusetts bills that seek to prohibit compensation of board members and independent officers, directors, or trustees unless the organization secures a waiver or approval from the Attorney General and limit the pay of executives at nonprofits with state contracts that make up at least 30 percent of their budgets, and. Reversing this trend, the North Dakota Legislature is considering a bill that would lift some of the pay caps currently in place for the management at basic care facilities.

Taxes, Fees, PILOTs

Fees: Minnesota legislation would authorize municipalities to establish street improvement districts and charge nonprofits and others "street improvement fees,” for up to 20 years, on anything from street lighting to sidewalks. Nonprofits in the state, led by the Minnesota Council of Nonprofits, oppose the bill for several reasons including its direct financial impact on organizations that are exempt from property taxes. Street improvements have generally been paid for out of property tax funds or special assessments.
PILOTs: In her State of the City Address, Baltimore Mayor Stephanie Rawlings-Blake announced her intention to extend to the “broader nonprofit community” agreements to make payments in lieu of taxes (PILOTs) that are in effect with some tax-exempt entities, such as Johns Hopkins University, through 2016.

Government-Nonprofit Contracting Updates

After vetting a draft with charitable nonprofits across the state, New York has released its standard contract to be used by all state agencies contracting with nonprofits to provide services. Also, the New York State Grants Gateway will go live in April, 2013, allowing nonprofits to upload key documents (document vault) and identify the types of services they offer. Over the course of the year, the State anticipates that government agencies will begin processing grant and contract applications online through this new Gateway, as well as upload monitoring and reporting requirements.
New York City is launching the HHS Accelerator, a document vault or repository designed to simplify and speed the contract process by collecting and storing commonly-requested organizational documents to save taxpayers and nonprofits alike so the same documents don’t have to be re-submitted for each contract competition. Beginning later this year, nonprofits will receive RFP notices based on information provided in their service applications and apply for contracts through the HHS Accelerator.

Additional Articles on National Council of Nonprofits Website

With Nonprofit Input, Oregon Agency Streamlines Background Checks

As government-nonprofit contracting reform efforts seek ways to streamline cumbersome processes for mutual benefit, the division of Oregon’s Department of Human Services that conducts background checks for nonprofit employers whose organizations serve children, elderly and those with disabilities, is a great example of doing it right. After clearly identifying the problem and conducting research to determine the root cause, the state brought in nonprofit service providers to work collaboratively with the government team to create a vision and plan to eliminate duplication and decrease processing time. The results speak for themselves. Processing a background check went from 9 business days to 4 hours, and 22 percent fewer background checks were required each month when duplication was eliminated. The staff of 44 was reduced by 32, with all 12 being reassigned to other positions. This collaborative process saved government and nonprofits time, saved taxpayers money, and helped intended beneficiaries receive safe services more quickly.

Nonprofit Finance Fund State of the Sector Report

Results from the largest ever State of the Nonprofit Sector Survey from the Nonprofit Finance Fund are now available. The annual report provides valuable information on the financial and government-contracting trends and issues that will matter in the nonprofit sector this year. A Survey Analyzer allows you to investigate the differences among nonprofits across states, sub-sectors, budget sizes, and more.

Worth Reading

“National nonprofits leader rallies Oklahoma groups as they face sequestration, budget cuts,” The Oklahoman, March 24, 2013, reporting on a series of speeches in Oklahoma by Tim Delaney, President and CEO of the National Council of Nonprofits.

“The Grantmaking Formula for the New Normal,” by Douglas Bauer, Executive Director of the Clark Foundation, Nonprofit Quarterly Newswire, March 25, 2013, making the case for philanthropic priorities in providing general operating support, funding technical assistance, and supporting advocacy.

Nonprofit Advocacy Matters | March 11, 2013

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March 11, 2013

Spending Bill for Remainder of 2013 Retains, Modifies Sequestration Cuts

Congress is planning action in the coming days to avert a government shutdown while retaining the $85 billion in arbitrary, across-the-board spending cuts known as “sequestration” that went into effect at the beginning of this month. The current funding authority for the entire federal government expires on March 27. The House passed a bill March 6 to continue funding the federal government through the end of the fiscal year (September 30) at the current levels minus the $85 billion in sequestration cuts but with some adjustments for defense, FBI, and immigration accounts. The Senate is scheduled to take up the House-passed bill this week and is expected to retain the same spending levels but provide greater flexibility to federal agencies to move money between programs.

Although federal policymakers are taking these minor steps to avert a handful of the multitude of problems caused by the across-the-board cuts, the true impact of sequestration is being revealed very slowly. For example, the Internal Revenue Service announced that nonprofits will see an 8.7 percent reduction in the savings they are otherwise entitled to under the Small Employer Health Credit.

The sequestration cuts will have an impact in every community in America, and therefore likely hit virtually every nonprofit, including those that do not receive government funding. The National Council of Nonprofits launched a special website, www.GiveVoice.org, to alert nonprofits about the need to capture information about the effects of sequestration and help nonprofits collect data and tell their stories. This new tool enables charitable nonprofits to report the negative effects of the sequester on real people in local communities across America. The GiveVoice.org website will be updated as stories come in from people across the country and the effects of sequestration continue to make themselves known.

Dueling Federal Budget Proposals to be Unveiled, Giving Incentive on the Table

Even before spending levels for the remainder of the current fiscal year are settled (see above article), Congress is working on budget blueprints for fiscal year 2014 and beyond. Numerous contentious issues are in play. The House Republican budget that will be released this week is expected to balance the federal budget at the end of 10 years in part by cutting spending by an additional $5 trillion, turning Medicare into a premium support, or voucher, program, and repealing some of the 2010 Affordable Care Act. The Senate Democratic budget, also scheduled for release in the coming days, reportedly will include a combination of fewer spending cuts and increases in tax revenues. Senate Budget Committee Chairwoman Patty Murray (D-WA) conducted a hearing last week focusing on the impact of various tax provisions, such as itemized deductions, on the deficit. One witness expressly called the charitable giving, state and local taxes, home mortgage and other personal itemized deductions unfair, inefficient and “extraordinarily costly,” and recommended replacing them with a 15 percent credit. Senator Ron Wyden (D-OR) took an opposite position, stating that he views the charitable deduction as a “lifeline,” not a “loophole,” that encourages individuals “to give more than they would otherwise give.” The House and Senate are seeking to complete action on a Budget Resolution for FY 2014 by April 15.

Opportunity to Tell Your Story

Reforming Government Contracting Relies on Nonprofit Survey Responses

Charitable nonprofits in every state have the opportunity to accelerate the progress in improving the wellbeing of those they serve, as well as the nonprofit community in general and government-nonprofit contracting in specific, by completing a survey recently sent out by Social Science Research Solutions (SSRS) to randomly selected organizations. The survey follows up on the seminal 2010 research conducted by the Urban Institute identifying critical contracting challenges, such as late payments, failure to receive full costs for contracted services provided, cumbersome and redundant application and reporting requirements for nonprofits, and governments changing contracts mid-stream. In companion research, the National Council of Nonprofits uncovered specific abusive contracting practices and promoted solutions, such as government-nonprofit task forces, auditing reforms, and document vaults, that improve services while ensuring that taxpayers get full value for the programs they are funding. The new SSRS/Urban Institute survey updates the research from 2010 to show areas of progress and lost ground, and is expected to clarify the challenges that nonprofits are currently facing in performing services on behalf of governments.

All organizations that receive the survey are strongly urged to complete and return it as soon as possible. The data collected will be a major source of information used to guide the work of the Government-Nonprofit Contracting Reform Project of the Council of Nonprofits and state associations of nonprofits. Even if your organization does not receive the survey to complete, you can still play a major role in reforming the broken contracting system by sharing your stories with the National Council of Nonprofits.

Pennsylvania Local Governments Demand Proof of Tax-Exempt Usage

Pennsylvania’s Allegheny County is sending letters to 2,800 nonprofits directing them to provide verification to the Office of Property Assessments that they deserve exemption from property taxes. The demand for information is part of a triennial review mandated by County law which requires each organization to submit a review application within 60 days under penalty of losing its tax-exempt status. Separately, a measure before the Philadelphia City Council would create new certification requirements for local nonprofits, forcing them to prove every year that they are still eligible for their tax-exempt status. In explaining his rationale for the efforts in Philadelphia, the proposal’s sponsor reportedly cited a few examples of nonprofits engaged in commercial activities and acknowledged his desire to induce more nonprofits to make payments in lieu of taxes (PILOTs) to the City’s treasury.

Curbing Fees in Lieu of Taxes

Minnesota’s Legislature is considering a bill to stop a trend that has harassed charitable nonprofits in the state in recent years – charging property owners for street lights, pothole repairs, and other services that traditionally have been funded through property tax payments. The legislation, if enacted, would exempt nonprofits from paying new fees if local governments were simply creating such fees as a way to avoid the state constitution's ban on taxing charitable nonprofits.

Challenges to Nonprofit Independence

Legislators are once again considering measures to expand application of open government laws beyond governments to nonprofit contractors. In Maine, a bill would subject the bylaws and minutes of board meetings of hospitals with government contracts to the Freedom of Access Act. Legislation in Oregon would subject nonprofits with local, state, and federal grants that make up at least 25 percent of their annual operating budgets to disclosure requirements under public record laws. State associations of nonprofits and the National Council of Nonprofits have actively opposed such legislation as discriminatory treatment of nonprofit contractors (by failing to apply the burdens to for-profit government contractors) and as a violation of nonprofit independence. (See the Council of Nonprofits' 2013 Public Policy Agenda.)

Additional Articles on National Council of Nonprofits Website

Voter Engagement Pays Off in 2012

Nonprofits that worked to lift the voices of the communities they serve had a significant impact on voter engagement in the 2012 elections, according to a recently release report from Nonprofit VOTE. The report, America Goes to the Polls 2012, found that an estimated 58.7 percent of those eligible turned out to vote last November 6^th – exceeding, with the exception of 2008’s record-breaking year, voter turnout in presidential elections for the past 40 years. This unexpected increase happened despite various obstacles that voters faced across the U.S., including a hurricane and last-minute policy changes that contributed to uncertainty and complications at the polls.

Minnesota, Wisconsin, and Colorado ranked in the top slots for voter turnout last year, with Hawai’i trailing in last place. Among the ten states that preformed the best, seven offered Election Day Registration. The report also discovered that as many as 33 to 40 percent of Americans voted early, an increase from 31 percent in 2008.

Worth Reading

“A Sensible Deal Can Avert a ‘Sequester’ Disaster,” by Albert R. Hunt, Bloomberg News, February 17, in which the veteran journalist calls on Congress and the President to, among other things, exempt charitable giving from any limitation on itemized deductions.

“Nonprofit myths: Many don't pay property taxes -- but for many good reasons,” op-ed by John Lydon, Pittsburgh (PA) Post-Gazette, March 6, 2013, explaining “why the government made certain nonprofits exempt from the property tax,” and showing “why that reasoning is still very applicable.”

Nonprofit Advocacy Matters | February 25, 2013

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February 25, 2013

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.

Nonprofit Advocacy Matters | February 11, 2013

Posted:

February 11, 2013

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.

Worth Reading

“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.

The Income Tax Rebellion: Can It Work?, Governing, January 31, analyzing proposals to repeal the income tax in ten states.

Worth Quoting:

"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.

In the News

Nonprofit Advocacy Matters | May 20, 2013

Nonprofit Advocacy Matters | May 6, 2013

Nonprofit Advocacy Matters | April 22, 2013

Nonprofit Advocacy Matters | April 8, 2013

Nonprofit Advocacy Matters | March 25, 2013

Nonprofit Advocacy Matters | March 11, 2013

Nonprofit Advocacy Matters | February 25, 2013

Nonprofit Advocacy Matters | February 11, 2013

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