Federal Government Shutdown to End, Many Issues Still in Play
A three-day federal government shutdown could end today if the House of Representatives approves a short-term spending bill the Senate is expected to pass this afternoon that would fund the government through February 8. As part of the deal to reopen the government, Senate Majority Leader McConnell (R-KY) has committed to bringing to the Senate floor a bill to address border security and the Deferred Action for Childhood Arrivals (DACA) program in early February if a broader immigration and year-long spending agreement is not reached sooner. The bill also re-authorizes the Children's Health Insurance Program. In December, Congress had passed its third short-term spending bill since the beginning of the fiscal year in October
that enabled the federal government to operate through January 19. Speaker Ryan said yesterday that the House will accept a short-term bill through February 8, but would only commit to an immigration bill “that the president supports to fix this problem."
Once a deal is struck on the latest short-term spending measure that reopens the government, lawmakers must resolve several other issues before a year-long appropriations bill can be enacted. Congressional negotiators still have to set top-level spending caps. Most Republicans are seeking to spend $54 billion more on defense this year and next while Democrats are insisting that the cap for nondefense spending be raised by the same amount. Once that issue is resolved, negotiators must answer the question of how much, if any, of the more than $200 billion in new spending will be offset with separate spending cuts or revenue hikes. Only then can appropriators allocate dollars to the thousands of programs across the federal
government and draft an omnibus spending bill that would run until September 30, the end of fiscal year 2018.
- Medicaid Work Requirement Approved: The Trump Administration issued guidance this month expressing a willingness to allow states to impose a work requirement as a condition of eligibility for state Medicaid programs. The Centers for Medicare & Medicaid Services announced that it “will support state efforts to test incentives that make participation in work or other community engagement a requirement for continued Medicaid eligibility or coverage for certain adult Medicaid beneficiaries in
demonstration projects” that are “designed to promote better mental, physical, and emotional health in furtherance of Medicaid program objectives.” See State article below for how the announcement is playing out in the states.
- DOL Guidance on Unpaid Interns: The U.S. Department of Labor (DOL) announced that it is using a new seven-factor test to determine whether students and interns working for for-profit organizations are employees entitled to minimum wage under the Fair Labor Standards Act. This test, which favors employers more than the previous DOL test, looks at the "economic realities" of which party (the employer or the intern) is the primary beneficiary of the work relationship. Unlike for-profit businesses, 501(c)(3) nonprofits can use unpaid interns, but the new DOL guidance is applicable
to some nonprofits that offer stipends or other payments to their interns that are below the federal minimum wage of $7.25 per hour.
- Net Neutrality: Twenty-one states and the District of Columbia filed a protective petition for review of the order of the Federal Communications Commission to rollback net neutrality rules set by the previous Administration. The Attorneys General argued the repeal of the rules prohibiting Internet providers from slowing or blocking websites would be a violation of the Constitution and other federal laws. The filing represents another step in a long legal and political battle. Some argue that
net neutrality is an issue of nonprofit concern because of the impact corporate decisions could have on advocacy engagement on such issues as civil rights and the Census 2020.
State of the State Addresses 2018
Governors’ annual State of the State addresses and budget statements can offer insights into how upcoming legislative sessions, state budgets, and responses to tax reform will affect charitable nonprofits. Some, such as New York Governor Cuomo and Nebraska Governor Ricketts, are calling for spending cuts to address budget deficits, but they diverge on tax policy. Separately, the annual speeches by the
Governors of Kentucky and New Mexico paint drastically different pictures of fiscal health and proposed policy changes. State of the State addresses also give governors the opportunity to show a little respect for the work nonprofits do every day. Arizona Governor Ducey hailed nonprofits for providing vital human services, and the Governor of Mississippi praised museums as a place where “political agendas melted with the morning snow.” Read the full article to learn more about the priorities and issues on which the governors are focusing.
States Look to Adjust to New Federal Tax Law
The new federal tax law is only one month old today, signed by President Trump on December 22, but state policymakers are already scrambling to respond. The Governors of Iowa, Missouri, and New Mexico have called for comprehensive state tax reform. Other state lawmakers are developing plans for “work-arounds” to allow their residents to make charitable donations to a state-run charitable entity
instead of paying for state and local taxes, because the new federal tax law restricts deductions for state and local taxes to just $10,000 but does not restrict charitable contributions. A California bill would enable taxpayers to make charitable donations to the California Excellence Fund and receive a dollar-for-dollar tax credit on their income taxes as a charitable deduction. Likewise, an Illinois bill looks to create an income tax credit in an amount equal to the contributions made by
the taxpayer to the Illinois Excellence Fund, which could only use the funds for public purposes. New Jersey Governor Murphy has announced plans to allow charitable “support funds” to be made in exchange for a tax credit. The Washington Post reports that Maryland legislative leaders want to allow taxpayers to receive a state tax credit for donations made to a new state-run charity that would benefit public schools, and will also be proposing legislation to lower
the threshold on taxing estates and restoring personal exemptions on state tax returns.
New York published a case study in the complexity and impact of the interaction of federal and state tax policy, providing cost estimates – positive and negative – of key provisions of the new federal tax law. The report asserts that residents will pay an additional $14.3 billion per year in federal income taxes because of the new limitation on state and local tax deductions, but the state would net an additional $400 million as a result. The doubling of the standard deduction in the federal tax law similarly would increase payments to the state by $44 million, according to the report, and the
elimination of federal personal exemptions could increase state revenues by $840 million per year when coupled with existing state law. Other miscellaneous provisions could net an additional $281 billion in state revenues, but be partially offset by the child tax credit that could cost the state $500 million. As for solutions, the analysis echoes other states by suggesting establishment of “one or more State-operated charitable funds to receive taxpayers’ contributions to support the delivery of programs and services across the state that improve the public welfare.”
Balanced Budgets Matter
Demonstrating that state balanced budget requirements are binding, a Pennsylvania judge is permitting a lawsuit to proceed against Governor Wolf and other lawmakers for adopting an unbalanced budget. The policymakers had approved and signed into law a budget that was $2.2 billion short in revenue, violating the Commonwealth’s constitutional requirement that the government have a balanced budget. The judge decided that the defendants have not explained how the alleged “long-term borrowing in violation of the law” was moot because of subsequent legislation. “If lawmakers can
repeatedly violate the constitution and get away with it scot free by saying they’ve taken corrective action before taxpayers get their day in court, then the law is meaningless,” Matthew Brouillette, President and CEO of Commonwealth Partners Chamber of Entrepreneurs said.
States Consider Medicaid Work Requirement
Kentucky became the first state to receive federal approval of its proposal to implement a work requirement as a condition of Medicaid eligibility. Nine more states (Arizona, Arkansas, Indiana, Kansas, Maine, New Hampshire, North Carolina, Utah, and Wisconsin) are awaiting approval of their pending Medicaid waivers that include a
work requirement. The Kentucky program will apply to able-bodied adults between 19 and 64 who are not pregnant, attending school, former foster care youth, or primary caregivers. It requires 80 hours per month of “community engagement,” including working, attending school or vocational courses, or performing community service, such as volunteer service. Recognizing the controversial nature of the new mandate and the likelihood of court challenge, Kentucky Governor Bevin has already signed a preemptive executive order directing termination of Medicaid to more than 400,000 persons should the work requirement or other
provision be successfully challenged in court.
The National Human Services Assembly recently expressed concerns about imposing a work mandate as a condition of Medicaid eligibility: “Evidence suggests that mandatory work requirements would undermine the health and well-being of our country by making it harder for people to access timely physical and mental health services. That’s because any recipient who becomes subject to new work requirements but cannot meet them would be at risk of losing coverage. Even those eligible under the new requirements
would face new hurdles to establishing their eligibility, which could result in delayed coverage or the loss of coverage.” The National Council of Nonprofits has long opposed the inclusion of volunteerism as a component of a work requirement, calling it “mandatory volunteerism.” The requirement exposes charitable nonprofits to significant new costs by having thousands of individuals in a state suddenly contacting nonprofits (especially “name brand” nonprofits) and expecting “volunteer”
placements. Moreover, the requirement demeans true volunteerism by creating a stigma that falsely equates volunteering with nonprofits as a “community service” obligation typically meted out to lawbreakers.
Taxes, Fees, and PILOTs
Hospitals Under Fire by City for Property Payments
Hackensack, New Jersey City Council officials are seeking to pressure a local nonprofit hospital to make payments in lieu of taxes it does not owe because state law grants a property tax exemption. The hospital already pays more than $7 million on some of its properties, but none on its main campus. The City is seeking payment for some of the $19 million it would assess for taxes if the property were not otherwise exempt. In a previous settlement between the hospital and City meant to resolve tax appeals, the hospital agreed to pay $4.5 million over 3 years. The new demand from the City comes after a
New Jersey tax court judge revoked most of the tax exemption of a different medical center in the state, ruling that it was more like a for-profit corporation than a nonprofit. Since that decision, 41 tax challenges across the state have been filed by both municipalities and hospitals, and the Legislature has considered several bills to provide some clarity.
Coming Together to Understand Community Problems
While the State of the State, State of the Union, State of the Judiciary, and more are in full swing on stages across the nation, nonprofit leaders in Connecticut are inviting residents to actively engage in a series of regional events: The State of Community Nonprofits.
The CT Community Nonprofit Alliance, the state association of nonprofits known as “The Alliance,” regularly engages community-based organizations in advocacy and public policy matters. In a series of
five regional events, The Alliance has invited state and local officials to come together with frontline nonprofits to hear directly from their constituents and better understand how the state budget and related issues affect people who rely on community services. Starting on January 29 and ending February 8, the events will be held in Hartford, Bridgeport, South Windham, Norwich, and New Haven.
The Alliance invites advocates around the state to share their stories directly with state and local officials, providing a clear line of communication on issues directly affecting their communities. Importantly, The Alliance is opening participation in the events to staff, board members, family members, volunteers, consumers, and clients. The Alliance also encourages local media to attend the events to generate more coverage, demonstrating how media coverage grows more media coverage and greater public understanding.
These gatherings – obvious, but occurring much too rarely – demonstrate that advancing one’s mission can be as simple as sitting down with the community and talking about problems and solutions.