A Special Request
Federal Budget and Spending Priorities
Last week’s special edition of Nonprofit Advocacy Matters that summarizes many nonprofit-centric issues in both the Bipartisan Budget Act of 2018 and the President’s budget requests for fiscal year 2019 did not attempt to cover every issue of possible concern to charitable nonprofits. We invite readers to flag for us the policy and spending issues your organization is monitoring, and we’ll work to cover developments as they occur on issues of greatest interest.
Bipartisanship Hits Its Limits in Congress
The House and Senate are in recess this week for the President’s Day holiday after a burst of action on one bill, followed by inaction and acrimony. The momentary spirit of collegiality that led to enactment of major bipartisan legislation on Friday February 9, the Bipartisan Budget Act of 2018 (BBA), dissipated over that weekend and completely vanished just a few days later when the Senate opened debate to resolve the status of Dreamers under the Deferred Action for Childhood Arrivals program. As Senator Jeff Flake (R-AZ) writes in today’s Washington Post, “Senators on both side of the aisle made concerted effort to forge consensus. Unfortunately, the siren call of politics brought too many of us back into partisan trenches and blocked any hope of real results.” Specifically, aggressive lobbying by the Trump Administration kept the Senate from getting the votes needed to proceed. Also last week, the release of the President’s budget request for fiscal year 2019 was met with scorn from Democrats, signaling that a single bipartisan bill does not start a trend in the 115th session of Congress
- Increasing Ruckus Over the 2020 Census: The President’s budget request for fiscal year 2019 includes an additional $3.8 billion for the Census, but advocates for a fair and accurate count caution that this would only keep the Bureau on “life support.” A bipartisan group of 161 mayors has called on the Administration to provide “adequate funding, qualified Census Bureau leadership, and a full rejection of untested questions that threatens to
undermine census preparations and accuracy.” In a letter to Secretary of Commerce Wilbur Ross, the mayors complain that cities are consistently undercounted, resulting in systematic underpayments to them under multiple federal programs.
- Unforgiving Student Loans: Federal legislation, titled the Promoting Real Opportunity, Success and Prosperity through Education Reform (PROSPER) Act (H.R. 4508), would eliminate the Public Service Loan Forgiveness program (PSLF). Under the program that was enacted in 2007, individuals who work for 10 years in the public sector (including at charitable nonprofits) while making payments on their student loans can have the remainder of their student debt cancelled. If passed, the legislation would not impact nonprofit workers already enrolled in the program, but would deny access to the
loan-forgiveness incentive for future graduates. For more information on the PSLF, see CalNonprofit’s Nonprofit Student Debt Project resources.
- Planning Ahead on Tax Guidance: The Treasury Department released an updated Priority Guidance Plan for the Treasury and Internal Revenue Service that identifies areas of regulatory changes needed to adjust to the new tax law. The update addresses ten issues pertaining to tax-exempt organizations, including unrelated business taxable income, grantor and contributor reliance, supporting organizations, dual-use facilities, disqualified persons, and donor advised funds. Other guidance projects address estate and gift tax computation, excise tax excess remuneration, church plans, disaster
relief, and welfare benefit funds.
- Nominating Opportunity Zones: The Internal Revenue Service is encouraging governors and mayors to designate population census tracts as Qualified Opportunity Zones in order to take advantage of federal funding, investments, and tax incentives available under the Tax Cuts and Jobs Act. Each state may nominate via an online “Nomination Tool” a limited number of tracts that meet the definition of “low-income community.” According to Tax Notes, letters to state officials explain, “The census tracts eligible for designation as Opportunity Zones include some of the most distressed areas in the country. If such a community becomes an Opportunity Zone, the resulting tax benefits may attract new investment into the community to create jobs, stimulate growth, and provide hope to the individuals and families living there.” Nonprofits interested in promoting and participating in Opportunity Zones should consider alerting their local officials to encourage their governors to take advantage of this opportunity.
- Reforming Regulations with Nonprofit Input: The U.S. Small Business Administration’s Office of Advocacy is hosting Regional Regulatory Reform Roundtables across the country in an effort to hear directly from small businesses, including charitable nonprofits, about what regulations concern them the most. The Advocacy Office is working to compile information for its forthcoming report on existing small business regulatory burdens, identifying specific recommendations for regulatory changes based upon first-hand accounts from smaller organizations across the country. The next roundtables will be held in Texas: February 27, 2018 in Houston and March 1, 2018 in San Antonio.
Family First Prevention Services Act
Pleasantly surprising advocates, the Bipartisan Budget Act of 2018 includes the Family First Prevention Services Act (beginning at Section 50701), which will provide federal funding to keep children with their families and out of the foster care system. Specifically, the law opens Title IV-E child welfare funding for prevention services, such as mental health and substance abuse prevention and treatment, that can help keep families together. The language enacted this month is based on an
earlier bipartisan version passed in June 2016. However, further work may be needed to ensure a mechanism to maintain flexibility under the current waiver program. For more information, contact the Alliance for Strong Families and Communities.
State Impact of Federal Tax Law
Governors and legislators across the country are looking to overhaul tax codes to avoid state tax increases for residents caused by the federal tax law. New York Governor Cuomo announced legislation intended to decouple state tax law from the federal tax code “to avoid more than $1.5 billion in state tax increases brought solely by increases in Federal taxes.” A proposal is pending in Idaho to cut personal and corporate income tax rates and to enact a $130 nonrefundable child credit. A Nebraska bill, in addition to decoupling from the federal standard deduction, would restore state personal income tax exemption credits to avoid $226 million in state tax increases. Michigan lawmakers reached a deal with Governor Snyder to provide a
$4,900 personal tax exemption. Likewise, Maryland’s Senate unanimously passed a bill to ensure the state’s personal exemption remains in place. A revenue-neutral plan to change adjusted gross income (AGI), reintroduce personal exemptions, create a state-defined income deduction, lower marginal rates, and introduce a five-percent tax credit for charitable contributions is currently being considered in Vermont to address $42 million in tax
hikes and $12 million tax decreases for various residents in the state.
SALT Workaround Update
State lawmakers are aggressively promoting bills to relieve taxpayers of the effects of the $10,000 cap on federal itemized deductions of state and local tax (SALT) deductions enacted as part of the Tax Cuts and Jobs Act. Although the details of the bills vary, generally each would give taxpayers tax credits on their state taxes for contributions to tax-exempt organizations controlled by state or local governments and allow taxpayers to claim a charitable deduction on federal taxes. The California Senate last month passed a bill sponsored by the Senate President that would provide a tax credit equal to 85
percent of the amount contributed to a state-run nonprofit. Legislators in Illinois, Nebraska, and Washington State have introduced bills to create state “excellence funds” and provide dollar-for-dollar tax credits against the taxpayer’s tax liability while treating the payment as a charitable donation. An Illinois House committee passed and amended its bill to
specifically focus on education. The Nebraska Senate Revenue Committee is set to hear its bill this week, and the bill in Washington State failed to meet legislative deadlines.
New York Governor Cuomo announced last week his intention to propose legislation to create two new state-operated Charitable Contribution Funds to accept donations for improving health care and education. Taxpayers who itemize deductions could claim these charitable contributions as deductions on their federal tax returns while receiving an 85 percent state tax credit in the subsequent year. As described, his bill will also authorize local governments to create similar charitable funds that provide property tax credits. New Jersey lawmakers introduced and hastily advanced legislation on Thursday that would authorize local governments to set up organizations for specific purposes, such as police or schools, that residents could pay into and get credit toward their property taxes. Similarly, Connecticut Governor Malloy is looking to authorize municipalities to create charitable organizations and allow taxpayers to reclassify property tax payments as charitable donations.
The legislative proposals raise numerous questions ranging from the legality of such a tax workaround scheme to potential effects on donor and public behavior, blurring of lines between government and nonprofit independence, and funding for critical public programs. Some scholars have come out against the approaches while other nonprofit professionals are lending their support.
To Disclose or Not to Disclose Donors
Arizona municipalities would be prohibited from requiring any nonprofit organization (charitable and all other nonprofits) to disclose donor information, disclose its Form 990 Schedule B, register as a political action committee, or – in connection with a potential political campaign finance violation – submit to an audit or subpoena, or produce evidence, under legislation that passed the state House last week. The bill, which passed on a mainly party-line vote after extensive debate, seeks to prevent mandated donor disclosures of 501(a) organizations, which include all 501(c) organizations (including social welfare groups, unions, and chambers of commerce), as well as church groups organized under Section 501(d) of the tax code. Going in the opposite direction, the Washington State Senate passed its version of a bill to require 501(c)(3) nonprofit organizations to disclose donors if the organizations contribute $10,000 in cash or in-kind support to another charitable organization for ballot measure advocacy or if they conduct independent
expenditures in excess of $10,000 on ballot measures. Washington Nonprofits has engaged with legislators to express concerns of the nonprofit community about the legislation.
These polar-opposite actions reflect a significant divide on the issue across the country. Last week, the Second Circuit Court of Appeals ruled against Citizens United and its foundation in their attempt to avoid disclosing donors to the New York Attorney General. Some states, including New York, require nonprofits, as part of their annual filings, to provide an un-redacted copy of their Form 990 Schedule B (Schedule of Contributors). In Congress, Representative Peter
Roskam (R-IL), a senior Ways and Means Committee member, introduced H.R. 4916, the Preventing IRS Abuse and Protecting Free Speech Act, seeking to bar Treasury from requiring that Section 501(c) groups disclose the identities of contributors. The legislation comes after 50 conservative advocacy groups in November sent a letter to the Hill calling for the elimination of donor disclosures entirely.
Taxes, Fees, and PILOTs
Union Proposing PILOTs to Fund Education
A teacher’s union in St. Paul, Minnesota is looking to nonprofits to fund a 2.5 percent pay raise for local educators. The school district is suffering from declining enrollment, student achievement disparities, and a $23 million budget deficit. Using a delayed strike as a negotiation tactic, the union wants district officials to commit additional revenues sourced from nonprofit hospitals and colleges and local corporations. The City is currently in discussions with nonprofits about “voluntary” payments-in-lieu-of-taxes (PILOTs) after the State Supreme Court struck down a
fee structure that was deemed an unconstitutional tax on nonprofits.
Going All Out to Enhance Tax Giving Incentives
The Colorado Nonprofit Association believes the time is right to enhance state tax incentives and is going all out to promote needed legislation. As is the case with other states (see above article), the federal tax law is causing Colorado taxpayers to pay higher state taxes because of the repeal of various deductions and exemptions.
The fiscal windfall for the state that could result in spending increases for dangerously underfunded programs and additional cash into the state’s rainy-day fund. And in the minds of many in the Centennial State, taxpayers facing surprise tax hikes due to federal action deserve a break. That’s where the state association of nonprofits sees its opening.
The Colorado Nonprofit Sustainability Act is a bipartisan bill that would create a tax credit for cash donations to endowments of charitable nonprofits and community foundations. Under the legislation, donors would be allowed to claim a 25 percent tax credit for donations up to $20,000. As a result, nonprofits would receive $4 for each dollar the state awards in tax credits. Five other states
(Iowa, Kentucky, Maryland, Montana, and North Dakota) currently offer a tax credit for donations to charitable endowments.
Colorado Nonprofit Association and ally organizations have been promoting the bill for years, but see 2018 as their greatest chance yet for legislative success. But they aren’t sitting back and awaiting good luck to happen. Renny Fagan, President and CEO (pictured), testified in support of the legislation last month. The state association also circulated a letter in strong support of the measure and invited organizations and individuals to sign on to demonstrate broad support within the state.
Advocates are also armed with an infographic that simply and clearly explains how the tax credit would work and lays out the benefits to communities in the state when nonprofits can rely on endowments to sustain their operations.
Further, nonprofit leaders from across the state attended the state association’s 2018 Day at the Capitol on February 15 and made their case in person for expanding giving that will promote sustainable nonprofits.
Finally, the state association has developed a dedicated webpage that provides up-to-date information about the legislation, informing readers what they can do, and providing background information of similar endowment credits in other states.
Read more Advocacy in Action lessons, a regular feature of Nonprofit Advocacy Matters.