Our 2019 Public Policy Forecast for Nonprofits
For the third consecutive year, the Chronicle of Philanthropy has published our annual public policy forecast for the nonprofit and foundation community: The Effects of 2019 Tax-Policy Decisions Will Linger for Decades. It’s Time to Weigh In. Admittedly, many of us instinctively recoil at the term “tax policy,” just as we would hearing a rattlesnake’s rattle, not from fear but from dread of it being boring and complex. Yet unless your organization has an extra $5,000 - $100,000 sitting around unused, leaders of nonprofits and foundations cannot afford to ignore what is shaping up to be
2019’s biggest policy issues at both the state and federal levels. Decisions on tax policy made this year will influence whether organizations’ missions will be thwarted for the next few decades by additional financial burdens. Even if tax legislation as introduced doesn’t mention nonprofits or foundations, experience repeatedly shows that whenever a legislative body reopens its tax laws, there will be new winners and losers, whether intentional or due to sloppy drafting. Nonprofits should view this year’s big issue of “tax policy” both as a potential threat to their organizations' missions and an opportunity to advocate for improvements that benefit the community.
Partial Federal Government Shutdown Takes Toll on People, Nonprofits
The longest federal government shutdown in U.S. history continues as President Trump refuses to back off his demand for $5.7 billion to fund a wall on the southern border and congressional Democrats consistently reject the demand. As of this writing, nine cabinet departments are mostly shuttered and 800,000 federal employees are either furloughed or being required to work without pay. Plus, an unknown number of the estimated 3.7 federal contractors are not being paid – and likely will not be paid retroactively for time locked out during the shutdown. The adversely affected departments and selected high-profile
programs include Agriculture (payments to farmers), Commerce (census planning, weather service), Homeland Security (border protection, transportation security), Housing and Urban Development (housing vouchers), Interior (national parks), Justice (courts and law enforcement), State, Transportation (safety inspections), and Treasury (IRS). The administration has made announcements about expediting SNAP funding to the states and continuing to process income tax refunds, but its legal authority for these and other actions is in doubt.
The shutdown is estimated to cost the economy more than $1 billion each week that it continues, but the impact on nonprofits and the individuals they serve will have lasting consequences. Nonprofits are finding that furloughed federal employees cannot issue grants or contracts to nonprofits and cannot make payments to reimburse nonprofits for work they already have performed for the government. Some of these organizations are forced to take out lines of credit or layoff staff and reduce or eliminate certain services, costs in economic and human terms that will never be recovered even when government operations return to normal.
Equally harmful are the indirect, yet still significant financial and human costs of the shutdown that charitable organizations are experiencing with increasing frequency. For example, furloughed federal employees are joining the already long lines of individuals seeking assistance at food banks and other nonprofit providers. Tragically, nonprofits are reporting the shutdown is playing out in terms of stressing worried couples and parents to the point of forcing some family members to seek protection at domestic violence shelters. The dollars and hours of service diverted from nonprofit missions to address this politician-inflicted crisis
will never be recouped and the unnecessary human toll will not be erased in too many instances.
All Three Sectors of the Economy Unite Against the Shutdown
As the machinations of the President and congressional leaders produce no headway, groups representing the three major segments of the U.S. economy are speaking out. Representing the public sector, the bi-partisan National Governors Association urged the leaders to “re-open the government now and, then, reach across the aisle to find a solution that will end the current impasse.” Their letter explains, “Every day, governors must work with our state legislatures, local governments, and stakeholders throughout our states to find common ground, and we believe Congress and the President must do the same.” The
U.S. Chamber of Commerce also weighed in strongly, urging “Congress and the administration to resolve this impasse and reopen the government.” The Chamber letter highlights the many adverse consequences of government officials not being allowed to do their jobs, challenges ranging from the lack of safety inspections and delays at airports, to stalled approvals of routine financial and trade transactions, all of which are harming businesses of all sizes and types.
The National Council of Nonprofits, in a letter designed to exert more pressure to reopen the government, stressed, “The government shutdown is no mere negotiating tactic; it is a tragic failure of leadership … that now has very real and lasting consequences for our fellow Americans, our communities, and our organizations.” The letter, shared with all Members of Congress, explained the direct harm to charitable nonprofits, how the shutdown injures nonprofits as collateral damage, and the tragic toll on individuals served by nonprofit food banks, domestic violence shelters, and many others. The letter
concludes, “It is our honor and duty on behalf of the nonprofit sector to join with leaders of the public sector and the for-profit business sector in calling on you to immediately reopen the federal government and then negotiate on the issues that divide you.”
- Reforming Election and Ethics Laws: As its first official bill (H.R. 1), the new Democratic majority in the House introduced legislation to modernize voting laws and curb the influence of political donors and strengthen ethics rules for public servants. Among other things, the bill would: create automatic voter registration and same-day voter registration throughout the country; increase transparency of political contributions to non-501(c)(3) tax-exempt entities; require the Internal Revenue Service to provide clarity about the types and amount of partisan political activity that is permissible for 501(c)(4)
organizations; require states to use independent redistricting commissions to draw their congressional districts; and tighten ethics rules for all three branches of government. While enactment of the reforms is unlikely in divided government, some nonprofits already are supporting provisions that could help increase the voices of charitable organizations in development of public policies.
- Clarifying (Sort of) the Tax on Nonprofit Parking Benefits: Last month, the IRS published preliminary guidance (Notice 2018-99) on the new unrelated business income tax (UBIT) on parking and transportation expenses under Section 512(a)(7) of the Internal Revenue Code. The 24-page notice recommends that nonprofits use a complicated four-step calculation to determine their taxes on parking spaces they own or lease. The notice also gives nonprofits the option of retroactively minimizing their UBIT liability by reducing the number of parking spaces they provide to employees by March 31, 2019. A
separate IRS Notice 2018-100 provides for waiver of tax penalties for nonprofits that failed to submit quarterly estimated tax payments for the new tax on transportation benefits. Generally, this means that if a nonprofit normally doesn’t submit quarterly payments, then it is off the hook for last year, but the taxes will still be due when filing annual returns. The IRS guidance is open for public comments through February 22, 2019.
- Excluding Part-Time Employees from 403(b) Plans: Last month, the IRS issued guidance (Notice 2018-95) clarifying that 501(c)(3) nonprofits that offer 403(b) retirement plans to their staff cannot exclude an employee from the plan if the employee is either expected to work 1,000 hours in any year or has actually worked at least 1,000 hours in any year. Once an employee has been eligible to make pre-tax contributions to the 403(b) plan in any year, her or his employer cannot exclude the employee from participating in the plan in future years. The notice provides a "relief period" for nonprofits that
did not follow these rules in the past, and some nonprofits may be able to use a "fresh-start" option (only available in 2019) to continue to exclude certain part-time employees who otherwise would have been eligible to participate in the 403(b) plan.
State of the State Addresses 2019
As new and returning governors take the podium to frame their policy priorities for the upcoming year, nonprofits and foundations can take note of how they can help shape decisions on issues affecting the sector. Tax reform remains a top priority as states respond to the federal tax law passed in 2017. Newly elected Idaho Governor Little plans to introduce tax reform legislation, while Virginia Governor Northam will seek to tackle the state’s earned income credit before turning to the state’s conformity to the
federal tax law. South Carolina Governor McMaster is calling for cutting all personal income brackets by one percent over five years. Colorado Governor Polis proposes tax cuts for the middle-class while removing benefits for corporations in state tax reform efforts. Focusing on stabilization and savings, Wyoming Governor Gordon is seeking no new taxes this year. The tax base, rather than the tax rate, is the priority for Vermont Governor Scott as he looks to bring more people into the state.
Other priorities affecting the nonprofit sector are also top of mind for the chief executives. Governor Edwards of Louisiana and Governor Sisolak of Nevada used their annual addresses to call for raises for teachers and education reform, respectively. North Dakota Governor Burgum identifies infrastructure, natural resources, and a strong workforce as his priorities in 2019. Connecticut Governor Lamont is committing to a $15 minimum wage, digitization, paid family leave, and better education across the state.
State Legislatures Look to Expand Targeted Giving Incentives
The federal Tax Cuts and Jobs Act capped state and local tax (SALT) deductions at $10,000. Several states responded by passing legislation last year allowing their residents to avoid (“workaround”) that cap by letting state taxpayers treat their payment of state income taxes made to government-run charitable organizations as “donations.” Treasury and the IRS looked to curtail those workarounds in proposed regulations that, however, also appear to apply to many programs in 32 states and the District of Columbia that provide a state or local tax credit for donations to certain nonprofits. Due to the federal
government shutdown and other factors, it is unclear when the federal regulations will be finalized or if they will be revised to protect some existing or newly enacted state credits.
Federal legislative and regulatory actions haven’t dampened the enthusiasm for tax credits at the state level. Two states – Georgia and Missouri – enacted or expanded their existing tax incentives last year despite proposed regulations announced by the U.S. Treasury Department and Internal Revenue Service in August that would limit the value and effectiveness of the credits. Bills introduced
in Michigan after the proposed regulations were published would have created 50-percent tax credits for charitable contributions to support the work of food banks and donations to community foundations. The Indiana Legislature is set to consider a bill that provides a 50-percent tax credit, with caps, for charitable contributions to a public school foundation. Lawmakers in Arizona are
changing definitions for certain charitable tax credits, notably expanding the benefit for donations to charities that provide services to individuals, not just children, with a chronic illness or physical disability.
States Rejecting Donor Secrecy Legislation; Considering Greater Transparency
In a last-minute veto, outgoing Governor Rick Snyder saved Michigan from becoming the darkest “dark money” state for elections by vetoing the bill on the last day of 2018. The bill would have barred government officials from requesting or requiring tax-exempt organizations to disclose any “personal information,” which was broadly defined to include nearly everyone who had any relationship – member, donor, or volunteer – with a charitable nonprofit or foundation. In his veto
message, Snyder stated that the bill, which would have prevented law enforcement from identifying bad actors in the nonprofit sector, “ha[d] significant issues.”
Nonprofits across the country are reporting donor disclosure bills as a growing trend. Earlier in 2018, the West Virginia Senate passed a narrower version of the legislation, only to see it die at the end of that state’s legislative session. Moving in the other direction toward more disclosure, the New Jersey Senate President is backing a bill this legislative session to extend campaign finance disclosure requirements to “independent expenditure committees,” while also raising contribution
limits. The New Jersey Division of Consumer Affairs is also weighing in with rules intended to reverse, at least within the state, the decision by the IRS to no longer require non-charitable tax-exempt organizations to file a special donor disclosure form (Form 990 Schedule B). As explained in comments submitted by New Jersey's Center for Non-Profits, the regulatory action is overly broad and likely would impose unintended burdens on smaller charitable organizations.
Rewarding Advocacy Excellence
BoardSource, the recognized national leader in nonprofit board leadership, training, and data, has created the Stand for Your Mission Award. The official purpose of the award is “to recognize nonprofit boards that have established advocacy as an expectation for engaged and effective board leadership – and, by doing so, are helping their organizations realize their missions.”
The award’s unofficial but equally important purpose is to draw attention not only to the importance of nonprofits advocating for their missions, but also to the expectation that nonprofit board members – in order to be deemed engaged and effective leaders – will participate actively in advocacy. The goal is to inspire and
challenge board leaders to “stand for your mission” through active engagement as ambassadors and advocates for their organization’s work. The founding partners of the Stand for Your Mission campaign are BoardSource, National Council of Nonprofits, Bolder Advocacy, Campion Foundation, the Knight Foundation, and United Philanthropy Forum.
Has your nonprofit board done what it takes to earn the prize for advocacy engagement? If so, then apply before the application deadline of February 1, 2019. The winning organization will receive a $5,000 prize, as well as national recognition by being featured on the BoardSource website, the Stand for Your Mission website, and in social media. Apply Today!
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