The 2018-2019 Federal Government Shutdown
A Thank You to Nonprofits
With the signing of a temporary, short-term funding bill late Friday, the longest federal government shutdown ended and millions of federal, nonprofit, and for-profit employees can go back to work. There is much more to be said and done to recover from the politician-made crisis, which we address below, but first we acknowledge the engagement of nonprofits across the country. Charitable nonprofits, on their own and in cooperation with local governments and businesses, demonstrated the best in America. They earned the respect and thanks of all affected by the federal government shutdown. In a special Thank You to Nonprofits message published before the shutdown ended, National Council of Nonprofits Board Chair Donna Murray-Brown and President & CEO Tim Delaney marveled at how charitable nonprofits “stepped forward, yet again, to help innocent people who are being hurt by circumstances beyond their control.” They observed that, while this is normal when “helping others cope with everyday struggles and natural disasters,” this time nonprofits
volunteered to help their fellow Americans during “an unnatural disaster” caused by politicians. They concluded with these words of praise to the nonprofit community: “We hope politicians will learn from your positive example of putting people first. We’re proud to serve with you. For the public good. Every day.”
Moving Forward from the Federal Government Shutdown
With legislative action by Congress and a signature by the President, politicians finally called a truce, but not a complete end to the political wrangling that led to the federal government shutdown of five full weeks – the longest in history. The agreed-upon funding only runs until February 15 and the underlying policy issues that led to the dispute that imposed so much strife on individuals, communities, and the U.S. economy remain unresolved. The shutdown has demonstrated how much the nonprofit community and federal government interact, and how much the public and government alike rely on nonprofits to fill the gaps. An important lesson learned by the public as a result of the 35-day shutdown is that nonprofits are
integral to a properly functioning society and economy. In return, charitable organizations have both the opportunity and responsibility to help ensure that politicians never treat the lives and livelihoods of Americans as a bargaining tactic. Therefore, we raise this …
Call to Action
The deal to end the government shutdown is only a time out; reason must prevail to prevent a return to crisis mode. We need to lift our voices to ensure our elected officials know that the human cost of their political games is too great to countenance a return to shutdown. Here are ways you can increase the pressure on your federal officials:
- Contact the White House. Dial 202-456-1111 and tell the President “Don’t play political games with American lives; shutdown is not an option.” NOTE: the line may be busy, so keep trying.
- Call your two U.S. Senators. “Choose a State” from this list of Senators for their direct contact information, or simply call the Senate switchboard and ask to be connected with the Senators from your state at 202-224-3121. Tell your Senators: “Don’t play political games with American lives; shutdown is not an option.”
- Call your U.S. Representative. Simply call the House switchboard at 202-225-3121 and ask to be connected with your Representative. Not sure who’s representing you? Find your Representative here. Tell your Representative: “Don’t play political games with American lives; shutdown is not an option.”
Nonprofits: Please share your stories with us – both what you are seeing among the people you serve and what constraints your nonprofit is experiencing – so we can assess emerging trends and elevate key issues for greater visibility. After you do that, place a call to your local newspaper and TV station. If enough people know about the real consequences of the shutdown, the resulting public pressure will force the politicians – now and in the future – to avoid shutdowns. You can also share your story on Twitter, using the hashtag
2020 Census Citizenship Question on Trial
The decision in March 2018 by Commerce Department Secretary Ross to add a citizenship question to the 2020 Census triggered several lawsuits that are coming to a head this winter. Earlier this month, a federal judge in New York ruled against inclusion of the citizenship question, writing, “Secretary Ross’s decision to add a citizenship question to the 2020 census — even if it did not violate the Constitution itself — was unlawful for a multitude of independent reasons and must be set aside.” The 277-page decision came in a case brought by two groups of
plaintiffs: a coalition of states, cities, and counties led by New York State and a group of civil and immigrant rights organizations. A separate lawsuit filed in California is concluding its trial phase this month. A third trial commenced last week in Maryland alleging the citizenship question was added by the Trump Administration "to further the unconstitutional goal of diluting the political power of non-white immigrant communities." The Trump Administration is
trying to skip review by the Court of Appeals and is seeking immediate review by the U.S. Supreme Court of the trial court’s decision to exclude the citizenship question, claiming that the government must start printing the census questionnaires by the end of June.
Many nonprofits oppose inclusion of a citizenship question on the 2020 Census questionnaire because of the likelihood that, among other things, it will suppress participation and lead to an unfair, inaccurate, and incomplete count. Information from the 2020 Census, mandated by the enumeration clause of the U.S. Constitution, is critical because it will determine apportionment of representatives among the states, the numbers for state and local governments to use for their redistricting, and how hundreds of billions of federal dollars are allocated to states and localities for key programs, many of which are administered through charitable organizations. Undercounts of individuals and demographic groups that charitable nonprofits
serve can lead to inadequate representation and funding, which in turn put more pressure on nonprofits and foundations, state and local governments, and businesses in undercounted areas to do even more to address unmet needs. Read more at 2020 Census resources page.
- Charitable Giving Tax Deduction Act: A bipartisan bill to expand charitable giving incentives in response to the 2017 federal tax law was introduced in the House of Representatives last week. The legislation (H.R. 651), proposed by Representatives Cuellar (D-TX) and Smith (R-NJ), would create a non-itemizer, or universal, charitable deduction for all taxpayers, regardless of whether they itemize deductions. In introducing the bill, Representative Cuellar stated, “I believe that it is always important to give back to the community. This bipartisan bill not only encourages us to help
our fellow neighbors, but it also makes sure that taxpayers can receive their due deduction for charitable giving if they choose not to itemize.” Representative Smith observed, “Charitable organizations – churches, synagogues, homeless shelters, soup kitchens, job training programs, and all other groups that do heroic work helping the vulnerable among us every day – depend on the generosity of taxpayers, and they could once again benefit under this bill.”
- Parking Tax Preliminary Guidance: Preliminary guidance issued by the Internal Revenue Service in December (Notice 2018-99) proposed to clarify when nonprofits must pay a 21 percent unrelated business income tax on employer expenses related to employee parking. The notice, which is subject to public comment, instructs organizations to apply a complicated four-step calculus for putting a value on taxable parking spaces. A separate notice (Notice 2018-100) allows for tax
penalty waivers for nonprofits that failed to submit quarterly estimated tax payments on those transportation benefits. The IRS has given no guidance or relief for the application of the tax on other transportation benefits, such as subway or bus passes. Nonprofits affected by the income tax on parking expenses are invited to submit comments to the IRS by February 22.
- Tax for Highly Compensated Employees: The Internal Revenue Service published a 96-page notice (Notice 2019-09) this month explaining when nonprofit employers must pay the new 21 percent tax on annual compensation in excess of $1 million for their highest-paid staff. The preliminary guidance clarifies that (1) nonprofits should use the calendar year ending within the nonprofits' fiscal year to calculate the tax; and (2) nonprofits generally will not be able to avoid the tax by splitting highly-compensated employees' pay between multiple related organizations, among other things. The
IRS is accepting comments from the public through April 2.
Advancing Museum Board Diversity, Equity & Inclusion
The American Alliance of Museums launched a national initiative for diversity, equity, accessibility, and inclusion for museum boards and leadership on January 15. The three-year, $4 million-dollar campaign is designed to be a catalyst for change in the makeup of museum boards that have been found to be significantly white-lead. Fifty museums are committing to work to improve the makeup of leadership while developing resources for all museums, and potentially all nonprofits.
“We’ve strategically built this initiative so that it will inform the nonprofit sector over all,” said Laura Lott, Chief Executive of the Alliance. “The effort to build community is strengthened when diversity, equity, and inclusion are fully realized within institutional leadership, and this initiative provides the tools and resources necessary to do so,” according to Alice Walton, philanthropist and founder of the Alice L. Walton Foundation, who, along with The Andrew W. Mellon Foundation and Ford Foundation, are funding the program.
States Reimagining Charitable Giving Incentives
The federal Tax Cuts and Jobs Act, enacted at the end of 2017, is barely a year old and is generating scores of bills at the state level through which legislators are seeking either to conform state law to the revised federal tax code or to create variances from the federal law. Lawmakers in several states have introduced bills to reduce or limit the expected adverse impact of the federal tax law on charitable giving resulting from the near doubling of the federal standard deduction to $12,000 for individuals and $24,000 for couples. Nationwide, the Tax Cuts and Jobs Act is predicted to cause 28.5 million
fewer taxpayers to claim itemized deductions.
Bills in Kansas, New York, and Virginia would permit taxpayers to claim itemized deductions on their state returns, even when they elected the standard deduction on federal returns. A separate Virginia bill would provide a nonrefundable tax
credit (capped at $250 individual/$500 couple) to those who do not itemize deductions on their federal tax returns. Going further, legislation in Arizona would establish a non-itemizer charitable deduction, retroactive to 2018. If enacted, these states would join Colorado and Minnesota in providing charitable tax incentives for all taxpayers, regardless of whether they take
the standard deduction or itemize.
Bills in other states would create new giving incentives for various charitable organizations. Mississippi legislation would establish a tax credit for private school and home-schooling expenses for the taxpayer’s dependent children. In Iowa, legislators have proposed a state tax credit for charitable contributions to regenerative medicine research and an exemption from taxation of wages received by an individual from a nonprofit for services provided to individuals with disabilities.
Weighing Wayfair for Nonprofits
In addition to income tax laws, legislative agendas across the country are loaded with bills altering state sales taxes to take advantage of the U.S. Supreme Court’s South Dakota v. Wayfair decision. Reversing decades of precedent, the decision makes clear that states have the power to impose taxes on entities beyond their borders, meaning that states that alter their tax laws can collect sales taxes for online purchases of goods and services from sellers without
a physical presence in the state. About half of the states already have taken legislative or regulatory action to tap into the billions of dollars in new revenue that the new taxing authority makes available, and new bills are under active consideration this year in more than a dozen states (so far).
The Wayfair decision could have significant implications for charitable nonprofits that buy or sell online. Nonprofits could also lose out in upcoming state tax reform legislation as states seek to adjust their laws to take full advantage of their newly recognized powers. States currently are not consistent in whether some or all nonprofits are exempt from sales taxes as purchasers and as sellers. As a result, the immediate impact of the decision is confusion about when, where, and how nonprofits should be paying and/or charging sales taxes. Legislatures that open up their sales tax laws for reforms can – whether intentionally or inadvertently – impose taxes on previously exempt nonprofits, as
happened in Kentucky. Learn more about state efforts to avail themselves of the Wayfair windfall in our new analysis.
Endowments and Tax Credits Under Review
Whether in response to the federal tax law or a growing hostility and misunderstanding of the purpose of endowments, the concept of giving to nonprofit endowments is under review is some states this year. While one bill in Montana seeks to extend the Charitable Endowment Tax Credit for another six years (through 2025), separate legislation would go the other way by repealing several of Montana’s tax credits, including the one that promotes giving to nonprofit endowments and university and college foundations. A measure in North Dakota would significantly undermine the state’s endowment tax credit by reducing the cap on the tax credit from $5,000 to $500, while expanding it to apply to donations to qualified nonprofit organizations. Lawmakers in the state are also
considering a plan to change several existing state tax credits into deductions, including the endowment and planned gift tax credit. According to the North Dakota Association of Nonprofit Organizations, the current tax credit “builds communities and enriches the lives of North Dakotans by supporting the work of the state’s charitable nonprofit organizations.” In Missouri, a new bill seeks to target certain nonprofit university endowments by imposing a 1.9 percent tax on the aggregate fair market value of assets, potentially penalizing nonprofits for building reserves to maintain operations into the future.
Lawmakers Targeting Nonprofit Hospitals
The trend of lawmakers questioning or misinterpreting nonprofit tax exemptions for hospitals continues in 2019 as reflected in legislation introduced in several states. An Indiana bill would restrict the tax exemption for a nonprofit hospital’s outpatient facilities only to those that are located in the same county as the inpatient facility that is exempt from property taxes. In Nebraska, legislation would impose two new restrictions on nonprofit
hospitals. First, they would be required to grant use of their facilities to any local licensed medical practitioners, and not just their employees, in order to remain eligible for property-tax exemption. Next, the value of the exemption would be limited proportionally to the percentage of the services that are provided gratuitously. A freshman legislator in Rhode Island is attempting to circumvent the state’s property-tax exemption with a bill to impose a municipal payment, or fee, equal to 65 percent of property taxes on a nonprofit hospital that has converted from a for-profit hospital
to a nonprofit hospital. Finally, a New Mexico sales-tax reform bill would preserve the charitable nonprofit exemption from the state’s gross-receipts tax, but partially remove nonprofit hospitals from the exemption.
Reporting from the Front Lines of the Federal Government Shutdown
Charitable nonprofits witnessed first-hand – and many experienced – the significant problems flowing from the 35-day federal government shutdown that ended January 26. In addition to addressing the immediate needs of those individuals directly impacted by the layoffs, nonprofit leaders spread the word about what was actually happening in their communities. This edition of Advocacy in Action is dedicated to the efforts of many to get the word out, and thus advocate rather than suffer silently.
State associations of nonprofits stayed in touch with their members throughout the shutdown, gathering and sharing information and resources, and spreading the news of their experiences. CalNonprofits was quick to survey its members and the results were concerning. “The unexpected -- and troubling -- message is that the shutdown is affecting nonprofits and communities in surprisingly large ways.” The state association found, “From food banks and housing groups to education and arts organizations, people are reporting hardships across the state.” They reported that some nonprofits
couldn’t access grant funds or finalize grant applications due the absence of federal employees, and others struggled to cope with housing needs, tax preparation assistance, and many other problems.
The Florida Nonprofit Alliance spread word about the effects on domestic violence shelters, food aid, food inspections, and housing assistance. A survey by the Utah Nonprofits Association showed that nonprofits and their constituents experienced a wide range of hardships. “The uncertainty and being in limbo is hard,” replied one survey respondent. Some respondents reported that they had seen delays in work and new projects due to lack of funding; some were concerned
about receiving benefits, and others were concerned about their clients’ ability to pay for things like daily medications.
The Massachusetts Nonprofit Network survey found disruptions in current funding streams, including delays in current grant programs, uncertainty around entitlement funding, little to no federal technical assistance on grant and program administration, and lapses in federal approvals needed to carry out local projects and activities, among many other things. Providers’ Council in Massachusetts wrote their congressional delegation to report on the many negative impacts of the
shutdown on human services providers, and shared one poignant quote from a front-line nonprofit professional that resonates with many:
“All it takes is one missed payment, voucher or rental subsidy to put them at extreme risk. It is imperative that those who are the most frail and vulnerable are not held hostage to a system that is meant to be a safety net for them. This is a most cruel and unusual way for force policy change.”
In a survey of nonprofits by the Maine Association of Nonprofits, two-thirds (66%) of respondents reported that they had experienced either a moderate or high level of impact from the shutdown. One respondent wrote: “We have seen moderate increase in the numbers of people seeking food and diapers through our pantry; many of them are furloughed or working without pay.” Another nonprofit reported: “The middle-school-aged girls we work with bring a lot of their family stressors to the program with them and we anticipate needing to guide them through processing this situation,”
demonstrating that the pain of shutdown goes far beyond the economic.
Among the many nonprofits responding to request for stories by the Center for Non-Profits in New Jersey, one food pantry executive expressed the spirit of the community that nonprofits naturally embrace. Reporting that the organization had received its first direct request for assistance from a furloughed federal employee, the survey responder wrote, “She is struggling to pay her rent and bills. Of course, we will be providing her food right away and seeing if there are other ways to help navigate this situation.” In a news release this month, the Center joined with other advocates in calling for
a swift end to the shutdown. “Lives and livelihoods are on the line,” noted Linda Czipo, President and CEO of the Center. “We urge the President and Congress to act immediately to reopen the federal government so that vital programs can be resumed and resolutions to long-term issues can be negotiated.”
There were also many commendable examples of nonprofits, local governments, and businesses cooperating to help stave off some of the damage of the federal government shutdown. The City of Alexandria, VA alerted all citizens to a food drive benefiting the Capital Area Food Bank that was providing food boxes to furloughed federal employees. The effort enjoyed the support of a local TV station and FedEx, which provided trucks to collect and deliver food. In Cincinnati, a two-day pop-up restaurant was run by the nonprofit La Soupe on the campus of the Midwest Culinary Institute at Cincinnati State College. Roughly 200 volunteers have been welcoming people, packaging food, and serving roughly 3,000 meals prepared by local chefs who have also volunteered their time. In Detroit, the nonprofit Forgotten Harvest created a pop-up pantry at the local airport to provide shelf-stable foods and fresh fruit to federal employees affected by the government shutdown. The
effort was successful because of the full engagement and support of Wayne County Airport Authority and Delta Airlines.
Each of the stories listed here and many others deserve respect for the telling of their experiences so that policymakers can learn. If they will listen.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.