FY 2021 Budget Process Commences
The annual federal budget process starts today with the release of the President’s budget proposals for fiscal year 2021 that begins on October1, 2020. The documents released by the White House call for spending $4.8 trillion on programs ranging from agriculture and Medicare to a new space force and the White House. As expected, the President is asking Congress to increase spending on defense and a southern border wall and is urging Congress to renege on the spending agreement he made in December by recommending $42 billion in cuts to non-defense domestic programs. The budget blueprint claims the proposals would lead to a balanced federal budget in 15 years, which seems unlikely given the current-year deficit of $1 trillion and recent Congressional Budget Office projection that corporate tax receipts will drop an additional $110 billion due to the 2017 tax law.
Although anxiety-inducing for many, the reality is that the proposals released today are only a wish list. In the famous words of Senate Budget Committee Chairman Enzi (R-WY), expressed several years ago, “I hope that people don’t panic over the president’s — any president’s — budget. They’re just suggestions.” Further, this is an election year, and with the House and Senate controlled by different political parties, it is safe to assume that Congress will fail to pass a real budget or spending bills on time, likely leaving final decisions until December. People can’t ignore the months-long budget process by Congress through which every spending line-item is evaluated, balancing competing policy and revenue demands. Providing your insights about community needs and priorities are as important as ever to frame the debate and inform decisions.
Debating Confidential Donor Disclosures … and Failing to Limit Political Activities
The IRS on Friday conducted a public hearing on proposed regulations to eliminate the requirement that 501(c)(4) social welfare nonprofits confidentially disclose the identities of their significant donors. Representatives of several conservative groups expressed support for the proposed change in longstanding law, saying the IRS doesn’t need the Form 990 Schedule B for law enforcement purposes and expressing fear the information could be accidentally leaked to the public. The proposed regulations drew strong criticism from a few witnesses who said that failure to disclose the names of donors to groups that can engage in partisan, election-related activities would invite foreign nations to illegally and surreptitiously interfere in American elections. Previously, the National Association of State Charity Officials, the National Council of Nonprofits, and numerous other groups submitted public comments in opposition to the proposed changes. The pending regulations do not apply to charitable nonprofits that are mandated by statute to disclose significant donors to the IRS.
Political interference is a real concern because the deck is heavily stacked against the IRS successfully administering and enforcing requirements related to tax-exempt organizations and political campaign intervention, according to a new report of the Government Accountability Office. One reason, the government watchdog determined, is that Congress has prohibited the IRS from writing guidance on what does and does not constitute partisan, election-related activities. The report also noted that IRS examiners “do not review the national origin of sources of donations reported by a tax-exempt organization” on their Form 990s. The tax agency staff also don’t assess a social welfare group’s compliance with campaign finance laws.
- Unrelated Business Income Taxes on Separate “Trades or Businesses” (Silo UBIT): The Treasury Department and IRS are likely in the next month to issue proposed regulations on unrelated business income taxes on separate trades or businesses – the so-called silo-ing or basketing provision. Section 512(a)(6) from the 2017 tax law requires nonprofits to calculate taxes on a business-by-business basis, rather than aggregating all revenues and expenses and paying the tax only on the profit of the whole. The initial request for comments was issued in August 2018 and comments were due December 2018. The proposed rule has been sent to OMB for review, a process that can take days or many weeks. Read more on the National Council of Nonprofits’ website, in Nonprofit Advocacy Matters, and in public comments. See also the detailed comments of the National Association of Colleges and University Business Officers (NACUBO).
- Public Charge Regulations Upheld: Last month, the U.S. Supreme Court issued an interim ruling allowing the controversial "public charge" regulation to go into effect, at least for a while. The Court did not rule on the merits, but simply lifted a worldwide preliminary injunction issued by a district judge until the matter could go through the complete appellate process. Justice Gorsuch explained that the 5-4 majority acted due to several district and appellate courts reaching different conclusions, leading to “mixed results” in a “hodge-podge of jurisdictions.” The Department of Homeland Security rule allows immigration officials to give greater weight to an applicant’s medical history, income level, and public assistance status. Lower court rulings in October had stopped implementation of the rule. Many nonprofits have expressed concerns that the rule would discourage immigrants from using public benefits such as the Supplemental Nutrition Assistance Program (commonly referred to as “food stamps”) and Medicaid and cause disparate treatment of immigrant families who are at or near the federal poverty level. The National Council of Nonprofits submitted comments in opposition to the proposal as it “would violate core American principles, operate as an unfunded mandate by imposing billions of dollars of costs onto charitable nonprofits, and negatively affect the operations of charitable nonprofits." It is unclear how quickly DHS will begin implementation.
- Joint Employer Rules Changed: Last month the U.S. Department of Labor published final rules under the Fair Labor Standards Act to revise and update the regulations interpreting joint employer status when an employee performs work for an employer that simultaneously benefits another person. In addition to providing clarification for when a person is acting directly or indirectly in the interest of an employer in relation to the employee, the regulations also identify factors not relevant when determining joint employer status. The Wage and Hour Division is hosting a public webinar on February 25, to cover the employer and employee provisions. The new rule takes effect on March 16.
2020 Census Calendar
- Mar. 12-20: Households begin receiving heads-up postcards from U.S. Census Bureau
- Mar. 23: Self-response begins via online, by phone, or by mail
- Mar. 30-Apr. 1: Households receive reminders to respond. The U.S. Census Bureau, in collaboration with many nonprofits, will begin counting people experiencing homelessness
- Apr. 1: Census Day
- Apr. 8-16: Final postcard reminders mailed along with paper questionnaires
- May 13-July 31: Census enumerators conduct door-to-door canvassing of households that have not responded
Upcoming Training Event
Nonprofits Promoting New, Expanded Charitable Giving Incentives
Not resting on their success in securing a 25 percent non-itemizer charitable deduction last year, Arizona nonprofits are promoting two bills to increase the amount that taxpayers can deduct. One measure (H.B. 2355) would increase the 25 percent cap by the rate of inflation each year until it reaches 100 percent. Another bill (H.B. 2356) would increase the cap from 25 percent to 50 percent. Both bills have advanced out of two House committees and will go to the House floor in the next two weeks. The Alliance of Arizona Nonprofits is urging nonprofits to contact Arizona House Members to ask for their support in passing the two bills.
Back East, efforts to enact a state charitable giving incentive for New Jersey donors fell short at the end of the 2018-2019 legislative session, but leaders at the Center for Non-Profits are continuing the push in support of the re-introduced bills (S-264 / A-1115). If enacted, the legislation would allow taxpayers in the state to deduct charitable contributions, whether or not they itemize on their federal return, to most New Jersey charities from their state taxable income. Maryland is considering bills to allow taxpayers to itemize their deductions on state taxes, even if they claimed the standard deduction on their federal tax forms. Also, a bill in West Virginia introduced last week would establish a corporate net income tax deduction for food donations, and is the beginning of encouragement for smaller, subsector-specific donations.
Nonprofit Independence at Risk in New Hampshire, Hawai`i
Charitable nonprofits exist and operate as independent organizations, a legal reality that is often threatened by governments and outside groups. A bill in New Hampshire would infringe on nonprofit independence by expanding the definition of “public body” to include all entities, including charitable nonprofits, that receive at least $25,000 in one year or 10 percent or more of their revenue, whichever is greater, from the state. The expanded definition would require nonprofits to disclose certain information under the state’s Right to Know law, just as if they were instruments of the government. Kathleen Reardon, CEO of the New Hampshire Center for Nonprofits responded to the introduced legislation, stating “the nonprofit sector’s connection to government is different. The charitable sector is dedicated to mission and purpose and reinvests any surplus funding back into the mission of the organization. … Nonprofits are not ‘quasi-governmental’ or ‘government sponsored.’ They are mission-driven organizations with a distinct and separate role.”
In Hawai`i, the Attorney General is seeking bank records of a nonprofit that is supporting demonstrations against the building of a new telescope on top of Mauna Kea, a project that the state supports. A court is being asked to determine the appropriate and inappropriate reach of the Attorney General into the private affairs of the nonprofit and whether charitable donations can be used to support protests. Nonprofits in the state argue that the use of government investigations to intimidate and silence perceived opponents is overreach as a violation of nonprofit independence. “While we support the protection of our state’s charitable resources, we disagree with the idea that a legitimate nonprofit organization’s participation in nonviolent protest, assisting those that are, or free expression, should be grounds for investigation,” wrote leaders of the Hawai`i Alliance of Nonprofit Organizations. They concluded, “The targeting of organizations expressing opposition — and in particular, to government — is undemocratic and erodes our civil society. This is not what Hawaii Alliance of Nonprofit Organizations and the nonprofit sector stand for.” The Senate Majority Leader has introduced a bill in response to prohibit any investigation by the Attorney General of nonprofits “exercising rights by nonviolent civil disobedience that are protected and granted under the [U.S.] Constitution or state constitution” unless there is an alleged crime directly related and supported by probable cause.
Taxes, Fees, PILOTs
Taxing Tax Exempts: Challenges to Illinois Hospitals
An Alderman introduced a resolution last year calling on the City of Chicago to develop a system “by which wealthy nonprofits make Payments In Lieu Of Taxes (PILOTs).” The proposal is in the news now because of growing concern that the primary “safety net” health system is bearing too great a burden for providing charity care in relation to other nonprofit hospitals in the community. Illinois has a controversial history in whether and how it taxes the property of nonprofit hospitals. Recently, an Illinois judge restored the property tax exemption to Urbana’s Carle Health System, which local and state taxing authorities had removed more than a decade ago. This decision, and questions and confusion as to what constitutes “charity care” for purposes of state taxes, suggest that another round of precedent-setting challenges may soon emerge.
Trend Spotting: Reforming Government Grants and Contracts
After years of nonprofit advocacy on the subject, it appears that 2020 may be the year that state governments take seriously the need to treat their nonprofit partners fairly when reimbursing them for services provided in communities. In late 2013, the federal government adopted grants reforms in the groundbreaking OMB Uniform Guidance. Those regulations mandate that nonprofits must be paid their indirect costs and set rules for how to negotiate rates or claim a de minimis rate. Pending federal rulemaking seeks to clarify and strengthen this mandate and remove ambiguity used by some state and local governments to ignore the Uniform Guidance when issuing grants and contracts that dictate no or very low indirect cost reimbursement rates. Without uniform application of the Uniform Guidance, nonprofits with multiple government grants that set wildly inconsistent reimbursement rates often face administrative challenges and added costs when performing work on governments’ behalf. Those costs – for things like accounting services, building repairs, and other needed managerial and administrative functions – must be paid somehow, and nonprofits often turn to others to cover the gaps or suffer additional costs caused by governments’ failure to pay.
The status quo of accepting unfair and unjustifiable rates appears to be changing. Legislation before the DC City Council aims to solve that by requiring the city to pay any federally negotiated indirect cost rate, pay a minimum rate of 10 percent, or negotiate a single rate (citywide) with nonprofits. At a hearing last week, dozens of witnesses, including the National Council of Nonprofits and experts from Illinois government and Maryland Nonprofits, testified to the urgent need for the legislation. If the statement of the Committee Chair is any indication, the bill could be enacted in the next few months and many other jurisdictions could take on grants reform with DC as a model. Legislators in California, Delaware and Maryland are already expected to further their grants and contracting reform this year.
Learning Advocacy Lessons From Historic Events
Every edition of Nonprofit Advocacy Matters closes with an example of people overcoming adversity, mobilizing like-minded people in support of a goal, and innovating approaches to advocacy. These articles focus on real people doing what their convictions compel them to do, and we reflect on advocacy lessons we can all learn from their experiences. It’s based on our mantra (some call it a philosophy): What’s the problem? What’re the solutions? Let’s get them done!
This edition is somewhat different, because we found a powerful story already told with key advocacy lessons identified. The story, written with power and grace by Steve Dubb of The Nonprofit Quarterly, concerns a significant chapter in our Civil Rights history: the 1960 actions of the “Greensboro Four” in standing up for equality by sitting down at a Woolworth’s lunch counter. Steve goes beyond a simple retelling of events that every American should revisit by identifying four advocacy lessons: publicity, planning, recognizing the power of individuals and movements, and the value of decentralized mass action. In short, the article tells of, and models, Advocacy in Action. We thank Steve and The Nonprofit Quarterly for permission to share his valuable work with our readers.
Steve Dubb, Jan. 5, 2020, The Nonprofit Quarterly
On Monday, February 1, 1960, four young black men entered the F. W. Woolworth store in Greensboro, North Carolina, sitting down at a lunch counter at the department store. The choice of the location was no accident. At the time, Woolworth’s was among the nation’s largest department store chains, operating nearly 2,500 stores in North America.
The four men—Joseph McNeil, Franklin McCain, David Richmond and Jibreel Khazan—all four first-year college students at North Carolina A&T, a local historically black college (and today the country’s largest), risked arrest and quite possibly injury (or worse) at the hands of the police by sitting at a whites-only lunch counter to order coffee after buying store items. They quickly became known as the Greensboro Four.
Continue reading at The Nonprofit Quarterly.
Read more examples of Advocacy in Action,
a regular feature of Nonprofit Advocacy Matters.