An Existential Threat: Politicizing Charitable Nonprofits
The most conclusive proof that nonpartisanship is essential to the effectiveness of the charitable nonprofit community is the people who are speaking out to oppose weakening current protections enacted in the longstanding Johnson Amendment. As reported in the sidebar and last article of this edition of Nonprofit Advocacy Matters, people from across the various political spectrums – from Republicans to Democrats, conservatives to liberals, evangelicals to atheists, and tax bill supporters to tax bill haters – are all calling on Congress to preserve nonprofit nonpartisanship by rejecting Section 5201 of the House-passed bill.
Because Republican leaders are deciding right now whether to preserve or radically undermine the Johnson Amendment protections, we urge you to immediately take steps to protect the ability of charitable nonprofits, houses of worship, and foundations to advance their missions as nonpartisan champions in their communities. Go to Take Action Now for ways you can call, mobilize others, and tweet in support of nonprofit nonpartisanship to preserve the independence and effectiveness of the charitable and philanthropic sectors.
Tax Bills Go to Conference
A formal conference committee appointed to reconcile differences between the House-passed and Senate-passed tax bills is scheduled to meet in open session on Wednesday, December 13. Senior Republican leaders, who control the votes, reportedly have been working informally behind closed doors for more than a week to craft a deal. While both versions of the tax bill add $1.5 trillion or more to the federal deficit, there are scores of differences in the manner and duration of tax cuts for corporations and individuals.
Both bills would impose multiple new taxes on tax-exempt charitable and philanthropic organizations to pay for additional tax cuts. Neither bill includes a universal deduction or other provision to counter the expected drop in giving to charitable works in communities due to the doubling of the standard deduction and the reduction of itemizers to less than ten percent of taxpayers. The House-passed bill, but not the Senate version, includes Section 5201 that would significantly weaken the longstanding protections under the Johnson Amendment that currently prevent candidates for public office and donors from strong-arming 501(c)(3) organization for endorsements while, for the first time, providing charitable tax deductions for political campaign contributors. See the Council of Nonprofits’ Comparison Chart for more information about how the two bills would affect nonprofits.
As members of the tax conference, known as “conferees,” work through the details, they are limited by Senate rules and a very thin Republican majority in how much more they can spend and how extreme a bill they can adopt. Republicans will be drafting a bill to satisfy their competing factions and voter base. Democratic conferees will have little say in the final product, as has been the case in both the House and Senate tax committee deliberations and floor debates. Both chambers of Congress will vote on the legislation, but the details of the ultimate bill will be determined by these 27 tax conferees from 19 states:
House Conferees: Brady (R-TX) Tax Conference Chairman; Young (R-AK); Nunes (R-CA); Roskam (R-IL); Shimkus (R-IL); Upton (R-MI); Noem (R-SD); Black (R-TN); Bishop (R-UT); Grijalva (D-AZ); Castor (D-FL); Neal (D-MA); Levin (D-MI); and Doggett (D-TX).
Senate Conferees: Murkowski (R-AK); Portman (R-OH); Toomey (R-PA); Scott (R-SC); Thune (R-SD); Cornyn (R-TX); Hatch (R-UT); Enzi (R-WY); Carper (D-DE); Stabenow (D-MI); Menendez (D-NJ); Wyden (D-OR) ); Sanders (I-VT); Cantwell (D-WA); and Murray (D-WA.
Dollar Diversion from Political Parties Highlighted
Last week, the National Council of Nonprofits sent a letter to the four congressional campaign committees – House and Senate, Democratic and Republican – alerting them to their shared problem if the anti-Johnson Amendment provision in the House bill passes. Specifically, Section 5201 in the House bill, authorizing charitable, religious, and philanthropic to engage in partisan political activities, would incentivize political contributors to divert billions of dollars of non-deductible campaign contributions away from traditional political party operations and instead donate to newly politicized 501(c)(3) organizations in order to claim a charitable tax deduction. The Council of Nonprofits wrote, “We trust that you do not want moneys on which you rely to be siphoned away from political parties to flow to unregulated, undisclosed, and uncontrollable entities that emerge right before and disappear right after elections (think pop-up churches that don’t even have to register with the IRS) to support unvetted and embarrassing candidates because of this dangerous provision.” After laying out the law and the proposed legislative language, the letter concluded: “We believe you will agree once you recognize how Section 5201 will incentivize rogue candidates and operatives to go around your structures and undermine party committees and political fundraising.” It urged the party campaign committee chairs to insist that Section 5201 of the House bill be left “out of the final negotiated bill and ensure Section 116 of the Financial Services and General Government title of the year-end appropriations bill ends up on the cutting room floor.” Read the letter and the news release.
Spending Decisions Delayed, Again
Congress enacted another extension, this time until December 22, to finalize federal appropriations for Fiscal Year 2018, giving itself two more weeks to make budget decisions that will impact discretionary spending for everything ranging from defense to education, environment, and services affecting all Americans from the youngest to the oldest. The funding bill, which is likely to be the last piece of legislation enacted for the year, must resolve spending decisions affecting all 12 appropriations bills, as well as address demands from the President and others for significant increases to defense spending and fund the border wall. Democrats are insisting on restoring the Deferred Action for Childhood Arrivals (DACA) program revoked by President Trump and the reauthorization of the Children's Health Insurance Program, among other things. Nonprofits, as well, are making demands of Congress in the waning days of this session. For example, Meals on Wheels America issued an Action Alert over the weekend warning that its “programs across the nation are operating on insufficient funding – unable to feed hungry seniors – and the longer this continues, the wider the gap grows between seniors in need and seniors served.”
- Future of Public Service Loan Forgiveness Program at Risk: Legislation introduced last week would, among other things, eliminate the public service student loan forgiveness program. Under the existing program, which President Trump has proposed ending, college graduates who work for 10 years for a 501(c)(3) nonprofit while paying down their student loans can have the remainder of their student debt cancelled. This program has made nonprofit careers more affordable for many highly-qualified younger workers. The legislation would not affect nonprofit employees already enrolled in the loan forgiveness program.
- Conservation Easement Contributions Restricted: A bill has been introduced in the House (H.R. 4459) to restrict syndicated easement transactions in which pass-through entities promote conservation easement donations to passive investors using a promise of profits. The Land Trust Alliance has been worried about these transactions for years because, as the conservation organization explains, the arrangements “put at risk the reputation of the land trust community — and potentially the federal tax deduction for conservation easement donations.” The IRS has determined that recent transactions have enabled short-term investors to claim federal tax deductions valued at nine times the amount of their original investment. The bipartisan legislation would prohibit profit-making from the donation of a conservation easement, while creating an important exception for family partnerships.
- White-Collar Salary Threshold Legislation: The minimum salary threshold for bona fide executive, administrative, and professional employees would be increased under newly proposed legislation. The “Restoring Overtime Pay Act of 2017,” H.R. 4505, would raise the salary level threshold for white-collar employees under the Fair Labor Standard Act based on accounting and geography of the “40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region,” with automatic updates every three years. In order for the employees to be exempt from overtime pay, they must also meet the duties test under current law. The bill was introduced by Rep. Takano (D-CA) and has 47 Democratic co-sponsors.
- Census 2020 – Nonprofits, Tell Local Government to Sign Up: Tribal, state, and local governments only have until this Friday, December 15, 2017, to register for the Local Update Census Addresses (LUCA) operation and review the U.S. Census Bureau’s residential address list for their jurisdictions for the 2020 Census. Participation in LUCA is a local government’s best opportunity to help “ensure an accurate decennial census count for their communities” and proper allocation across the country of more than $400 billion in funds. All active, functioning governments are eligible to submit comments, including federally recognized tribes, states, counties, cities, and townships. See Governing article for more information.
College and University Endowment Excise Tax
A new excise tax in the tax bills presumably is targeted at so-called “coastal elite” universities, such as Harvard and Stanford, but the impact for higher education and all charitable nonprofits would be extreme. Both the House and Senate tax bills would create a new 1.4 percent excise tax on net investment income of nonprofit colleges and universities. The House bill would apply to about 60 institutions with assets of at least $250,000 per full-time student and more than 500 full-time students. The Senate version is narrower because it sets the asset threshold at $500,000 per student, affecting about 30 colleges and universities.
The impact is broader than the presumed intent and all charitable oganizations have reason to object. Writing in the Washington Post, Lewis McCrary, executive editor of the journal, The American Conservative, identified four colleges in Indiana, including Notre Dame, that would have their endowments taxed for the first time. Most of those institutions provide significant financial aid to Midwestern students. In a separate article entitled, Endowment Tax Trojan Horse, Vanderbilt University’s chancellor Nicholas Zeppos explains, “For Vanderbilt, the proposed bill’s significant and profound impacts on our students, families, and workforce would fundamentally threaten our ability to carry out our mission.” He points out that the proposed tax would cost the university an estimated $7 million per year, which is the equivalent of supporting 104 Vanderbilt students on full cost-of-attendance scholarships. Zeppos emphasizes, “It is a damaging provision that would tax donor funds, make college more expensive, and reduce support for academic programs and research.” Far worse, the provision should be of concern to all charitable nonprofits because it represents an invasion of nonprofit independence, replacing the political desire of elected officials with the fiduciary judgment of organizational board members.
Governors and Lawmakers Prepare for Budget Deficits
States face lower than expected revenues and budget gaps as accounting forecasts and unclear federal tax policies provide a grim outlook for the upcoming year. Minnesota leaders are watching a $188 million budget deficit, which could balloon to $586 million depending on spending decisions over the next few years. Legislators are also concerned about possible funding needs for the Children’s Health Insurance Program should the federal government fail to act quickly.
Kentucky legislators are struggling to find an additional $800 million to pay for deficits in the state and local government retirement plans. Governor Bevin is expected to call a special session to pass a reform bill to address the funding needs. In Vermont, lower-than-anticipated income tax revenues are forcing lawmakers to adjust the current state budget to account for an estimated $45 million shortfall. Rhode Island is headed towards a $60.2 million deficit for the current fiscal year plus a $204 million deficit next fiscal year. Louisiana Governor Edwards is considering a special session to address expiring temporary tax measures totaling $1 billion. “Devastating cuts” to higher education, child-welfare, and other state agencies are proposed should the state fail to agree on a long-term solution. And Oklahoma still doesn’t have a full state budget for the fiscal year that started last July; the Governor has called for a second special session on the issue starting December 18.
Changing the Rules for Public Benefits
Chief executives in several states have are seeking to tie public benefit programs to work requirements. This month, Arizona Governor Ducey outlined a Medicaid waiver request for federal approval of a work requirement for able-bodied adults, as well as limitations on non-emergency medical transportation, coverage, and drugs. The waiver would also limit access to Medicaid to five years under certain circumstances, but would not apply to people in school or training programs or working part-time. Wisconsin Governor Walker attached a drug-screening and possible testing requirement as a condition to receiving benefits under the state FoodShare program. The administrative rule finalized last week requires able-bodied adults to complete a questionnaire that may lead to a drug test, depending on the answers. Adults who test positive must undergo treatment.
Taxes, Fees, PILOTs
- Fees: The Municipal Assembly in Anchorage, Alaska considered an ordinance to impose a “fee for excessive police responses” on owners and tenants of properties used for nonprofit religious, charitable, cemetery, hospital, or educational purposes. These properties have been exempt from the fee in the past due to their tax-exempt status. The existing municipal fee for non-tax exempt property is $500 per response exceeding 100 responses per year. Local nonprofits were taken by surprise by the proposed ordinance to remove their exemption as they regularly work with law enforcement to maintain public safety and operations. The ordinance was scheduled for consideration at a December 5 Assembly meeting, but the outcome has not been reported.
- PILOTs: Looking to tap into increased property values, Portland, Maine policymakers are seeking to copy the Boston PILOT scheme by attempting to impose payments-in-lieu-of-taxation (PILOTs) on nonprofits. A draft PILOT program proposal would exempt the first $2 million from property valuations and then request a “voluntary” contribution of 25 percent of the property tax bill that would be levied if the property were not otherwise exempt from taxation. One committee member suggested a five-year phase in of the proposal.
Speaking Truth to Power on the Johnson Amendment
Efforts by some in Congress to politicize the nonprofit and philanthropic sectors are not going down well with the very many organizations that rely on the protections of the Johnson Amendment to remain nonpartisan problem solvers in their communities. With the day of reckoning coming soon on the decision to include or reject the House-passed language (Section 5201), nonprofit leaders throughout the country are taking to their local newspapers and grassroots to denounce the radical proposal and mobilize opposition.
California nonprofits are sending the message to one of the tax conference committee members through his local newspaper. Writing in the Fresno Bee on Sunday, Jan Masaoka of CalNonprofits, the California state association of nonprofits, joined with Bob Hand of the Resources for Independence in Fresno and Sopac McCarthy Mulholland of Sequoia Riverlands Trust in Visalia, California, in calling on Representative Devin Nunes to take notice of several adverse consequences that would result from weakening the protections in current law, including these that they list:
- Churches and other nonprofits would be pressured to endorse candidates for mayor, boards of supervisors, Congressmen and Senators in exchange for charitable contributions.
- Churches – because they do not have to disclose their donors – would be especially vulnerable as targets for dark money pass-throughs. Campaigns could take out billboards trumpeting which churches have endorsed their candidate.
- Elected officials would be tempted to funnel money to nonprofits that have endorsed them, and to deny them funding if they endorsed an opponent.
- Pop-up fake nonprofits – whose only purpose is to spend campaign cash and engage in electioneering – could become a real problem.
The California nonprofit leaders decried the proposed, unwanted change: “Weakening the Johnson Amendment would throw nonprofits into politics and electoral campaigns, instead of keeping their focus on their missions.”
The Idaho Nonprofit Center cut through the rhetoric in its recent Action Alert, raising real-world “What If” examples of what’s wrong with changing the 63-year old Johnson Amendment:
Imagine attending a nonprofit fundraising Gala and the featured keynote speaker is delivering a campaign speech. What if it isn’t a candidate that you support? What if that candidate is only speaking because the organization was “strong-armed” into allowing it? How will your perception of that nonprofit change based on the circumstances that made it possible for that candidate to garner that organization’s support?
What if you are attending a religious service and the clergy member leading it uses the time to stump for his own favorite candidate for office? Will you feel that your faith has been strengthened? How about when you get that monthly e-newsletter, and there’s a photo of your favorite religious or nonprofit leader shaking hands with a candidate you do not feel is fit for office? Would you question whether or not your investment of time and money in that nonprofit were truly being used to fulfill its mission?
Why do nonprofit leaders feel so strongly about preserving current-law protections? Montana Nonprofit Association (MNA) Executive Director Liz Moore stated it succinctly in an Action Alert last week: “From MNA’s perspective, the repeal of the Johnson Amendment is blatantly destructive. It changes the DNA of the nonprofit sector in a sinister manner by altering our identity. I do not see a more important issue in front of us as a sector.”
In an opinion article, Liz Moore of Montana persuasively makes the case that Nonprofits should serve communities, not candidates. Similarly, Jim Klocke of the Massachusetts Nonprofit Network explains The threat to all nonprofits in proposed tax overhaul in a December 6 article in the Worchester (MA) Telegram.
And sometimes, the news stories don’t tell the full story about how the tax bills affect the work of charitable nonprofits. Thanks to the eagle eye of Sharon Stapel of the Nonprofit Coordinating Committee of New York, a New York Times article was updated to provide this essential context: “Repealing the amendment has long been a key priority of the religious right, which views the ban as an example of government hostility to religion in the public square. But such a repeal is opposed by thousands of religious and nonprofit leaders, who warn that it could blur the line between charity and politics.”
All of this is to say that nonprofits are using all the advocacy tools in the toolbox, including working through the news media, to tell politicians and the public that we are only successful when we can serve communities, and are not beholden to political candidates and their donors.
Image included with permission from the Montana Nonprofit Association.