Important Nonprofit Survey
Impact of Overtime, Overhead Rules Changes on Nonprofits with Government Grants, Contracts
Nonprofits across the country will soon be dealing with changes to federal rules governing employment and grantmaking/contracting practices that have the potential to affect their costs and operations, particularly those nonprofits that have grants and contracts with local, state, tribal, or federal governments. The U.S. Department of Labor is expected soon to put in place new overtime regulations that will require most employers, including many nonprofits, to pay overtime to all employees earning less than approximately $50,000. (See lead federal article, below.) Starting in 2017, government grants rules from the Office of Management and Budget impose new procurement procedures that dictate the steps that nonprofits and other entities must take when using grant funds that originally came from the federal government to purchase goods and services (e.g., buying
printers or laptops).
The challenges presented by these two rules will be more acute for nonprofits that provide services pursuant to government grants and contracts. Readers at nonprofits with government grants and contracts at any level (local, state, tribal, or federal) are invited to participate in a quick National Survey designed to develop data that support better policies and solutions to potential adverse consequences of the pending reforms. Individuals with knowledge of your organization’s finances will best be able to compete the survey. Take the Survey by Monday, May 23!
Things to Look for in the Revised Overtime Regulations (Once They Come Out)
May 16 has arrived – the date by which many had predicted the Department of Labor’s final overtime regulations would be released. But no final rules have been published yet, so the reforms remain a mystery, including when they will be made public. With rules coming out soon, wise nonprofits will think ahead and know what to look for in the final rule. Here is a partial list of details to identify:
- Effective Date: Publication date and effective date are very different. What date does the new rule set for when employers must be in compliance? Employee rights may change as early as 60 days after publication, or on a date certain, such as October 1, or as long as a year or more later.
- Phase-In Period: Will the new salary level threshold apply on the effective date, or will it be increased from the current level of $23,660 in two or more steps over time? And if so, over what time period?
- Salary Level Threshold: Last July, the Labor Department proposed raising the salary level threshold to a little more than $50,000 per year. Most rumors predict a slight lowering of that level. It is important to remember that whatever level the DOL sets, white collar employees will be exempt from overtime only if their jobs meet all three tests for executive, administrative, or professional employees. Each exempted employee must also exercise the job duties of those categories and be paid on a salaried basis. Read more.
- Does the Rule apply to my nonprofit and my employees? This is a simple question with a complicated answer for each nonprofit. It will be important when reading the final rule to determine whether the Labor Department listened to the concerns of nonprofits and is providing greater clarity on the coverage question. What types of revenues count towards the $500,000 “enterprise coverage” for nonprofit employers? How much Internet use and what types of activities that nonprofit employees normally engage in will trigger the individual coverage based on their engagement in interstate commerce? Many hope the DOL will provide nonprofit-specific examples and answers to these and other questions.
- Duties Tests: As stated above, each of the job classifications for executive, administrative, and professional employees has an itemized set of duties that must be satisfied (on a case by case basis) before the individual can correctly be classified as exempt from overtime compensation. The Labor Department asked during the rulemaking process whether the itemized duties are still the right ones, or whether they should be updated. Therefore, watch for whether the final rule changes any of the enumerated duties and then ask: How does that affect job classifications in my organization?
- Nonprofits with government grants and contracts: Will the final rule, or any of the accompanying informational materials, provide instructions to federal and other governments about adjusting budgets or reimbursement levels for nonprofits providing services under government grants or contracts? These nonprofits may face higher costs as a result of complying with the new rule. Take the National Survey to participate in the information and solution gathering.
For more information, see Classifying Employees Correctly.
States Go into Overtime to Resolve Budget Disputes
Seven years after the so-called “official” end of the Great Recession, state policymakers are still finding it difficult to make ends meet through their states’ annual budgets. Legislators in Connecticut completed their regular session without a budget and had to return in special session after reaching an agreement that calls for spending cuts of more than $800 million for the fiscal year that starts July 1. Likewise, West Virginia lawmakers are going back in special
session this week to close a budget gap of $270 million. Illinois remains the nation’s longest budget holdout state, not having adopted a budget for the current fiscal year that started last July, let alone the budget that begins this coming July. Although some spending laws have made it through the system, nonprofit human service providers are suing the Governor and members of his administration seeking payment of more than $100 million for services provided to youths, homeless people, people with HIV/AIDS
and low-income people with mental health issues. In Kansas, a budget passed on time, but it was $200 million short of balance; legislators are deferring their responsibility to the Governor to make cuts and revenue transfers to close the gap. The credit rating agency Moody’s downgraded the state’s credit outlook from “stable” to “negative” partially as a result of that indecision.
Sluggish revenue growth is the most common explanation offered for the continued belt tightening at the state level. Budget cuts and resulting layoffs have actually slowed processing of tax returns in Mississippi, further delaying collection of revenues. Since the North Dakota Legislature does not meet until next year, the Governor has ordered that state spending be reduced by 10 percent from authorized levels due to the impact of declining oil prices on tax receipts, but he has
exempted the departments of human services and corrections from the cuts. Similarly, Kentucky is cutting spending cuts of two percent for the current fiscal year and 4.5 percent in the next fiscal year that begins on July 1, rates that are about half of what the Governor proposed early in the negotiations. Many other states continue to negotiate budgets for their next fiscal years.
Automatic Tax-Cut Gimmicks on the Upswing
Legislators in North Carolina this month have added a proposed constitutional amendment to their agenda for imposing arbitrary limits on the ability of the General Assembly to address current and future needs. The new proposal, which voters must approve, would limit the state income tax rate to 5.5 percent, down from current maximum tax rate of 5.75 percent. This measure is similar to a provision in a separate proposed amendment which the Senate passed last year. Both initiatives follow the philosophy of
“taxpayer bill of rights” (TABOR) efforts that institutionalize restrictions on lawmakers’ fiscal options in a manner that restricts state spending growth based on a formula, or that limits legislators’ tax policy options via inflexible measures such as constitutional amendments. Nonprofits in the state, led by the North Carolina Center for Nonprofits, warn of unintended consequences for nonprofits and others, such as imposition of new taxes and offloading of programs onto nonprofits when the state falls short of funds.
To date, Colorado is the only state that has fully implemented TABOR. The Colorado Nonprofit Association has expressed concerns that “TABOR has undermined the ability of Colorado nonprofits to meet current demands for services and respond to future changes in economic conditions, population growth, and the costs of delivering public services.” This year, TABOR caused legislators in Colorado to go to extraordinary means to retain revenues to fund programs and needs. However, efforts failed to remove Colorado’s hospital provider fee from TABOR’s revenue cap when the legislation was defeated in
committee. As a result, the $700 million generated by the fee must be refunded to Colorado taxpayers. In the District of Columbia, an automatic tax-cut gimmick similar to TABOR will reduce the corporate tax rate by 0.2 percent to 9.0 percent next year due to increased tax revenue. Also in DC, expected increases in sales tax revenues will trigger an automatic adjustment to the estate tax threshold from $1 million to $2 million.
Taxes, Fees, PILOTs
- Income Taxes: The North Carolina House approved its version of a bill that, among other things, would require donors to pay state income taxes on some contributions to nonprofits from their Individual Retirement Accounts. If the provision survives a conference committee with the Senate, North Carolina donors who contributed to nonprofits from their IRAs in 2015 (and paid state income tax on the amounts of these donations) won't get a tax refund from the state for these contributions. The North Carolina Center for Nonprofits is continuing to work with legislators to allow the IRA charitable rollover on state taxes in 2015 and beyond.
- Property Taxes: A new bill in Michigan seeks to remove the subjectivity in how county tax assessors determine what is a charitable institution entitled to exemption from property taxes. Currently, there are more than 40 contested cases before the Michigan Tax Tribunal relating to nonprofit property tax exemptions. To promote consistency, the legislation provides statutory definitions of the terms “charitable purpose” and “nonprofit charitable institution,” both of which have been the subject of multiple interpretations by assessors in the state.
- Property Taxes: The Connecticut Legislature considered, but did not pass, bills targeting the property and endowments of Yale University to generate revenues for its host community of New Haven. One bill that never got out of committee would have levied an unrelated business income tax on increases in the university’s endowments. Another bill, that was approved by a Senate committee, would have denied tax exemption for Yale properties whenever activities on them generate commercial revenues of
more than $6,000 (including civic, cultural, and sporting events). The Governor reportedly is considering commissioning a study on the taxing policies of the cities that host Stanford and the Massachusetts Institute of Technology in order to shape future legislative proposals aimed at Yale.
States Updating Charity Registration, Solicitation Laws
Legislators across the country are revising the rules governing the registration and reporting requirements of nonprofits and fundraisers. Most notoriously, a bill in California seeks to force every nonprofit in the country that solicits funds in California (which means every nonprofit with a “Donate Now” button) to put a link on its home page, and print a disclosure on all other solicitation materials, directing potential supporters to the California Attorney General’s website. The bill was pulled from a scheduled Appropriations Committee hearing last week. A legislative staff analysis cautioned: “Given the depth and breadth of opposition to this bill, and the history of litigation regarding nonprofits and compelled speech, it is reasonable to assume that the state could incur significant legal costs if this bill was enacted.” The staff analysis made special note of the strong opposition by CalNonprofits and nearly 500 nonprofits. Further action by the committee is uncertain.
Other states appear to be taking more considered steps in trying to strike the appropriate balance between public disclosure and bureaucratic burdens. As previously reported, the Colorado Legislature is considering and Wisconsin enacted reforms to their registration and disclosure laws. A bill that is awaiting the Governor’s signature amends Hawai`i's charitable registration and solicitation law to require affirmative disclosures to donors by professional solicitors; clarify exemptions from registration; authorize the
Department of the Attorney General to issue cease and desist orders and impose administrative fines; and make other technical amendments. Notably, the bill raises the audit requirement thresholds from $500,000 total revenue to $500,000 in just contributed revenue. The Hawai`i Alliance of Nonprofit Organizations supported the bill and expressed thanks to the State Attorney General's office “for clarifying this law to better reflect the fundraising environment for nonprofits, to provide more protection from fraudulent behavior, and add greater transparency to this process.”
Making Your Presence Known
Budgets are very tight in many states and, perhaps more than usual, legislators are having trouble balancing competing demands. This month, the Connecticut Community Nonprofit Alliance, the state association of nonprofits, is leaving nothing to chance when it comes making sure the people whom nonprofits serve are on the minds of lawmakers as they try to close a budget deficit. They are making sure nonprofits make their presence known. Literally.
A recent Action Alert from Public Policy Director Jeff Shaw urged nonprofits to join the crowds of nonprofit supporters “at the Capitol to talk to legislators about the importance of protecting essential programs and services.” The association set up two-hour “visibility shifts” on the specific floors of the Capitol building nonprofit staff members. They invited nonprofit board members and individuals receiving services, and not just executives, staff, and advocates to attend. Association staff also kept a ready supply of talking points, one-pagers, and #PeopleMatter stickers to help individuals
stand out as supporters of programs performed by nonprofits.
But physical presence wasn’t all Jeff and his colleagues asked. The Action Alert went on to stress, “If you cannot come in person, please contact your legislators via email and tell them to only support a budget that protects life-sustaining programs and services. “
Friday evening, the Legislature passed a budget that “lessened the magnitude of cuts to life-sustaining programs and services originally proposed by the Governor,” according to a message from CT Community Nonprofit Alliance to its members. In a statement, the group’s interim CEO Jeffrey Walter observed, “These are difficult budget times and this spending plan makes painful cuts.” He went on to point out, “But it could be much worse, and does include funding to allow many programs to continue to provide life-sustaining services to some of the state's most at-risk individuals and
contribute to the overall quality of life in our state.”
No doubt, policymakers looked these nonprofit advocates in the eyes and saw commitment, concern, and caring. And tried to do better than the best they could.