DOL Overtime Rule Update
Governments Must Reopen Grants/Contracts with Nonprofits, Survey Finds
While nonprofit organizations support fair labor standards and paying workers overtime, the new federal overtime rules will force many performing services for the public pursuant to government grants and contracts to reduce staff and cut back on services unless governments take steps to revise written agreements to either
adjust performance requirements or pay nonprofits for the extra mandated costs. Those are key findings of a new nationwide survey by the National Council of Nonprofits that received nearly 1,100 responses from all 50 states. Building on prior research that has demonstrated the damaging effects of governments not paying nonprofits for the full costs of contracted services, this new survey of nonprofits with government grants and contracts illustrates the effects that increasing those costs will have on nonprofits’ abilities to deliver services.
“When federal law changes in the middle of a contract, then fundamental fairness dictates that government-nonprofit contracts should be adjusted immediately to accommodate that mandated change,” Tim Delaney, President and CEO of the National Council of Nonprofits, said in a statement. “Importantly, we are not calling for an exception to the overtime law for nonprofits; rather, we simply call for honest recognition by our government partners who serve the same constituents in the same communities that governments cannot continue to expect nonprofits to subsidize government obligations.”
Read the Executive Summary, Full Survey Report, Infographic: PDF | PNG, and News Release. Also see the July 6 article on the report in Nonprofit Quarterly: Overtime Rules Require Government Overhaul of Contracts.
DOL Overtime Rule Attracts Congressional Obstacles in Advance of Break for Political Conventions
A House appropriations subcommittee has added to the list of bills with language seeking to block implementation of the Labor Department's Overtime Final Rule. The funding bill for the Departments of Labor, HHS, and Education for fiscal year 2017 carries (at Section 111) the proscription that “none of the funds made available by this Act may be used to implement, administer, or enforce” the overtime rule that takes effect on December 1. The full House has not
taken up the bill yet. Other measures hostile to the overtime rule include legislation to nullify the overtime rule, a resolution in disapproval under the Congressional Review Act, and a bill to exempt home care and hospice services from the rule. Since it is unlikely that the President will sign any such legislation or that Congress will be able to muster
the two-thirds vote in each chamber to override his presumed veto, nonprofits are well advised to take steps to implement the new requirements that go into effect on December 1, 2016.
Clarity, Promising Practices, Respect Featured in OMB Uniform Guidance Training
Nonprofits providing services on behalf of governments pursuant to federally funded grants should be reimbursed for their indirect costs, and governments at all levels have a responsibility to learn and follow the federal grants reforms, according to a newly released video training series from the federal Office of Management and Budget (OMB). At issue in the eight-segment series, entitled Uniform Guidance: Promising Practices in Implementation, is the OMB Uniform Guidance that
went into effect at the end of December 2014, but is still causing confusion among government officials and nonprofit leaders. The training program is designed to clarify recurring questions and highlight solutions developed in some regions.
Of most interest to nonprofits with government grants and contracts, the panel on Indirect Costs Rates reinforced that the mandate to pay nonprofits their indirect costs is binding on pass-through entities (typically state, tribal, local governments and some nonprofits) using federal funds. An OMB official, Gil Tran, explained that the
10 percent de minimis rate in the Uniform Guidance is available to new grantees/subgrantees and those that have never negotiated an approved rate with the federal government. Contrary to misinterpretations by some government officials, Mr. Tran stated directly that the 10 percent de minimis rate is the floor, not a default rate for pass-through entities to apply across the board.
Carol Kraus, Director of the Grants Accountability and Transparency Unit (GATU) for the State of Illinois shared how Illinois has centralized the process for negotiating indirect cost rates with nonprofits. Ms. Kraus emphasized that states, as pass-through entities, need to pay their fair share. “Nonprofits are our partners and we need to treat them as partners,” she stressed. “If they’re not successful, neither are we.”
Read the full article
- EPIC Overkill: A bipartisan bill to prevent foreign funding of partisan, election-related activities through nonprofits applies broadly to all 501(c) organizations, including charitable nonprofits that are expressly barred under federal law from such political activities. The “Election Protection & Integrity Certification Act” (H.R. 5515), the “EPIC Act,” would require a nonprofit to certify annually whether it received foreign funds with an express or implied promise to make a contribution or donation, in connection with any federal, state or local
election, to a political party, or to engage in independent expenditures to affect elections. As with most efforts to curtail dark money in politics, it is incumbent on charitable nonprofits to educate policymakers on the long-valued prohibition on partisan activities by 501(c)(3) organizations.
- Red Cross Review: The records and operations of the American Red Cross would be subject to broad review authority of the Government Accountability Office under a bill introduced by Sen. Chuck Grassley (R-IA). The bill would grant the Comptroller General of the U.S., and its auditing arm GAO, oversight over “any program or activity connected to national preparedness.” The legislation would also create an Office of Investigations, Compliance, and Ethics within the Red Cross. Grassley has been critical of the federally chartered nonprofit over its fundraising and spending practices, as well as the organization’s refusal to open its books to his investigations.
- Privacy Protections by Nonprofits: In the first settlement of its kind, Catholic Health Care Services of the Archdiocese of Philadelphia (CHCS) agreed to settle potential violations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) Security Rule after the theft of a CHCS mobile device compromised the protected health information (PHI) of more than 400 hundred nursing home residents. CHCS provided management and information technology services as a business associate to six skilled nursing facilities. The settlement includes a monetary payment of
$650,000 and a corrective action plan. In determining the resolution amount, the Office of Civil Rights at the Department of HHS considered that CHCS “provides unique and much-needed services in the Philadelphia region to the elderly, developmentally disabled individuals, young adults aging out of foster care, and individuals living with HIV/AIDS.”
New Fiscal Year, Same Old State Fiscal Challenges
The new fiscal year is only a week old in most states, but officials are already declaring budget crises caused by revenue shortfalls or political posturing. In many cases, the impact is felt most immediately on the work of nonprofits, foundations, and the people they serve.
Political leaders in Illinois reached agreement on a six-month spending bill for Fiscal Year 2017 that began July 1, 2016, to get past the November elections. The short-term agreement provides funding for public education so schools can open this fall and other essential governmental functions, including certain social services provided by nonprofits. The partial budget is considered a temporary reprieve from the bitter partisan wrangling between the Governor and Legislature that prevented agreement on a budget for this past fiscal year that left nonprofits bound by contracts to provide services but allowed
the state to withhold payments for a year or longer.
Legislators in Louisiana ended their special session at the end of June having raised less than half of the $600 million needed to balance that state’s budget for the new fiscal year. They specifically rejected calls from the Governor to adopt several tax hikes, asserting that they will instead enact comprehensive tax reform in 2017.
Connecticut’s Governor recently announced $130 million in cuts and targeted holdbacks for state fiscal year 2017; cuts fell the heaviest on human services, education, and arts, culture, and the humanities. On the same day, New Jersey’s Governor signed an executive order preventing state spending of $100 million -- $45 million in budgeted funding for
social programs and $54 million in transitional aid to cities. Governor Christie's news release makes clear that the funds are being frozen, and the work of nonprofits adversely affected, as political leverage "in response to the Legislature's inability to responsibly budget for the State's existing health care costs or force the enactment of ... health benefit reforms affecting public employees."
Taxes, Fees, PILOTs
- Taxes: The former head of the for-profit University of Phoenix and another writer are questioning the property tax exemptions extended to nonprofit universities through longstanding tax policies. In an opinion article in the Washington Post, the authors reviewed information provided by Harvard, Princeton, Stanford, and 53 other universities, yet were dismissive of the contributions of the nonprofits to the local host communities.
- PILOTs: Stung by the news that UMass Lowell – a public university, not a nonprofit – plans to purchase and take off the tax rolls property worth several hundred thousand dollars in tax revenues, the Lowell, Massachusetts city manager is ramping up plans to set up face-to-face meetings with nonprofit organizations to demand to know why they have refused to make voluntary payments in lieu of taxes (PILOTs) to the local treasury. The likely targets reportedly go beyond hospitals to include a religious community (Buddhist monks), the YMCA, Boys & Girls Clubs, and others. The
City Council reportedly is considering creating a task force to come up with more ways to divert money away from nonprofit missions. Separately, an amendment to an economic-development bond bill was approved in the Massachusetts House that would mandate that nonprofits purchasing property currently on the tax rolls must pay property taxes over the course of four years after the property has been purchased.
Kentucky Task Force Opens Eyes to Government-Nonprofit Contracting Challenges
Kentucky legislators, executive-branch officials, and nonprofit leaders last week attended their first joint meeting of Kentucky's Government Nonprofit Contracting Task Force, created by the unanimous passage of HCR 89 in 2015. Danielle Clore, Executive Director/CEO of the Kentucky Nonprofit Network (KNN) and member of the legislative Task Force, spoke first, describing the importance of nonprofits to the people and economy of the Commonwealth. Next came a presentation of data,
primarily from research by the Urban Institute, about recurring problems with government-nonprofit contracting, plus information about ways in which other states are improving their contracting systems and implementing the OMB Uniform Guidance. Legislators on the Task Force asked particularly poignant questions in an attempt to understand why some of the contracting issues even existed. Many expressed surprise and asked why nonprofits are not paid for the full cost of the services they provide on
behalf of the government.
During a discussion about the problem of governments making unilateral changes to grants/contracts once work has started, one legislator commented that “contracts are legally binding agreements that cannot be changed without both parties’ agreement. This can’t be something that happens very often.” Several of the Task Force members were quite surprised when one of the nonprofit representatives on the Task Force replied, “Yes, it does. It happened to me just yesterday,” to which the State Representative responded, “that’s just not right.”
The Task Force also asked whether the OMB Uniform Guidance, which among other things mandates payment to nonprofits for their indirect costs, was mere guidance or if it was something the Commonwealth was required to follow. Learning that the Uniform Guidance is indeed the binding law of the land, the Task Force voted to use its next meeting to learn more about the pertinent details of the Uniform Guidance so that it is integrated into their reform efforts.
L.A. City Council Places Homeless Fund on Ballot
The Los Angeles City Council recently voted unanimously to put on the November ballot a bond measure that, if approved by voters, would allocate $1.2 billion for alleviating homelessness in the nation’s second largest city. In opting for a bond resolution, the Council voted to drop a proposed parcel tax as an alternative funding mechanism. Eighty percent of the bond proceeds would be dedicated to buying land and financing construction of supportive housing for residents who are
either already homeless or in serious risk of becoming so. The remainder of bond proceeds would go towards subsidizing affordable housing for low-income residents. The city would partner with nonprofit developers who build housing for homeless citizens through long-term leases. Once built, the new facilities would provide support services such as drug and alcohol programs, mental health services, and job and education training. The homeless population in Los Angeles has soared to more than 26,000, triggering city officials to declare a state of emergency last year. The bond measure needs two-thirds of the vote in order to pass in November.
North Carolina Moves Toward Performance Assessments for State Programs
The North Carolina General Assembly will have the authority to demand that state programs undergo “measurability assessments,” if the Governor signs legislation passed last month. A measurability assessment, conducted by an independent evaluator, would include various metrics to determine whether the program in question is addressing the need that it is designed to meet. The measurability assessment would also require programs to produce a logic model that utilizes the standards developed by the W.K. Kellogg Foundation to help organizations “enhance their program planning, implementation, and dissemination activities.” The assessments authorized by the legislation would apply to nonprofits providing services pursuant to grants or contracts funded through the identified state programs. This North Carolina measure is similar to a “results-based accountability bill” that Vermont enacted two years ago that identifies eight population-level outcomes with performance measures to help the Legislature in decision making.
Deciding Whether to Embrace the Third Rail
In most places, calling for tax hikes is considered political suicide – or figuratively “embracing the third rail,” as in the ultra-high voltage power source for subway engines. Then again, in some places like Pennsylvania, the political environment is so out of whack that playing it safe – laying low on the “new taxes” question – can be considered as accepting a status quo of intransigence and stagnation.
So it is inspiring to see a recent survey hosted by the Pennsylvania Association of Nonprofit Organizations asking its members whether the time has come to embrace the third rail. “PANO is interested in learning what increases in existing or new lines of revenue our members would support to help us to collectively advocate for adequate support for your programs,” read a recent message to the state association’s 800+ members.
PANO is quick to explain why nonprofits have a stake in the tax debate. “Pennsylvania nonprofits are partners of the Commonwealth in providing services that the state is mandated to provide,” it points out. It also lays out the facts about the intolerable status quo:
- In FY 2011-12, the Legislature cut the budgets for health and human services by 10 percent.
- Even where funding for services was not cut, appropriations have been flat and have not kept pace with inflation, meaning that flat funding was actually a cut to service provision.
- Many organizations providing mandated services on behalf of the government must subsidize their government grants/contracts with dollars raised through fundraising efforts to provide the mandated services.
PANO concludes that “to adequately meet the needs of the Commonwealth's health and human services partners, new revenue must be generated.” Survey takers are asked whether their organizations would support increases in a variety of taxes “specifically to support health and human services and/or education?”
There is no guarantee, of course, that legislators will follow the lead of those participating in the survey if the recommendations call for specific tax hikes, or that they will earmark new revenues specifically to support chronically underfunded services provided on behalf of governments by nonprofits. But by asking the questions, PANO is demonstrating leadership in a state that can’t seem to find the path forward.