Common Sense and Reaffirmation of 501(c)(3) Nonprofit Nonpartisanship
The partisan political fevers rising with the national political conventions make this a good time for 501(c)(3) nonprofits – charities and foundations alike – to pause and remember that both the law, and common sense, forbid charitable nonprofits and foundations from using their resources or otherwise engaging in partisan electioneering. The law is clear: Section 501(c)(3) of the Internal Revenue Code expressly directs that charities or foundations shall “not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.”
The National Council of Nonprofits has long recognized that 501(c)(3) nonprofits enjoy more power and independence to solve community problems by steering clear of partisanship. The current law, for instance, protects 501(c)(3) nonprofits from requests by political candidates to divert nonprofit resources away from their missions to instead fill partisan campaign war chests — which on the for-profit side can lead to “pay to play” to win government contracts. If individual organizations came to be regarded as Democratic charities or Republican charities instead of the nonpartisan problem solvers that they are, it would diminish the public’s overall trust in the sector and thus limit
the effectiveness of the nonprofit community. Those are among the reasons our public policy agenda pledges that the National Council of Nonprofits will promote, support, and protect nonprofit advocacy by, among other ways, “Ensuring the integrity of charitable nonprofits by supporting the tax-law ban on electioneering and partisan political activities.” Note that charitable nonprofits still have rights and duties to engage in advocacy, including legislative lobbying, as well as nonpartisan election
work, such as ways promoted by Nonprofit VOTE.
Business Left Undone
Congress recessed early for the political conventions and will not return to Washington, DC until after Labor Day to face a daunting to-do list before adjourning for the November elections. There had been the expectation that growing concerns over the Zika virus would lead to a bipartisan solution, but that did not come to pass. Likewise, there has been no action on slowing gun violence
or terrorists’ easy access to guns. No agreement has been reached on any of the dozen bills to fund governmental operations in the fiscal year starting October 1. Talk is growing for a six-month stop-gap funding bill, known as a “continuing resolution,” to put off many tough decisions for the new President and Congress to face.
Congress is expected to consider several proposals to block or delay the Labor Department's Overtime Final Rule, the regulation that will, among other things, double the salary level that white collar employees must be paid in order to be exempt from overtime pay. There are now four alternative proposals in Congress: a resolution of disapproval under the Congressional Review Act sponsored by 44 Republican Senators, a bill to block implementation, an appropriations rider in the House, and a new bill from four Democratic Representatives (H.R.5813) that would phase in the increase over three years. 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.
- School Lunch Cuts: Feeding America and other nonprofit groups are speaking out against a bill (H.B. 5003) to reauthorize the Healthy, Hunger-Free Kids Act in a way that would modify the National School Lunch Program. Among other issues, the bill would cut funding by more than half for the Summer EBT program, which provides low-income families with nutrition benefits when their children are out of school.
- Social Welfare Registration Rules: The IRS recently published proposed regulations governing how 501(c)(4) social welfare nonprofits register with the federal government. The proposed rule implements a provision of the PATH Act, enacted in late 2015, which requires 501(c)(4) organizations formed after July 8, 2016 to submit an IRS Form 8976 within 60 days of being established. Any
501(c)(4) organization formed before July 8, 2016 that has not yet filed a Form 990 and has not applied for recognition of 501(c)(4) status would be required to file Form 8976 by September 6, 2016. A public comment period is open until October 11, 2016.
Special Sessions Called to Address Unbalanced Budgets
State policymakers across the nation are being called upon to confront budget shortfalls; some taking action and many others putting off tough decisions until after the elections. Last week, the Alaska House and Senate adjourned a special session without resolving a $3.2 billion structural deficit challenge that had prompted the Governor to call the Legislature back in session. The Governor’s tax-hike package will likely be a central issue in the November elections. In recent weeks, Pennsylvania lawmakers
approved a $1.3 billion revenue package to balance that state’s budget. Despite reaching agreement on a partial budget in Illinois, the State is still experiencing a deficit of a record-setting $7.8 billion and policymakers remain far apart on a solution. Montana policymakers agreed to dip into the State’s rainy day fund to end the fiscal year at
the end of June in balance. North Dakota’s Governor, with the support of the legislative leadership, has called a special session of the Legislature in August to address a general fund shortfall of $310 million that was not anticipated when the State’s biennial budget was adopted in 2015. A key Senator in New Mexico is likewise urging a special session to address past and future deficits of up to $650 million. Governors in Virginia and West Virginia have recently announced revenue shortfalls, setting the stage for protracted tax debates in their 2017 legislative sessions.
Politics Hurting People in New Jersey
Earlier this month, 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 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." According to Linda Czipo, President & CEO of the Center for Non-Profits, the political standoff between the Governor and Legislators is hurting the people nonprofits serve. “If [nonprofits] are forced to curtail or eliminate programs as a result of this stalemate, it will be a cruel and needless punishment for the people who depend on their services.” She points out, in "Christie’s Funding Freeze Punishes People in Distress, Nonprofits," that
“nonprofit organizations are on the front lines in our communities, often serving as the first, last or only source of help for people in distress. The vast majority can show a clear and significant return on investment to taxpayers for the government funding they receive. Simply put, by virtue of their services, they are saving the government millions of dollars each year.”
Private Funding of Government Responsibilities on the Rise
The announcement this month by the Connecticut Foundation that it is earmarking grants to counter state budget cuts raises the question: when is grantmaking appropriate to address immediate short-term needs and when do private funds become enablers for policymakers to shirk public responsibilities? The Connecticut Foundation for Public Giving reportedly is offering financial support totaling $1 million to qualifying nonprofits that will see cuts in state funding for services the nonprofits provide on behalf of the government. Recent state budget cuts total at least $650 million, causing one observer to comment that the
private support is “a drop in the bucket” to needs created by state budget actions. Also this month, the Central Park Conservancy announced a $300 million fundraising drive to pay for restoration of structures in the iconic public park in New York City and establish an endowment to cover future expenses. In recent years, private foundations and donors have chipped in to address crises and spending cuts, but concern is raised that policymakers view private donors as expected saviors to solve costly public problems.
Recently, Ridgeway White, president of the Charles Stewart Mott Foundation asked this question: “What is the role of philanthropy in responding to a community in crisis?” He laid out several criteria that his foundation follows and provided insights for others. Similarly, Sherry Magill, president of the Jessie Ball duPont Foundation and chair of the Council on Foundations, addressed the challenge in a recent posting: "When we confuse the private with the public, we absolve the public of its rightful
responsibility for the health of the community, and worse, give up on holding elected officials responsible for the deteriorating condition of our communities." Magill also observed: "we do not have the financial resources to replace local, state, and federal tax receipts, and it is not our proper role to replace government."
Utah, Montana Campaign Regulations Curbed
Efforts in western states to require disclosures of donors and curb the influence of money in politics have not survived constitutional review. The State of Utah agreed last week not to enforce a 2013 campaign finance law that required nonprofits to provide detailed information about private donors and supporters if they spent more than $750 on “political purposes.” In a court settlement, Utah officials agreed with the Utah Taxpayers Association and the Libertas Institute that requiring nonprofits who
infrequently engage in election-related activities to disclose such information would be a violation of donors’ constitutional rights. This spring, a federal judge in Montana threw out campaign contribution limits enacted last year in the “Montana Disclose Act.” The decision raises additional questions about how much individuals can contribute to candidates for elected office.
Many Voices, One Message on Property Tax Exemption
Nonprofit property tax exemption is not a narrow and technical concern for nonprofit CEOs and finance staff; it is a right universally supported by nonprofits and their supporters across the country. A challenge in Massachusetts points up the need for many voices – nonprofits and funders alike – to stand up for their missions and speak out in opposition to efforts to divert resources away from mission.
First some background. 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, a state legislator from Lowell, Massachusetts is promoting an amendment that would require nonprofits purchasing property currently on the tax rolls to pay property taxes over the course of four years. The measure, attached to an economic development bill, was approved by the House, but not included in the Senate version. The two bills are now in a conference committee.
A broad coalition of nonprofits is actively advocating for rejection of the property tax mandate. In a letter to key legislators, the Providers' Council, the Massachusetts Nonprofit Network, and several other nonprofit associations urge lawmakers to reject the House language because "it would both directly contradict already existing state and
federal laws and shatter the social compact that the nonprofit sector and government have worked for so long to build." The 17 organizations stated further, "This section would cause irreparable harm to the nonprofit community – it would significantly impede the operations of nonprofits, harm their fiscal solvency and threaten access to essential programs for residents across the state."
Lowell philanthropist Nancy L. Donohue has also joined in the debate, writing an op-ed opposing the city's efforts to divert nonprofit resources to the public treasury. "Nonprofits are the engines that create genuine community, quality of life and opportunity, especially for people from less privileged backgrounds. The burden nonprofits place on our government is tiny compared to the social and economic benefits they create." Donohue is most direct in explaining the impact of government policies on local communities and fundraising: "Every dollar we take from them for the
government, regardless of our intention, is another dollar they have to raise or another dollar of service they cannot provide."
The issue is likely to be resolved soon because the Legislature is scheduled to adjourn at the end of the month. The message, however, is clear and lasting: together nonprofits and individuals who care about their mission and impact can and should speak up when policies threaten their ability to serve communities.