Principles for Allocating ARPA State and Local Fiscal Recovery Funds
The American Rescue Plan Act (ARPA) allocates $350 billion in aid for state, local, Tribal, and territorial governments to use in providing “assistance to households, small businesses, and nonprofits, or to aid impacted industries” responding to the COVID-19 pandemic. These State and Local Fiscal Recovery Funds are substantial, but not limitless; sound policy principles and reasonable selection criteria are needed to ensure governments spending the money can secure the greatest impact for the public good.
Congress did not impose one set of mandatory rules for determining how to use those funds. Instead, it provided discretion to other levels of government to determine their constituents’ greatest needs. But what guidance should your state, local, Tribal, and territorial governments use?Charitable nonprofits, as informed members of the communities they serve, have important roles to play in identifying the standards that governments apply in distributing the funds to help those communities recover from the pandemic.
The National Council of Nonprofits has drafted an initial set of principles that governments can use. They are part of a larger project to assist the sector in identifying opportunities and promoting appropriate solutions. But we ask for your wisdom and insights on what standards are most appropriate for your municipal, county, state, and Tribal governments. Read these draft Principles for Allocating ARPA State and Local Fiscal Recovery Funds and provide your input on how to improve them. Do the draft principles work for the communities your organization serves, and if not, what adjustments are needed? Are there principles not listed that you believe governments should follow when allocating State and Local Fiscal Recovery Funds under the ARPA? Please respond on this brief form by May 28, 2021. We will then share principles you can urge your governments to use to promote fairness and get the biggest bang for the bucks. Thank you!
Treasury Issues Guidance on ARPA State and Local Fiscal Recovery Funds
Last week, the U.S. Treasury Department issued an Interim Final Rule and other materials providing details on the ways the $350 billion in State and Local Fiscal Recovery Funds authorized in the American Rescue Plan Act “can be used to respond to acute pandemic-response needs, fill revenue shortfalls among state and local governments, and support the communities and populations hardest-hit by the COVID-19 crisis.” The guidance answers questions about when a state’s tax cuts will violate the law’s prohibition against using these federal funds to “either directly or indirectly offset a reduction in the net tax revenue… or delay the imposition of any tax or tax increase.” More than a dozen state Attorneys General filed lawsuits earlier challenging the prohibition, calling it a violation of the Spending Clause of the U.S. Constitution and states’ rights under the Tenth Amendment, and an affront to their sovereign authority to set tax policy for their states.
Nonprofit organizations have been awaiting the Treasury guidance for clarification on numerous questions, notably the authority of states and localities to use these ARPA funds to reduce unemployment burdens and extend grant opportunities to charitable organizations. The good news is that the Treasury Department makes clear that governments may use these resources to bring their unemployment trust funds back up to pre-pandemic levels or pay off unemployment loans from the Labor Department. This is an important clarification because many states impose automatic unemployment tax increases on contributing employers when trust funds fall below certain levels. The guidance also explains in depth how governments may provide financial assistance to nonprofits through loans, grants, and in-kind assistance. However, as federal advocacy showed throughout the pandemic, relief for charitable organizations cannot be assumed; it will take persistent advocacy at the state and local levels to ensure governments allocate funds to strengthen and expand the work of charitable organizations in communities.
- PPP Funds Availability Update: The Paycheck Protection Program (PPP) reportedly has run out of money and, with one exception, is no longer accepting applications. On its PPP website, the Small Business Administration has posted a notice that it “is currently offering PPP loans originated only by participating community financial institutions including Certified Development Companies (CDCs), SBA Microlenders, Community Development Financial Institutions (CDFIs), and Minority Depository Institutions (MDIs) until May 31, 2021 or until remaining funds are exhausted.” (Emphasis in original.) The SBA informed the American Bankers Association and other groups in early May that PPP funding has been exhausted for most applicants.
- Nonprofit Jobs Report: Although the results are mixed, nonprofit jobs numbers grew slightly in April, according to the latest update from the Center for Civil Society Studies at Johns Hopkins University. Overall, the nonprofit sector added 18,000 jobs, representing a gain of just 2.2% of the nearly 830,000 jobs still lost as of March. Nonprofits recorded job gains in arts, entertainment, and recreation field (14,000 jobs), religious, grantmaking, civic, professional, and similar organizations (9,700 jobs), and social assistance organizations (9,300 jobs) during April. However, education lost nearly 14,000 jobs in the in April and the health services field saw the loss of 1,800 jobs compared to March 2021.
- Charitable Giving in 2020: A new report from Giving Tuesday finds that charitable giving increased 5.2% in 2020 compared to 2019, driven mostly by large donations from existing supporters. The overall number of donors increased in 2020, mainly as a result of an 11% increase in small gifts ($101-500). Whether that increase was driven by federal tax policy could not be determined conclusively. The report found that the Health and Human Services subsector showed the most growth, which mirrored the increased demand for services due to COVID-19 and the groundswell of response in pursuit of racial justice. Arts and Culture groups showed clear declines, reflecting lost access due to stay-at-home orders, social distancing, and reduced event-based fundraising opportunities.
- DOL Withdraws Independent Contractor Rule: The U.S. Department of Labor (DOL) has formally withdrawn the “Independent Contractor Rule” issued in the waning days of the Trump Administration that had established a more employer-friendly “economic realities” test for determining independent-contractor status. The now-rescinded rule created a two-prong test focusing on the employee’s exercise of control over their work and their opportunity for profit or loss. This “economic realities” test allowed more employers – including some nonprofits – to classify their workers as contractors to avoid paying benefits and payroll taxes. With the revocation of the rule, the DOL will once again use a multi-factor “totality of circumstances” test to determine whether workers are properly classified as employees or independent contractors for purposes of federal employment laws.
- Systemic Racism in Tax Policy: The Joint Economic Committee of Congress held a hearing last week focused on how the tax system perpetuates systemic racism. The Committee Chair, Representative Beyer (D-VA), opened the hearing by observing that “much of the racial wealth divide today is explained by the inability of Black families to transfer wealth from one generation to another.” He continued, “This is the product of decades of systemic racism and exclusion in our country, with policies such as redlining, restrictive covenants and other forms of housing discrimination playing a role." Witnesses discussed some solutions, including baby bonds and changes to the tax code that they believe would help address these inequities.
- WORK NOW Act Support: Three dozen national nonprofit organizations sent a letter to the four congressional leaders urging Congress to include the WORK NOW Act (S.740/H.R.1987) in any infrastructure or stimulus legislation they pass this year. The letter was sent in advance of the first meeting between the Democratic and Republican congressional leaders and President Biden to discuss infrastructure legislation and spending. Every House and Senate office also received the letter with a request that the elected officials cosponsor the legislation. Nonprofit advocates are encouraged to use the nonprofit letter to congressional leaders and the WORK NOW Act one-pager as tools for building support for legislation that would create a $50 billion grant program to help charitable nonprofits bring back staff and hire additional employees so they can deliver essential services.
- Committee Approves Legacy IRA, Retirement Savings Bill: The House Ways and Means Committee unanimously approved a retirement savings bill (H.R. 2954) that includes a key nonprofit giving incentive proposal. That provision, a modified version of the Legacy IRA Act, would encourage more charitable giving by enabling seniors to make tax-free contributions from their individual retirement accounts (IRA) to charitable nonprofits through life-income plans (charitable gift annuities or charitable remainder trusts) as a one-time qualified charitable distribution up to $50,000. See nonprofit coalition letter in support of the Legacy IRA. The overall $27.2 billion package of retirement savings incentives also includes provisions to expand automatic enrollment in workplace savings plans and allow matching contributions for employees paying off student debt, among other provisions.
Help Set IRS Priorities
In Notice 2021-28, the IRS and Treasury Department formally has invited the public to submit recommendations for items to be included on the 2021-2022 Priority Guidance Plan. That Plan is essentially the government’s regulatory “to do” list for tax matters, used by Treasury and the IRS to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The National Council of Nonprofits will be submitting recommendations on a few matters, and we encourage you to submit recommendations for guidance as well. This is your chance to tell the IRS what is broken, along with solutions to fix problems. It’s easy: simply submit electronically via the Federal eRulemaking Portal (in the comment box, type in IRS-2021-0004). The deadline for submitting public recommendations is Friday, May 28, 2021.
Governors Cancelling Unemployment Benefits
Despite poor unemployment numbers reported for last month, more than a dozen Republican Governors have notified the federal government they intend to cancel some or all of the extended and expanded unemployment relief created by Congress since the pandemic began. As a result, unemployed individuals will be cut off from additional weeks of benefits, the $300 increase in weekly benefits will cease, gig workers and former employees of some churches and nonprofits will lose all benefits, and work-search requirements will be reinstated, among other things. The rationale given by Alabama Governor Ivey for cancelling the benefits is consistent with the other governors: “Among other factors, increased unemployment assistance, which was meant to be a short-term relief program during emergency related shutdowns, is now contributing to a labor shortage that is compromising the continuation of our economic recovery.” The states cancelling some or all of the benefits are: Alabama, Alaska, Arizona, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, North Dakota, South Carolina, South Dakota, Tennessee, Utah, and Wyoming.
The changes in Arizona are the least harsh and more supportive than in the other states. After cancelling the program providing $300/week supplemental payments, effective July 10, Arizona will offer a $2,000 Back to Work bonus for eligible workers, "along with child care support, educational opportunities and rental assistance.”
Some nonprofit employers may be particularly hard hit by these changes. Of the states that are ending some benefits, four - Arkansas, Missouri, Montana, and South Carolina – are cancelling the provision in the American Rescue Plan Act that increases to 75% the federal share of costs of reimbursing employers. This maneuver means that nonprofits and local governments that self-insure and typically reimburse their states for benefits paid to former employees will see their payments jump from 25% of costs to 100% starting as early as June 12 (Missouri).
Charitable Giving Incentives Under Reconsideration
Lawmakers in Colorado and North Carolina are considering diametrically opposite approaches to charitable giving incentives. Colorado legislation introduced last week seeks to cap itemized deductions, including charitable deductions, on state tax returns. The bill would limit itemized deductions to $30,000 for individuals and $60,000 for couples for taxpayers with incomes over $400,000. The bill is part of a package that would purportedly raise $400 million to be used for spending programs aimed to help lower-income families and small businesses, like the state Child Tax Credit and Earned Income Tax Credit. However, the Colorado Nonprofit Association explains that “exempting charitable giving from the itemized cap … would prevent unintended consequences for how Coloradans are served by nonprofits and residents," and taxpayers “shouldn’t have to choose between tax credits for working families and reduced incentives for wealthy taxpayers to give back to community.”
In North Carolina, a measure would allow state taxpayers who use the federal universal charitable deduction to get the full benefit of these tax deductions on their state taxes in 2021. If enacted, individuals who itemize their deductions and contribute more than 60% of their adjusted gross income to charitable nonprofits could also deduct those additional funds on their state tax forms. The North Carolina Senate passed a similar bill earlier this month, and advocates in the state believe there is a good chance that one of these bills will become law later this year.
State Grants Programs for Nonprofits
Over the course of the pandemic, several states have established grant programs to provide financial assistance to charitable nonprofits. Here are four recently opened or announced grant programs:
You Just Never Know Where Nonprofit Friends Will Turn Up
There’s a saying among old-style lobbyists that you never want to have to ask a stranger for a favor; meaning it’s best to make friends with lawmakers before you need to request that they support or oppose a legislative bill. Add to that saying the fundamental principle of remaining nonpartisan and establishing relationships with any and all politicians who support the purpose and priorities of charitable nonprofits, and you have an excellent grounding in how nonprofits can impact legislation and policy.
Recent events involving two Members of Congress suggest that past relationships can provide unexpected benefits. Consider these examples:
- Representative Eleanor Holmes Norton (D-DC), the long-serving Representative from the District of Columbia, cosponsored two high-priority bills for the nonprofit community – the WORK NOW Act (H.R. 1987) and the Universal Giving Pandemic Response and Recovery Act (H.R. 1704). While the residents of the District of Colombia are still denied voting representation in Congress, and thus Representative Norton doesn’t have House floor voting privileges, she does have tremendous influence in her role as second-most senior Democrat on the House Transportation & Infrastructure Committee. That is the Committee responsible for generating the infrastructure bill on which nonprofits want those two cosponsored bills attached.
- Representative Elise Stefanik (R-NY), last week became the new Republican Conference Chair, replacing the Representative Liz Cheney (R-WY). Stefanik is also a nonprofit supporter. Last year, she signed the Moulton-Fitzpatrick letter not once but twice – in April and in August. Readers will recall that the letters urged congressional leaders to extend PPP coverage to larger nonprofits, provide full unemployment payments for reimbursing nonprofit employers, and increase charitable giving incentives. The August version of the letter referenced the WORK NOW Act this way: “Enact and expand grant and funding programs to help nonprofits retain employees, scale service delivery, and create new jobs.”
It is great to have champions for nonprofit priorities in positions of influence on the relevant House committee and in House Republican leadership. Politics, of course, can change minds on individual issues. But at least the past advocacy and relationship-building work of nonprofits are proving to be sound investments.
All of which causes all of us to ask: Which policymakers whom we meet today will be our well-positioned champions tomorrow?
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