Congress, Don’t Claw Back State and Local Fiscal Recovery Funds | They are Vital to Nonprofit Recovery
Today, the National Council of Nonprofits sent a letter to congressional leaders and all Members of Congress opposing any proposal to claw back or reclaim funds already allocated to governments from the American Rescue Plan Act. That law promised $350 billion in State and Local Fiscal Recovery Funds to all levels of government and expressly declared that governments can use the money to support nonprofits recovering from the pandemic and providing needed aid in their communities. In recent days (see next article), some Senators have called for blocking those funds from going out to state and local governments and instead using the money to pay for other spending plans, namely, infrastructure programs. Seeing this approach as shortsighted, the National Council of Nonprofits points out that the “recovery is not assured; many people, communities, and the organizations that support them continue to suffer from the pandemic’s aftermath.”
In sending the letter, the National Council of Nonprofits is standing with the National Association of Counties, National League of Cities, and U.S. Conference of Mayors, which recently sent their own letter to congressional leaders expressing opposition to reclaiming or “clawing back” American Rescue Plan funds. However, the concerns from the nonprofit perspective go further because the federal support for charitable organizations has been less robust compared to other segments of the economy. The State and Local Fiscal Recovery Funds are seen by nonprofits as “their best and likely last chance to achieve any degree of parity and fairness.” Regarding the proposed taking of already allocated funds to pay for other purposes, the letter explains, “None of the ‘hard’ infrastructure proposals currently under discussion address the unmet needs of charitable nonprofits and the people they serve; only the State and Local Fiscal Recovery Funds provide the potential for that relief.” It concludes, “Therefore, it is imperative that you reject any attempt to claw back or reclaim ARPA funds at the devastating expense of charitable nonprofits serving your constituents and all Americans, every day.”
Narrowing Infrastructure Package Threatens Nonprofit Recovery
The President’s mammoth infrastructure package – the American Jobs Plan and the American Families Plan – includes proposals to help American workers and families with childcare, expanded free education and human services, and support for low-income individuals often served by charitable nonprofits. Republican lawmakers, however, have been calling for only “traditional” infrastructure issues, so negotiations have narrowed to so-called “hard” infrastructure items like roads and bridges.
Bipartisan negotiations among legislators have been underway in both the Senate and the House. Late on Thursday, a bipartisan group of 10 Senators, led by Senators Sinema (D-AZ) and Portman (R-OH), announced they had reached agreement among themselves on an outline that calls for $974 billion in infrastructure spending over five years, and $1.2 trillion over eight years. It proposes $579 billion in new spending, about double the amount of new spending offered by Senate Republicans. Their plan “would be fully paid for and not include tax increases,” according to a statement. But it would require clawing back funds from state and local governments (see above article) and adding inflation adjustments to the gas tax that the Administration has already rejected. In the House, the bipartisan House Problem Solvers Caucus released its infrastructure plan, "Building Bridges: A Bipartisan Physical Infrastructure Framework," that proposes a $1.25 trillion infrastructure spending plan that includes $761.8 billion in new spending over eight years. The House framework doesn’t indicate how the spending would be paid for.
- Nonprofit Jobs Update: Although the results are inconsistent, nonprofit jobs numbers grew in May by 63,000 jobs, according to the latest update from the Center for Civil Society Studies at Johns Hopkins University. Despite this recent growth, as of May 2021 the nonprofit workforce still remains down by nearly three-quarters of a million (733,000) jobs compared to its estimated pre-pandemic level. The latest update finds that these lost jobs include 24% of all workers in nonprofit arts and entertainment organizations; 11% of those in education; 9% in religious, grantmaking, and civic associations; 5.5% in nonprofit social service institutions; and 3.3% in health care.
- Unemployment Numbers and Policy: The U.S. added 559,000 workers in May, lowering the unemployment rate to 5.8% from 6.1%, the Labor Department reported. The new hiring was double the number of new jobs added in April, but below projections. Labor Secretary Walsh said the new “data reflects solid continuing job growth and strong evidence that our efforts through the American Rescue Plan to vaccinate Americans and support families, small businesses, schools and childcare providers are working to reopen and rebuild our economy.” Last month, 25 Republican Governors cancelled some or all of the extended and enhanced unemployment benefits, citing concerns from employers who blamed enhanced pandemic-related benefits for the shortage of workers. The New York Times cites many who reject that simplistic analysis, writing, “Most economists have pushed back against this argument and say the reality is more complicated. A lack of child care, continuing health concerns, low wages and competing priorities all probably play a larger role.”
- Challenging Immigration Work Visa Rule: A coalition of charitable nonprofits and trade groups has filed a lawsuit challenging a U.S. Citizenship and Immigration Services rule that would replace the random lottery for awarding H-1B work visas with a system favoring higher-paid workers. The rule, adopted in the last days of the Trump Administration, arbitrarily favors workers in more expensive urban areas and makes it difficult for nonprofits to compete with private companies for high-skilled foreign labor, according to the complaint. The rule reportedly was adopted out of concern that the H-1B program has been abused by employers seeking to fill lower-wage, entry-level positions and reduce overall business costs. The Biden Administration has delayed the effective date of the rule to December.
- E-Filing Form 990s: Starting this year, federal tax law requires electronic filing of the Form 990 for most tax-exempt organizations. The Program on Philanthropy and Social Innovation at the Aspen Institute created an introductory e-filing brochure designed to help first-time filers navigate the filing process. The brochure, Opening the 990: Information and Tools for Driving Impact, provides a brief overview of the mandatory Form 990 e-filing requirement, explains who must file and when, and offers step-by-step guides. An IRS News Release (December 18, 2020) contains an additional summary of the e-filing requirements.
Donor Advised Fund Legislation Introduced
Last week, Senators King (I-ME) and Grassley (R-IA) introduced the Accelerating Charitable Efforts (ACE) Act (S.1981), a bill to impose mandates and restrictions on Donor Advised Funds (DAFs) and private foundations. According to the Senators’ news release, the “ACE Act would reform private foundations, ensure Donor-Advised Funds make resources available to working charities in reasonable period of time.” The ACE Act would create two types of DAFs: (1) a 15-year DAF that would provide immediate deductibility of donations if all donated funds are spent within 15 years; and (2) a 50-year DAF that could take up to 50 years to spend down donations, but the donor would not get an immediate income tax deduction. The DAF provisions include a carveout for donations of less than $1 million to community foundations. Separately, the legislation would prohibit private foundations from satisfying their 5% payout requirement by “donating” to a DAF which is categorized as a public charity, or by paying salaries and travel expenses of family members of donors.
Proponents argue that a payout requirement is needed to accelerate charitable giving – “getting more money to our nation’s charities faster” – that is commensurate with the generous charitable deduction that donors receive. Opponents in the philanthropic community sent a Letter to Congress countering this view, stating “there is no data to indicate whether these measures would propel more charitable giving.” Recent articles in the Chronicle of Philanthropy and the New York Times provide additional background. Most tax policy observers believe that it is unlikely that the reforms as proposed in the ACE Act will be fully implemented in the near future. However, portions of the bill could be added to other tax legislation and nonprofits and donors are advised to consider their potential impact on their situation.
State Finances Less Ominous than Expected
More than half of states saw revenue increases in the past year, putting states in better financial positions than expected. Total state revenues were up by $9.5 billion between April 2020 and March 2021 compared to the previous year. However, 18 states saw lower receipts, including six with declines of more than 8 percent, largely caused by the loss of tourism and oil revenues. Arizona, Idaho, New Jersey, and Texas have announced surpluses, and California could see anywhere between $38 and $76 billion in surplus depending on calculations. Colorado, Florida, Maryland, Utah, and Washington plan to spend 10 percent more this year compared to last year for education, infrastructure, and economic recovery, including tax cuts and rebates and direct payments to residents. Oklahoma’s budget is up nearly 18 percent, and Missouri may break a 23-year record for largest end-of-year cash balance. Federal aid under the CARES Act and American Rescue Plan Act as well as personal income tax revenues contributed to the strong state finances. Some Members of Congress have used the state budget surpluses to argue for reallocation of federal funding from the American Rescue Plan; see top article.
Colorado Caps Itemized, Charitable Deductions
Colorado Governor Polis has signed into law a bill capping itemized deductions, including charitable deductions, at $30,000 for individuals and $60,000 for couples for taxpayers with adjusted gross incomes more than $400,000. Historically, caps on itemized deductions have resulted in lower donations to the work of charitable nonprofits. The bill is paired with another that would raise the insurance premium tax on companies. Together the package is expected to raise $400 million in revenues for the state to be spent on priorities for lower-income families and small businesses, such as expanding the state child tax credit and Earned Income Tax Credit.
Legislative Studies Ordered to Analyze Nonprofit Issues
As state legislatures adjourned their 2021 legislative sessions, many called for official studies on issues affecting charitable nonprofits. One legislative study in Nebraska related to property taxes and exemptions will re-examine the procedures used by county assessors to determine property classifications and associated tax benefits. A second study will review the feasibility of a constitutional amendment to limit property taxes to residential real property. New Hampshire lawmakers have created a commission to study charitable gaming. Bills in Massachusetts would study lost municipal real estate tax revenue and the feasibility of payments in lieu of taxation (PILOTs) assessed against nonprofits in the Commonwealth. Typically, commissions reconsidering property tax laws also take a look at tax exemptions affecting charitable nonprofits and offer recommendations that could, if enacted, disrupt nonprofit finances and operations.
Government-Nonprofit Grants & Contracting Reform
An occasional feature highlighting efforts to reform grants and contracting laws and procedures to improve effectiveness and sustainability.
- Board Diversification: Maryland Governor Hogan signed a bill to require nonprofits to have diversity on their board or executive leadership, or support for underrepresented communities in their missions, in order to qualify for capital grants or contracts of $1 million or more. Language in an earlier version of the bill would have required the Department of Commerce and the Office of Small, Minority, and Women Business Affairs to develop and maintain a state equity scorecard of diversity data for entities. That portion of the bill was changed to require a report from nonprofits that would not be publicly posted.
- Paying Indirect Costs: At a hearing in Massachusetts last week, nonprofits presented a strong case in support of a bill, H.3241, to clarify that state grants and contracts with nonprofits must comply with the OMB Uniform Guidance by ensuring the reimbursement of indirect costs. Michael Weekes of Providers’ Council stated in testimony, “nonprofits have – for years – not received the full costs under contracts for services that they deliver on behalf of governments.” He explained further, “In fact, the underfunding of indirect costs can undermine nonprofit performance and sustainability, while also damaging the ability of governments to measure program success.” Importantly, the legislation calls for application of the indirect-cost mandate regardless of whether funds were awarded directly by the state or through a passthrough entity to the nonprofit. It defines “indirect costs” to be the same as the OMB Uniform Guidance – cost items such as rent, utilities, technology, administration, professional fees, and other expenses that are not tied to any one program but that are vital to sustaining a healthy organization.
- Pre-Paying Costs: Colorado's Governor’s recently signed a bill to permit the Department of Public Health and Environment to pay up to 25% of the total value of payments to grantees immediately upon execution or renewal of grant agreements. This could relieve the burdens resulting from slow grant renewals and serve as a model for other departments and in other states.
Data Development and Public Policy Advancement
If the pen is mightier than the sword, then what are data? Even mightier? Mightiest?
We ask the question here, in this section of the newsletter dedicated to highlighting effective nonprofit advocacy, to draw attention to the impact that up-to-date data can have on public policy debates and decision making. We know, for instance, that the nonprofit sector has 733,000 fewer jobs because of the pandemic and that charitable giving last year declined by 7% for smaller nonprofits. The power of data is why the National Council of Nonprofits Letter to Congress at the top of today’s newsletter used those two data points. So, what other data are out there for nonprofit advocates to mine for persuasive points to drive policy?
Together SC announced survey results in its recent Findings from 2021 SC Nonprofit Survey, showing that South Carolina’s nonprofit sector lost 7.5% of its staff positions due to COVID, and nearly two-thirds report COVID has had a negative impact on mission delivery. See PowerPoint presentation.
This spring, the CT Community Nonprofit Alliance reported the results of a survey of voters in Connecticut that found nearly three out of four (72%) respondents believe that “community nonprofits are uniquely well suited to help recover from crisis because they know what communities need and how to deliver it.” Further, according to Widespread Support for Community Nonprofits in Poll of CT Voters, more than half (56%) of Connecticut voters report that they or their family have used services or been enrolled in programs provided by community nonprofits, with many families using multiple services or programs.
In mid-May, we saw the publication of the COVID-19 Impact on Iowa Nonprofit Organizations – Survey 3 from Business & Community Services, University of Northern Iowa, the third in a series of reports on the impact of the pandemic on nonprofits in Iowa. The picture that the data paint is telling. Three-fourths of respondents (76.3%) have been negatively impacted by the coronavirus pandemic, revealing conditions have not significantly improved from the 88.8% reporting negative impacts in the first survey taken in March 2020. A third of survey respondents also reported continuing to experience decreased nonprofit attendance related to COVID-19 and shortage of supplies, and 15% expressed concerns about the lack of childcare availability for employees. And as seen elsewhere, the top organizational concerns with respect to the effects of the coronavirus pandemic include revenue loss (51%), financial impact on operations and/or liquidity and capital (47%), strains on employee health/well-being (41%), and cash flow issues (40%).
The Center for Nonprofit Management in Nashville released its new report in May: Essential Industry Revealed: Nonprofit Economic Impact Study. The report combines economic analysis and responses to survey questions to present a clearer picture of the work of charitable nonprofits, their sustainability, and their impact in Middle Tennessee. The study reports that more than 70,000 people work directly for charitable nonprofits in the region (8.7% of the private sector workforce). These workers earn $4 billion in wages and contribute $14.4 billion to the local economy (11.7% of the real GDP for the area).
The Nonprofit Association of the Midlands (NAM), operating in Nebraska and Western Iowa, recently reported on a fourth pulse poll survey it conducted to gauge the evolving effects of the COVID-19 outbreak on nonprofits and the programs and services they provide. See The COVID-19 Crisis in Nebraska and Southwest Iowa's Nonprofit Community, Pulse Poll #4. Half of survey respondents reported they still suffer budgetary implications related to strains on the economy (64%), challenges in distribution of services to clients and communities (53%), and cancellation of programs or events and corresponding reduced revenues (49%). Only a third (34%) felt their organizations were more stable now than in March 2020, while more than half (56%) responded that their reserves could fund operations for no more than six months.
From the perspective of the report’s authors, “Although full impact of the COVID-19 pandemic is still unfolding, it has already laid bare deep inequities and the human and economic toll of years of under-investment in critical systems and needs – including nonprofits and the people and communities they serve.” These findings lead to a profound observation that policymakers and the public should heed: “After many years of underfunding of vital infrastructure and supports, a significant infusion of funds is needed now, and more will be needed for the long term.”
The National Council of Nonprofits has been curating known Data on How the Pandemic and Economic Crises Are Affecting Nonprofits, broken out by state and nationwide. Please let us know if you have seen quality reports we can add.
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