Know Your Nonprofit’s Constitutionally Protected Rights
"The Oklahoma House of Representatives … ought to be ashamed of itself,” according to a recent Tulsa World editorial blasting a bill approved by that chamber that threatens charitable organizations with prison time for exercising their protected rights to free speech, raise funds, and advocate for their missions. The March 10 editorial went on to declare: “It’s ridiculous. It’s wrong. It’s un-American. … There’s no legitimate reason why the state should prevent any charity from raising money to spend anywhere.”
An in-depth constitutional analysis conducted by the National Council of Nonprofits reaches the same legal conclusion: Oklahoma House Bill 2250 is fatally flawed. That legislation would make it illegal for an “animal rights charitable organization” to raise funds inside Oklahoma to be spent for "program services and functional expenses" outside the state, and bar fundraising by such a nonprofit for “political purposes” inside or outside the state. The Council of Nonprofits' analysis finds that the legislation, if enacted, would violate numerous fundamental rights protected by the U.S. Constitution, specifically the rights to free speech, charitable fundraising (often intertwined with advocacy), interstate commerce, and due process (by using ambiguous terms that would force people to guess whether their actions might break the law). An almost identical bill has been introduced in Missouri, House Bill 2604.
Although these two bills threaten “animal rights” organizations, the next bill could go after groups promoting “children’s” rights, “civil” rights, “consumers’” rights, “property” rights, “religious” rights, “seniors’” rights, “veterans’ rights, and “volunteers’” rights. Therefore, nonprofit board members and staff should review the analysis and be prepared to step forward in unison when legislation threatens nonprofit missions in your state.
Proposed Overtime Regulations Move Forward, Face Opposition
The U.S. Department of Labor reportedly has written its final draft of proposed overtime regulations, published in draft form last summer, and submitted the proposal to the Office of Management and Budget for internal review as the last step before the rules can be made public. As initially drafted, the draft regulations would, among other things, significantly increase the salary threshold (from $23,660 per year to $50,440 per year) for determining whether executive, professional, and administrative employees would be exempt from minimum wage and overtime pay requirements of the Fair Labor Standards Act. It has been expected that DOL would release final regulations this spring or summer and that the rules will take effect by January 2017. Labor Secretary Thomas Perez recently reiterated the Department’s goal of expanding overtime protections to 5 million workers. Many Republicans in Congress have expressed strong opposition to the proposed rules. This past week, the chairman of the Senate Health, Education, Labor and Pensions and others introduced the Protecting Workplace Advancement and Opportunity Act (S. 2707/HR 4773), which would, among other things, nullify the proposed rule and require the Labor Department to conduct a comprehensive economic analysis on the impact of mandatory overtime expansion to small businesses, nonprofit organizations, and public employers. In introducing the bill, Chairman Lamar Alexander (R-TN) said that small independent colleges in Tennessee estimate the rule would cost each of their schools a minimum of $1.3 million — “a giant figure that may cost the colleges’ students in tuition hikes and cost employees in job cuts.”
The Challenges of State Budget Crises on Nonprofit Missions
Current state budget crises from Alaska to Wyoming and many of the states in between are likely to result in cuts to vital programs, emergency appeals to private funders for financial support, and demands for payments in lieu of taxes, any of which can affect the ability of nonprofits and foundations to advance their missions. State agencies in North Dakota are drawing up reduced budgets for the next biennium to address a projected $1 billion shortfall. In Louisiana, safety net hospitals are talking about cancelling contracts with the state to provide charity care as a result of $140 million in state health spending cuts. Things are so bad in Illinois, where a political standoff has blocked passage of a budget for the current fiscal year that began last July, that the Governor has expressed a willingness to release only a portion of federal funds for homeless programs, while keeping the remainder as a bargaining chit as programs face layoffs and closures.
All is not gloom. Kentucky passed a $21 billion state budget that starts to pay down pension liabilities, and Minnesota’s Governor is promoting a supplemental budget that would spend some of the state’s $900 million in surplus funds. In Pennsylvania, which like Illinois still has no budget because of political intransigence, bills are pending to prevent the next budget impasse by, among other things, mandating that service providers get paid, negotiations be made in public, and paychecks for politicians be withheld when there is no budget.
Budgets In Focus:
Connecticut Budget Crisis as Microcosm of Nonprofit Challenges
The challenges in Connecticut present the clearest picture of the consequences to nonprofits as policymakers confront deficits of $266 million in the current fiscal year, which ends June 30, and nearly $900 million next year. Last week, the Governor announced more than $78.8 million in rescissions of previously appropriated funds, most of which target the services provided by community nonprofits. “The governor’s announcement of rescissions will close programs for some of the neediest individuals in our state, who have nowhere to turn,” said Jeffrey Walter, interim CEO of the CT Community Nonprofit Alliance, who went on to urge the Governor to work with the state association of nonprofits “to craft long term structural changes that can keep the doors of community based nonprofits open to continue to serve half a million individuals in Connecticut.”
In addition to those immediate cuts, the Legislature reportedly is considering cutting municipal aid, potentially creating greater pressure on nonprofit landowners to divert resources from their missions in the community instead to help local government close their budget deficits. The Legislature had already curbed the property tax exemption for some nonprofits last year, and several current bills would impose new costs on other nonprofits. These approaches follow a pattern set in Maine last year, where the Governor sought (unsuccessfully) to reduce revenue sharing from the state, but to empower localities to charge some nonprofits service fees to recoup the lost revenue. Cuts in revenue sharing are also likely to result in demands by local governments that nonprofit and foundation property owners make payments in lieu of taxes (PILOTs).
New Jersey Governor Weighs In on Hospital Tax Dispute
Nine months after a New Jersey tax court judge threw nonprofit tax exemption law in turmoil, Governor Christie announced his plan for resolving a controversy that is pitting municipalities against nonprofit health care providers and has spawned multiple pieces of legislation. In June, a judge revoked the property tax exemption of a major nonprofit hospital, and since then 15 municipalities have filed copycat suits seeking property tax payments from nonprofit hospitals in their communities. The legislature sought to resolve the controversy by passing a bill to maintain current law on property taxes, but levy a fee of $2.50 per bed, payable to local communities. Christie refused to sign that bill in January, allowing it to die, and the legislation has been reintroduced in the new legislative session. A separate bill would extend such a “community service fee” to nursing homes owned by nonprofit hospitals. Late last week, the Governor called for a two-year moratorium on lawsuits against the hospitals and is empanelling a nine-member study commission to review the law and current hospital business operations, and make recommendations. A hospital administrator who spoke on behalf of the New Jersey Hospital Association explained that aggressive efforts at "Taxing [nonprofit] hospitals has created a great deal of uncertainty and stress,” and stated that the nonprofits "exist to care for our communities, quite frankly. It's created a lot of adversarial situations. We would rather be working together."
Lawsuit Challenges NY Regulatory Commission’s Lobbying Limits
The decision by New York’s Joint Commission on Public Ethics to regulate PR professionals as “lobbyists” if they attempt to persuade editorial boards to write on governmental issues, is being challenged in court by five public relations firms. The new rule, which would require nonprofits who hire these professionals to publicly disclose details about such spending, has been decried by nonprofits, media outlets, and PR firms alike as an infringement on the First Amendment rights to free speech, press, and petition the government. These concerns were perhaps most sharply voiced by a recent New York Nonprofit Media op-ed, which asserts: "In the past, [a nonprofit] organization could have had confidential conversations, through its PR firm, with editorial boards… If those groups are silenced — especially the thousands across the state that receive government funding to run programs for the most marginalized, disenfranchised and disconnected people — who will speak up for them? Who will give them a voice in the fight against misguided bills, programs and funding proposals?"
Public University Foundations Under Scrutiny
Public officials are raising questions about the spending practices of the nonprofit fundraising arms of public universities. Legislation in Connecticut would require the UConn Foundation to disclose information about its spending broken down into broad categories as well as dedicating 15 percent of new revenue to student scholarships and fellowships. However, unlike failed proposals of years past, the bill stops short of applying the state’s freedom of information laws to the foundation. Although the foundation’s president has said that such disclosure requirements can cause a decline of individual donors, the foundation is supporting the bill amid growing calls by critics to scrap the bill for even stricter legislation. Separately, members of the University of North Carolina system Board of Governors are questioning the lack of transparency at the 17 foundations operating on 11 campuses that raise money for their associated universities. Of particular concern are the investment practices of the foundations and how they interact with university finance and property transactions.
Government-Nonprofit Contracting Reform Update
Lessons Learned When a Nonprofit Closes Its Doors
A year after the largest human services provider in New York City suddenly collapsed and closed its doors after 80 years, valuable lessons applicable across the country can be learned about broader systemic challenges from two “post-mortem” reports.
- The first report, from a Commission of experts assembled by the Human Services Council (the HSC report), analyzed the systemic contracting problems leading to the bankruptcy of the Federal Employment & Guidance Service (FEGS). The Commission found, among many other things, that governments often fail to pay nonprofits what it really costs to provide services, such as overhead or administrative costs. Consequently, larger human service providers with government contracts were more likely to be in financial distress because the funding shortfalls were multiplied when “government contracts dominate provider budgets but pay only about 80 cents or less of each dollar of true program delivery costs, leaving budget holes that private funders cannot, or should not, fill.” The Commission strongly recommended that “contracts and grants must fully cover the costs of their administration,” citing the OMB Uniform Guidance on payment of indirect costs, quoting the “Letter to Donors of America” on the “overhead myth,” and highlighting the awareness of foundations to “the threat posed by inadequate indirect rates.”
- The second report (the Risk Management report) focuses on financial risk management, highlighting the financial instability of many nonprofits and offering recommendations to nonprofit board members on taking greater responsibility and managing risks. Both reports provide helpful analyses of the broader context of why such an important provider of mental health, disability, housing, homecare, and employment services, for over 120,000 households and individuals, was unable to survive.
Read the blog posting from the National Council of Nonprofits on what nonprofits of all size and their funders can learn from the closure of FEGS.
Advancing Missions Through the State Budget Process
“Do you ever consider how the laws passed at the state level affect your nonprofit's clients and mission?”
That is the simple question by the Arkansas Nonprofit Alliance as it invited nonprofits to participate in a briefing on advancing missions entitled: How Lending Your Voice on Budget and Tax Policies Can Make Your Clients' Lives Better.
As noted in the current and past editions of Nonprofit Advocacy Matters, state budget challenges, and in particular budget impasses, often harm both the public and the work of nonprofits by causing late payments to nonprofits with government contracts, cuts in reimbursement for services rendered, and disruptions of services by nonprofits in communities. Nonprofits that do no business with governments can be adversely affected by budget decisions because policymakers can cut spending, but they cannot simply vote to reduce human needs. In fact, when politicians cut budgets, they often increase needs that ultimately cause more people to turn to more nonprofits for help. All nonprofits see the results of government inaction or adverse actions in the form of new clients seeking services, diversion of private funder dollars to fill gaps, and other challenges.
The Arkansas Nonprofit Alliance teamed up with the Arkansas Public Policy Panel and Arkansas Advocates for Children and Families to host workshops to explain state tax and budget issues affecting Arkansans and provide insights into the state budget process.
Leaders from several frontline nonprofits shared their experiences in how they didn’t just wait to see what spending the politicians authorized. Instead they advanced their missions and improved their clients’ lives by advocating during the budget process. Ultimately, participants learned how to develop their own advocacy plan of action designed to ensure that the state’s budget document lays out pathways to support, rather than barriers against, the mission of each organization.
This “Advocacy in Action” section of the newsletter is dedicated to showcasing examples of how individual nonprofits advance their missions through advocacy. The Arkansas Nonprofit Alliance didn’t just focus on their own agenda; they shared keen insights on the budget process to ensure that as many nonprofits as possible in the state have the skills to take their missions from promise and desire to reality.