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National Council of Nonprofits

Federal Issues


Proposed Overtime Regulations Raise Nonprofit Concerns

Nonprofit leaders are warning of unintended consequences for the people served by nonprofits if Department of Labor overtime regulations are promulgated as initially released for public comment last summer. As proposed, the rules would, among other things, require many employers to pay overtime to all workers earning less than about $50,000 per year, an increase in the so-called salary-level test from the current threshold $23,660 set in 2004. “While we support raising wages for workers, it is important that the government recognizes the devastating impact that implementing this rule will have on nonprofits,” wrote Julie Manworren, CEO of Living Well Disability Services and Jon Pratt, Executive Director of the Minnesota Council of Nonprofits, in the Minneapolis Post. The warning is based on the reality for nonprofit employers that: “unlike many businesses, complying with this rule will not be as simple as adjusting the price of goods sold to cover increased staffing costs.” The nonprofit leaders noted that contract payments from governments have not kept up with inflation, so if the rule would impose salary expense increases without also increasing payments for work performed, then fewer hours will be worked and fewer services provided. They conclude that “it will be the most vulnerable populations who may pay the price.”


Russell Cargo, President and CEO of the nonprofit Helena Industries in Montana, issued a similar warning about unintended consequences, noting that the government controls reimbursement rates and he cannot “pass along increased personnel costs” mandated by new overtime regulations. He applauds the intent behind the proposed rules, but expresses concern that unless government increases contract rates to reflect the real costs of delivering contracted services, the new overtime regulations will increase costs, forcing nonprofits “to reduce staff to fit within budget constraints leading to program cuts and elimination of services to nonprofits’ clients.”

Nationally, the debate over the proposed overtime regulations is fully engaged. Partisan legislation in Congress seeks to block implementation of the regulations and congressional committees are investigating the process that went into drafting the rules. A largely business coalition, the Partnership to Protect Workplace Opportunity, has formed to support the legislation and is seeking to enlist nonprofit employers. The Economic Policy Institute, unions, and many others are promoting implementation of the regulations as written and working to debunk the arguments of the opposition. A former Labor Department lawyer issued an analysis making the case that many nonprofits would not be affected by the change in overtime rules because they are not covered by the federal Fair Labor Standards Act, the underlying federal law governing wage and hour requirements. That analysis did not acknowledge that several states, including Maryland, Ohio, and North Carolina, incorporate the federal overtime regulations into state law, thus automatically applying any new regulatory requirements to almost every employer in those states.



Nonprofit-Friendly Tax Bill Introduced in Congress

Bipartisan legislation introduced in Congress includes several long-sought goals of the nonprofit and philanthropic communities and frames the policy debate in advance of future tax reform discussions. The "Charities Helping Americans Regularly Throughout the Year Act" (CHARITY Act), S.2750, introduced by Senators John Thune (R-SD) and Ron Wyden (D-OR), would, among other things, permit IRA rollovers into donor advised funds, streamline the foundation excise tax by setting a fixed rate of one percent (previously proposed in the America Gives More Act), mandate electronic filing of Form 990s, and establish an adjustable Volunteer Mileage Rate pegged to the rate for medical/moving purposes (currently 19 cents). The volunteer mileage rate has been fixed in statute at 14 cents for many years. Significantly for debate purposes, the CHARITY Act includes a sense-of-the-Senate resolution that "encouraging charitable giving should be a goal of tax reform," and that Congress should ensure that the value and scope of the federal charitable deduction "is not diminished." The legislation is not expected to be enacted this year, but strategists believe that it lays down the marker that the issues are nonpartisan and solid policy, and the bill gives nonprofits and foundations the opportunity to promote positive policy solutions rather than just react to bad ideas. For more information, read the joint news release and the bill summary.



New Federal Regulations Treat Faith-Based Groups Like Other Nonprofits

Final federal rules intended to put faith-based and other organizations on equal footing with other nonprofits when responding to Requests for Proposals were published this month and will become effective May 4, 2016. The 300+ page regulations detail federal policies and procedures for the participation of faith-based and community organizations with regard to federal grants and are designed to clarify how government funds can be used to provide social services. The rules require that applications must be reviewed strictly on merit, while making clear that government funding may not be used for religious purposes. The rulemaking process took six years to develop in response to Executive Order 13559.


State and Local Issues


Nonprofits Facing Unconstitutional Threats in Multiple States

The good news is that nonprofit advocacy efforts are largely prevailing in opposition to legislative proposals threatening to infringe constitutional protections. The bad news is that legislators, whether through ignorance or indifference, are repeatedly proposing bills that would chip away at fundamental liberties.


Most recently, nonprofits led by CalNonprofits faced a bill that attempted to regulate nonprofit solicitations and advocacy in ways that are constitutionally suspect, including infringing on the First Amendment's guarantee of free speech. Assembly Bill 2855  would have forced every nonprofit in the country that solicits funds in California to put a link on its home page, and print a disclosure on all other solicitation materials, directing potential supporters to the California Attorney General’s website. The legislation gave vague instructions on what the government website must provide, putting nonprofits at the mercy of an elected official’s changing views on what’s “appropriate” on such things as overhead, compensation, and advocacy – as well as which charitable causes are worthy. The California bill failed to make it out of committee last week due to effective advocacy efforts. See the CalNonprofits letter in opposition and the letter signed by more than 200 nonprofits that made the case for transparency and against needless and constitutionally flawed mandates.


The California bill is one of several measures in which legislators are ignoring, or actively seeking to trample nonprofit constitutional rights. Connecticut legislators attempted this month to force Yale University to spend its endowment gains or pay taxes on them, essentially invading the nonprofit’s independence from government intrusion in violation of the Constitution’s Contract Clause.  A New Jersey bill would create a state income-tax deduction for donations to New Jersey nonprofits — but only New Jersey nonprofits – an approach considered last year by lawmakers in Vermont, but rejected as a clear violation of the U.S. Constitution’s Commerce Clause. An Oklahoma bill (also introduced in Missouri) sought to make it a crime for anyone associated with an "animal rights charitable organization" to solicit contributions from anyone in the state with the intent that the money be spent on "program services or functional expenses" outside the state or for "political purposes inside or outside" the state. To learn more about these challenges and the constitutional rights of charitable nonprofits and private foundations, read the article by Tim Delaney in the Chronicle of Philanthropy and the detailed constitutional analysis by the National Council of Nonprofits.



Louisiana Budget Challenges, Impact on Nonprofits, Reflect National Trend

The Louisiana special revenue session demonstrates that no policies are sacred when legislators face a severe revenue shortfalls with little time to close the gap. In March, the Louisiana Legislature approved two laws that suspend until 2018 sales taxes exemptions and exclusions for hundreds of items, including membership dues and fees paid to nonprofits that entitle members to use the nonprofits’ clubs, or amusement, entertainment, athletic, or recreational facilities. The Louisiana Department of Revenue put out an advisory and a Table of Changes attempting to explain which nonprofits must collect sales taxes of 5 percent as of April 1. The Louisiana Association of Nonprofit Organizations and others are hosting a series of briefings on the new laws, starting in New Orleans on April 20



New Jersey: The Focus of Property Tax Challenges

There is little good property tax news coming out of New Jersey, where longstanding nonprofit exemptions for higher education and hospitals are under attack. An additional 24 residents of Princeton, New Jersey have joined the initial group of four citizens challenging the tax-exempt status of Princeton University in court, claiming that the university’s distribution of profits made from patent royalties to faculty members precludes it from its exemption from local property taxation. A trial is expected to commence this fall. Also, nearly half of New Jersey’s 62 nonprofit hospitals are now embroiled in tax court cases with their host municipalities resulting from a tax court decision last year ruling that most nonprofit hospital property was subject to taxation. Most recently, the Village Council of Ridgewood voted unanimously to file a lawsuit challenging the property tax exemption of a local hospital, reportedly without even reaching out to the hospital’s executives beforehand. At a conference at Seton Hall Law School last week, Linda Czipo of the Center for Non-Profits, the state association of nonprofits in New Jersey, presented data and analysis about why the property tax exemption is both justified and essential to the ability of nonprofits to advance their missions on behalf of the state’s citizens.



Taxes, Fees, PILOTs

  • Property Tax: In a break from the widespread string of challenges to nonprofit tax exemptions across the country, Michigan recently expanded the property tax exemption to apply to nonprofit homes for the elderly and disabled.
  • Sales Tax: Wisconsin expanded the nonprofit sales tax exemption by increasing to 75 days (from 20) the number of days a nonprofit makes sales and raising the total sales threshold to $75,000 (from $25,000) before a nonprofit is required to hold a seller’s permit and collect sales taxes. The bill signed by the Governor last week also raises the threshold for collecting taxes on admissions to entertainment events to only those at which costs are greater than $10,000 (up from $500).
  • Payments in Lieu of Taxes (PILOTs): Four nonprofits that currently pay PILOTs to the city of Woonsocket, Rhode Island will see incremental increases in those bills over the next three years. The City Council recently approved a plan that calls for 5% yearly increases on the nonprofits’ current payments of 35% of their property tax assessment, up to 50% in 2019. Councilors voting against the measure cited concerns over the decision to “paint all these nonprofits with the same broad brush” without examining their individual abilities to pay.


Government-Nonprofit Contracting Reform Update

New York City Contracting Practices Aired at Public Hearing

The New York City Council Committee on Contracts convened an oversight hearing this month to discuss the systemic contracting problems experienced by nonprofits providing services on behalf of city government. The hearing was motivated by a recent report, New York Nonprofits in the Aftermath of FEGS: A Call to Action, which chronicles the problems leading to the collapse of one of New York City’s largest human services providers, the Federation Employment and Guidance Service (FEGS). Most notably, that report found that government contracting practices were the major contributing factor to recent nonprofit closings. At the Council hearing, 25 nonprofit leaders testified about their contracting experiences with governments, painting a vivid picture regarding the severity of the problem and the impact on nonprofits when government contracts routinely fail to cover the full cost of a service and payments are unpredictably late. Council Member Rosenthal, who chaired the hearing, rhetorically asked whether a for-profit contractor would be asked to accept less than full payment for a $40 million bridge project. She acknowledged the unfairness of how governments treat nonprofits, stating: “the city would never say to a construction company, ‘We’re going to pay you $35 million. Try to get philanthropy, foundations, or other jobs that you do to pay for the remaining $5 million.’”



Nonprofits Coalesce Behind Solutions to Student Loan Debt Crisis

Nonprofit human service providers in Massachusetts are rallying in support of a proposed state budget amendment for FY 2017 that would create a fund to help low-paid employees in the human services sector pay back their student loans. Providers’ Council is promoting the legislation both as needed relief for frontline workers and because creation of the fund would assist nonprofit employers “recruit and retain a stronger, more qualified workforce.” Meanwhile, CalNonprofits is mobilizing its members to become an active voice in the nationwide student debt crisis.  CalNonprofits recognizes that student debt is not only an important public policy issue, but also a personal issue for nonprofit employees. It is estimated that over 100,000 nonprofit staff members in California have student loans, and for many of them, the debt burden can cause them to abandon nonprofit work altogether. To raise awareness and collect important data on this issue, CalNonprofits is asking all nonprofit employees with student debt, along with nonprofit CEOs and HR managers, to complete its survey on the impact of student debt on nonprofits. The survey and outreach efforts are part of CalNonprofits' Nonprofit Student Loan Project, which aims to educate and mobilize the nonprofit community to tackle this issue.


Advocacy in Action


Hometown Crisis and the Role of Philanthropy

It is far too soon to draw the lessons to be learned by the public health, environmental, and political failings in the Flint, Michigan water crisis. The whole world now knows that the water supply in Flint was unfit to drink, exposing residents to unacceptably high levels of lead. The scope of the problem, the range of solutions, and full accountability will take more time to sort out. But that is not stopping Ridgeway H. White, President of the Charles Stewart Mott Foundation, from addressing what should – and should not –be expected of philanthropy in dealing with a crisis in the Foundation’s home town, as well as the role of government in solving a problem of its own making.


White asks this question in a Philanthropy News Digest article: “What is the role of philanthropy in responding to a community in crisis?” He explains that the C.S. Mott Foundation, headquartered in Flint, took immediate action to help its fellow residents, but stood firm on demanding deliberation in the face of pleas from governments for funding assistance. He explains that the foundation provided initial emergency support to provide residents with home water filters and funding – in addition to what the state and city were putting up - to help reconnect Flint to the Detroit water system. The foundation considered those emergency investments to be a “no brainer,” or as White explains, “We couldn't sit on the sidelines while the children of Flint were being harmed.” These actions, he points out, are in line with one of philanthropy’s greatest attributes: “the ability to respond swiftly when disaster strikes to help people meet their basic needs.”


The question of “what next,” however, is where policy, action, and philosophy intersect. The foundation, and the public at large, recognized that the Flint drinking-water disaster was the result of government actions and inactions. As White sees it, “Government fault demands a government fix.” Government officials must take responsibility and not turn to philanthropy to subsidize or bail out government. “We want to ensure that philanthropic dollars are seen as a complement to much-needed government funds — not a replacement for them.”


In addition to telling governments they need to clean up their own mess, White points to the missions of the C.S. Mott Foundation and its grantees: addressing the long-term needs of the community and creating the nonprofit infrastructure to address challenges when crises occur. He points out that “this crisis helps to underscore the importance of the long-term, general-purpose support we provide to many of our grantees, in Flint and elsewhere.” Due to this approach, Flint nonprofits were able to confront the water system challenges and provide healthcare and other assistance.


“It's my hope that our experiences thus far might be helpful to other philanthropies that could face similar challenges in the future,” Ridgeway White writes. In presenting these experiences and insights to the world, he is advocating on behalf of the foundation’s mission by not only taking action, but in taking the time to explain why.