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House Considering Short Cuts to Budget, Spending, Debt Ceiling
Nearly four months late in getting started in the annual budget process, Members of Congress are considering various short cuts for (1) approving a budget resolution that sets the spending levels for the next fiscal year, (2) enacting appropriations bills that fund the government beginning October 1, and (3) approving legislation to raise the borrowing authority (debt limit) of the federal government to avert a government shutdown. An unprecedented approach reportedly gaining favor in the House calls for the twelve Appropriations subcommittees to produce their individual spending bills in the ordinary process, but then to bundle the dozen measures into one omnibus spending package to be brought to the House floor in July. There is also discussion of negotiating the budget resolution, omnibus bill, and debt ceiling increase in one piece of legislation that would be approved before the month-long August recess. While some amendments would be permitted on the House floor during the debate, it is likely that many provisions that normally would not stand up to close scrutiny would be slipped into the 2,000+ page bill and could affect the work of nonprofits in multiple subsectors.
Senate Health Reform Votes Expected This Month
The Senate is expected to vote on healthcare reform legislation prior to the July 4 recess, but negotiations behind closed doors mean that most Senators and the public do not know how closely the bill will match the American Health Care Act (AHCA). According to the Congressional Budget Office estimates, that legislation to repeal and replace the Affordable Care Act (ACA) would reduce federal spending by $119 billion while leaving 23 million more Americans without health insurance. A group of Republican Senators has been meeting to craft a replacement for the ACA and enough progress has reportedly been made in addressing concerns over the loss of insurance coverage and other issues that a June 28 vote is possible. It is expected that Senate Majority Leader McConnell (R-KY) will schedule a vote on that date, only days after the legislation is made public. Many news organizations, advocacy groups, and elected officials are protesting the secrecy surrounding such a major piece of legislation that will affect all Americans. Senator McCaskill (D-MO) took Senate Finance Committee Chair Orrin Hatch (R-UT) to task for refusing to hold a public hearing.
Federal FastView
- Overtime Rule Review Process to Start Soon: Labor Secretary Acosta stated last week that the department will start the process for revising the Obama overtime rule that was blocked by a federal judge in November. The rule that had been set to go into effect on December 1, 2016 would have required employers to pay overtime to white-collar employees who earn less than $913 per week ($47,476/yearly). At a hearing recently, Acosta said that the department will file a request for information (RFI) "in the next two to three weeks," a step in the process of gathering input before initiating formal rulemaking. At his Senate confirmation hearing in March, Acosta opined it was unfortunate that a threshold could go unchanged since 2004, but that doubling the limit as President Barack Obama attempted “does create what I’ll call a stress on the system.”
- Contraception Exemption Draft Regulation: A pending draft regulation dated May 23 would expand the range of employers that could claim an exemption for religious or moral objections to the federal mandate requiring employers to provide free birth control coverage. Current law exempts houses of worship and allows an opt out for religiously affiliated nonprofits and closely held for-profit companies. The proposal calls for expanding the exemption to any employer, including universities and major corporations, that opposes providing birth control to employees.
- Travel Executive Order: The Administration asked the Supreme Court last week to reinstate President Trump’s Executive Order to temporarily ban citizens from six countries from entering the US. The 4th Circuit of Appeals recently upheld a lower court’s ruling that blocked the ban. The Justice Department argues that only the language of the Executive Order should be considered in court and not possible motives by the President. The Supreme Court recesses at the end of June.
- Court Broadens ERISA Church Plan Application: Church-affiliated nonprofit hospitals are exempt from the Employee Retirement Income Security Act of 1974 (ERISA), which establishes a variety of rules for employers offering pension plans, the U.S. Supreme Court ruled unanimously this month. The decision broadens the scope of the so-called “church plan” exemption under ERISA and appears to also apply to other nonprofits that are affiliated with churches or other religious congregations. It could save these religiously affiliated nonprofits money by avoiding ERISA requirements on their pension plans, even if the plans were not established by the church with which the nonprofit is affiliated.
Budgets and Late Nights at the Legislature
Budget action is coming to a head in several states as the usual July 1 beginning date of new fiscal years rapidly approaches. The Connecticut Legislature convened in special session to find agreement on the state budget, budget implementers, bonding package, and school construction after it failed to pass a budget by the constitutionally mandated deadline. The CT Community Alliance expressed concerns that the “most vulnerable citizens will be the first to be hurt” if a budget isn’t reached. The Illinois Legislature theoretically adjourned last week, having once again failed to enact a budget for the coming fiscal year (see “In Focus,” below). Likewise, Alaska is no closer to a budget with only a week left to close a $2.5 billion budget deficit before the end of a special session of the Legislature.
Also last week, Oklahoma’s Governor signed a $6.8 billion spending bill that cuts the budgets of most state agencies by about five percent and raises revenues with a cigarette tax and a car tax. The bill did not include a cap on itemized deductions that was initially proposed. Minnesota’s Governor vetoed the portion of the budget that would have reduced general fund spending on health and human services. A conference committee of key members of the North Carolina Senate and House is meeting to hammer out a final version of the state budget for FY2017-18 (see updated comparison from the North Carolina Center for Nonprofits). Finally, this past week the Kansas Legislature overrode the Governor’s veto and rolled back the 2012 tax cuts that had led to persistent budget deficits in the state. The ratings agency Moody's Investors Service immediately applauded the Legislature's move, calling it "a significant step" toward achieving a sustainable budget.
Budget in Focus:
Nonprofits Ratchet Up Pressure to Break Illinois Budget Impasse
As of today (June 12), Illinois has gone 1 year, 11 months, and 12 days without a state budget due to intransigence by politicians on all sides. Legislators and the Governor failed to meet the May 31 deadline in the regular session and are now working overtime to try to reach a deal before the start of the next fiscal year on July 1. Nonprofits are becoming increasingly vocal in their insistence that lawmakers approve a spending and revenue plan that addresses the needs of the state. Forefront, the state association of nonprofits and regional association of grantmakers, joined other groups in releasing a letter last week that delivered a stark demand: Don’t Come Home without a Fully Funded, Balanced Budget.
The groups insist that policymakers “must pass a comprehensive, balanced budget that fully funds Illinois’ obligations.” They identify the victims of the political stalemate – school children, elderly persons, those living with mental illness, and anyone who relies on the state for services. It also warns that social service providers have been forced to lay off staff and reduce programming, meaning more people have increased unmet needs. The letter predicts that the lack of action by politicians will result in a $19.7 billion backlog of bills, further threatening the state’s ability to recover. After the letter was published, a review from the Commission on Government Forecasting and Accountability said if Illinois goes a third full year without a budget agreement, the state’s past-due bills will hit $22.7 billion. The state’s bond rating has been downgraded to the lowest ever for a state, just one step above junk bond status.
States Seeking Medicaid Waivers
As federal priorities change, state lawmakers are adapting either through action or inaction. President Trump’s first Executive Order directed federal officials to “waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the [Affordable Care] Act that would impose a fiscal burden on any State” and “provide greater flexibility to States … in implementing healthcare programs.” That has led some governors to take steps that were less likely to prevail in the Obama Administration. Some states are now asking federal officials for more flexibility for state-run health care programs, including requesting Medicaid waivers with a higher expectation to receive them. Arizona and Kentucky have submitted waiver requests that include work requirements, and Arkansas and Maine want to restrict those who qualify for Medicaid. Governor Scott of Florida submitted a waiver to block-grant Medicaid, as the House-passed American Health Care Act would do, while Governor Walker of Wisconsin is considering drug testing Medicaid recipients.
Immigration Debate Heats Up Across States
Texas Governor Abbott signed a measure this month that may be the “harshest state-level immigration bill in the country.” The new law mandates that local police chiefs and sheriffs hold criminal suspects for possible deportation. The law enforcement officers could face jail or removal from office for failing to comply with federal requests to do so. The officers may also inquire about immigration status of anyone they stop, not dissimilar to an Arizona law that courts struck down a few years ago. The new law is seen as a response to Austin’s status as a “sanctuary city.” In response to the Texas law, some families reportedly have fled the state, but others are filing suit to halt its implementation. In response to growing uncertainty surrounding immigration, California lawmakers and educators are speaking out and protecting undocumented students looking to obtain financial assistance. The California Dream Act provides financial aid to undocumented students, but fewer students have submitted applications this year. The Speaker of the General Assembly, leaders and chancellors in state higher education, as well as the California Department of Education, all urge students to file requests with a promise of “all available legal precautions to protect (students’) information.”
Taxes, Fees, PILOTs
- Payroll Tax: An alderman in St. Louis, Missouri plans to propose removal of a nonprofit tax exemption to raise funds for police. The alderman is looking to impose a half percent payroll tax on nonprofits to raise an estimated $8 million a year for pay raises and hiring for officers in the city.
- PILOTs: After the Mayor of Wilkes-Barre, Pennsylvania warned of a budget deficit this year, the city administrator issued letters to nonprofits with property tax exemption requesting voluntary participation in the city Payment In Lieu of Taxes (PILOTs) program. The city has received $2,100, nearly half of which from the church that the city Administrator attends. These payments are in addition to the nearly $500,000 in PILOTs already collected from higher education, health, and housing institutions in the city.
Government-Nonprofit Contracting Reform Update
New York City Budget Proposes Greater Complexity on Indirect Costs
Many of the problematic government-nonprofit contracting issues that exist come from rules, regulations, and laws established with the best of intentions, but without thinking through the possible ramifications. Such is the case with the New York City 2018 Budget. In response to strong advocacy efforts from the City’s nonprofits, the budget includes a plan to establish reimbursement for indirect costs of 10 percent phased in over the next 5 years. The budget proposal, however, raises numerous questions about implementation and adds to the complexification of the contracting system. Most notably, it would establish a different set of rules for nonprofits to follow depending on the source of the funds. This is problematic because very often a grant or contract with a nonprofit contains funds from multiple sources. Therefore, each funding stream, rather than each grant or contract needs to be tracked separately by the government agency, with different indirect cost rates applied to various portions of one award. This, in turn, would require more staff time, increased documentation, and higher audit costs – for nonprofits and the City. It would likely be more cost effective and efficient for the City to follow the federal regulations for reimbursing indirect costs regardless of the funding source an approach that was mandated in the OMB Uniform Guidance for federal funds, as proposed last year by Philanthropy New York.
Advocacy from the Ground Up
The recognition of the need for advocacy comes from many sources. Scandals and bad press motivate politicians to champion reforms. Court rulings can lead to public outcries that result in revisions to statutes. In-depth research can uncover injustices, inconsistencies, or unfair outcomes that cry out for changes. And then there are discoveries that the laws on the books just don’t mesh with reality and turn ordinarily law-abiding citizens into scofflaws. That was the case in Washington State this year, and nonprofits got the law changed for everyone’s wellbeing.
Until recently, Washington State law required nonprofits to have fifteen “voting members” in order to run a legal fundraising raffle. Since most nonprofits do not have voting members, this meant in practice that a nonprofit had to have fifteen board members, or not hold the raffle fundraiser. Getting the rule off the books was important for Washington Nonprofits, the state association in the Evergreen State, both because the law prevented many nonprofits from utilizing the fundraising technique and because there is no research showing that larger boards govern more effectively.
The problem in the law became apparent during a webinar with nonprofits about the rules governing liquor, cannabis, and gambling as they relate to various nonprofit events. It was during questions to and cooperation from the Liquor and Cannabis Boards and Gambling Commission of the state that nonprofits found they may be in unintentional noncompliance with the raffle law.
This led to a coordinated advocacy campaign to change the law. Washington Nonprofits and its allies scoured already proposed legislation to find an accessible entry point, an existing bill on which a legislative fix could be included. The advocates pointed out that there is no research showing that larger boards govern more effectively. They also stressed that nonprofits have every intention of complying with the law, but that burdensome and unnecessarily complex laws and regulations make it impractical to do so.
These arguments carried the day and the Governor signed the reform bill into law on April 27. Moreover, throughout the process, Washington Nonprofit gained teammates in government agencies, legislators, and other nonprofit leaders for future advocacy campaigns – and future victories.
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