NC House Committee Unanimously Approves Legislation to Modernize Nonprofit Laws

On Wednesday, the House Judiciary 1 committee unanimously approved a bill (H.B. 741) that would make important changes to two state laws affecting nonprofits. Specifically, the bill would reform the state charitable solicitation licensing statute and would make a variety of changes to modernize the NC Nonprofit Corporation Act to bring it into closer alignment with best practices for nonprofits and with nonprofit corporation laws in other states. The Center has recommended this legislation based on input from nonprofits and from attorneys and accountants who represent nonprofit organizations. Two more House committees – the House Finance Committee and the House Rules Committee – must also approve the bill before the full House votes on it. The Center is working with legislators to move the bill through those committees in the next few weeks.

Congress Passes Legislation to Prevent Federal Government Default

Yesterday, the U.S. Senate approved the Fiscal Responsibility Act (H.R. 3746), which suspends the federal debt limit through early 2025, preventing the United States from defaulting on its debts. The U.S. House of Representatives approved the bill on Wednesday. The legislation passed both chambers with broad bipartisan support and some bipartisan opposition. The only two members of Congress to vote against the bill were Congressman Dan Bishop (R-NC) and Senator Ted Budd (R-NC).  

In addition to suspending the federal debt limit past the 2024 election, the Fiscal Responsibility Act caps spending for both defense and non-defense spending at levels below the rate of inflation. Reduced funding for federal agencies could shift more (unfunded) burdens for providing a wide variety of services onto nonprofits. Other provisions of the Fiscal Responsibility Act affecting nonprofits include:

• Clawback of COVID Funds: The legislation would rescind about $30 billion in unspent COVID-related relief. The Fiscal Responsibility Act identifies more than 100 programs subject to the cancellation of the “unobligated balances” at federal agencies as of the date of enactment of the bill. Among funding programs to be effectively cut, the measure would clawback American Rescue Plan Act money still in federal agencies that had been provided for vaccination research, community health centers, family planning, mental health among health care professionals, home visitation program emergency assistance, enhanced AmeriCorps funding for award adjustments, and emergency assistance to non-public schools. 
• Work Requirements: The Fiscal Responsibility Act would both limit and expand eligibility for benefits under the Supplemental Nutrition Assistance Program (SNAP). The legislation calls for imposing a work requirement on more people by raising the age limit for work from the current level of age 50 to age 54 by 2025 and eliminating the current work requirements for others by exempting individuals who are homeless, veterans, and some who were raised in foster homes. The new requirements would expire in 2030. Notably for nonprofits, the bill does not mandate “community service” or other forms of mandatory volunteerism at charitable organizations as a form of work requirement. 
• Student Debt: The bill would end the moratorium on repaying federal student loans and accrual of interest at the end of August 2023 and require the U.S. Department of Education to begin collecting payments again. The measure does not block President Biden’s student debt cancellation plan, which is currently under consideration at the U.S. Supreme Court. 
• Defunding the Internal Revenue Service: The legislation would reduce funding for the IRS by $1.4 billion this year and shift another $20 billion over the next two years. Last year’s Inflation Reduction Act had significantly increased IRS funding, but the Fiscal Responsibility Act eliminates much of this increased capacity for the agency. The IRS is the main federal regulator of charitable nonprofits, but its tax-exempt division is significantly understaffed. The reduction in IRS funding could harm the nonprofit sector by continuing the agency’s slow response time to many nonprofit filings and its inability to take action against exempt organizations that violate federal tax laws. 

President Biden is expected to sign the Fiscal Responsibility Act into law today or tomorrow.

Let Us Know: What Should We Tell NC’s Members of Congress about Nonprofits?

Next week, staff from the North Carolina Center for Nonprofits will be in Washington, D.C. to meet with several members of our state’s congressional delegation. We’re planning to talk with them about four federal policy solutions that could help charitable nonprofits:

1. Passing the Charitable Act (S. 566/H.R. 3435), which would create a universal charitable deduction that would encourage people to give more generously to nonprofits;
2. Increasing the volunteer mileage rate (currently set at 14 cents per mile) to make it more affordable for volunteers to use their vehicles to provide services on behalf of nonprofits; 
3. Passing legislation to give nonprofits a greater voice in policy decisions at the federal level;
4. Developing solutions to challenges that nonprofits experience with their government grants and contracts.

Let us know if there are other federal nonprofit policy priorities you would like for us to mention during these meetings or if there are any points you would like us to emphasize on these four issues.

NC Senate Committee Approves Changes to DHHS-Nonprofit Contracting Reform Legislation

On Wednesday, the NC Senate Health Committee approved a bill (H.B. 190) that would make several changes to the nonprofit contracting reform law (H.B. 791) that the General Assembly passed last summer. The 2022 law made four reforms to NC Department of Health and Human Services (DHHS) grants and contracts with nonprofits:

1. It establishes a de minimis 10% indirect cost rate for nonprofit grants/contracts with DHHS, regardless of whether funding initiates from federal or state funds. Many nonprofits currently have contracts that provide for much lower indirect cost rates or that make no allowance for nonprofits’ indirect costs.
2. It requires DHHS to provide most nonprofits with multi-year contracts rather than one-year contracts that are renegotiated every year. This change should reduce much of the red tape and contracting delays that nonprofits experience during the contract renewal process.
3. It provides three-month contract extensions for most nonprofits to ensure continuity of services – and of payments to nonprofits – after the end of nonprofits’ multi-year contracts with DHHS. This change is intended to help prevent many of the payment delays that have resulted from understaffing at DHHS.
4. It requires legislative staff to provide nonprofit contact information for nonprofits receiving directed grants in the state budget to DHHS in a timely manner. DHHS has identified the lack of clear communication about nonprofit contact information as a cause of some of its contract and payment delays.

The bill approved by the committee this week, which was recommended by DHHS, makes several clarifying and technical changes to the new law. The three substantive changes in the bill are:

1. Making the de minimis 10% indirect cost rate optional rather than mandatory for DHHS (meaning that DHHS could, at least in theory, choose not to use the de minimis rate for some nonprofits);
2. Excluding nonprofits with administrative expense limitations in other federal or state laws or regulations from the de minimis 10% indirect cost rate provision (e.g., nonprofits that are required by state budget provisions to have overall administrative costs of 8% or 9% would not automatically get 10% indirect cost rates on their state grants); and
3. Providing that the terms of nonprofits’ expired contracts with DHHS remain in place during the three-month extension period.

The Center has heard from several nonprofits and from DHHS that the Department has not yet implemented many of the changes in the law. The Center is supportive of clarifying changes that would help more nonprofits with DHHS grants and contracts to benefit from these contracting reforms. We’re continuing to work with legislators and DHHS to ensure that any changes don’t weaken the existing law.

The Senate Rules Committee would need to approve the bill before it goes to the full Senate for consideration. The Senate made changes to other parts of the House-passed bill, so the House also would need to approve the legislation again after it passes the Senate.

Legislators Continue Work on State Budget Negotiations

This week, leaders of the NC Senate and NC House of Representatives continued to meet behind closed doors to negotiate a final version of the state budget for FY2023-25 (H.B. 259). Legislative leaders hope to have the state budget in place before the start of the new fiscal year on July 1, 2023. 

To help your nonprofit better understand the differences between the two competing versions of the state budget, the Center has prepared an analysis of the nonprofit provisions and appropriations in the House and Senate budgets. Some key differences for nonprofits include:

• The Senate budget includes much steeper cuts to individual income tax rates. Overall, the tax cuts in the Senate budget are projected to reduce state revenue by about $1.2 billion over the next two years and by $7.1 billion per year once they are fully implemented in 2030. This revenue loss could mean significant cuts to state funding for nonprofits in the future. It could also force state legislators to look to new taxes or fees on nonprofits to offset the loss of income tax revenue. Additionally, it would likely result in greater needs for services provided by nonprofits as a result of decreases in state funding for public sector services. Legislative leaders indicated this week that tax rate cuts are one of the most significant differences between the House and Senate budget.
• The House budget includes more overall appropriations to nonprofits, although a few individual nonprofits would receive more funding (or new funding) in the Senate budget.
• The Senate budget includes several provisions that could create financial and operational challenges for nonprofit hospitals.
• The Senate budget increases the limit on administrative costs for Smart Starts to 10% of total funding. The current limit is 9%, and the limit had been 8% until last year. This change would bring state law into better alignment with the operational realities of Smart Starts (and nonprofits in general).
• The Senate budget would significantly increase funding and eligibility for the Opportunity Scholarship program, which provides financial assistance to families with students in private (mostly nonprofit) K-12 schools. The House passed separate legislation (H.B. 823) last week that would make these changes outside the context of the state budget. 

The Center also has prepared a tutorial video on the state budget to help your nonprofit better understand the state budget process and how to navigate through the budget documents.

NC Senate Approves BCBSNC Restructuring Legislation

On Tuesday, the NC Senate approved a bipartisan bill (H.B. 346) that would allow the state’s two hospital service corporations – BlueCross BlueShield of North Carolina (BCBSNC) and Delta Dental Plans Association – to create “nonprofit holding corporations” to restructure some of their assets. Under existing law, hospital service corporations are regulated by the NC Department of Insurance, and these entities need state approval for many types of transactions. This legislation would enable hospital service corporations to move some or all of their operations to other nonprofits that are not regulated by the NC Department of Insurance, potentially cutting red tape that can undercut their ability to make investments or engage in certain transactions.

In 1998, the Center worked with a large coalition of nonprofits to help ensure that if a nonprofit health insurer were to convert to a for-profit that the full fair market value of the nonprofit would remain in the nonprofit sector by being transferred to a charitable foundation. The House revised its initial bill last month to help preserve this important protection of nonprofit assets if BCBSNC were to restructure and then convert to a for-profit. The Senate is considering the version of the bill that the House passed, so this important protection remains in the bill in the Senate.

The bill now goes to Governor Roy Cooper for his consideration.

NC Senate Regulatory Reform Bill Would Increase Threshold for Nonprofit Real Estate Raffles

On Wednesday, the NC Senate released details of its versions of regulatory reform legislation (H.B. 600), which includes a variety of provisions intended to cut red tape by reducing a variety of state and local government regulations, including many environmental rules. 

The Senate regulatory reform bill includes a provision that would increase the maximum value of real estate that nonprofits can raffle each year from $500,000 to $2.25 million. Nonprofits occasionally receive houses or other real estate as bequests or donations. For some nonprofits, the best way to make use of this donated property is to raffle it as a high-value fundraiser to support the organization’s programs and services. With increased property values in recent years, the current $500,000 threshold may be well below the value of property that nonprofits receive and may want to raffle. The bill requires that any real estate raffled by a nonprofit is free of liens or encumbrances – essentially ensuring that a nonprofit isn’t raffling property that will come with significant and unexpected costs for supporters of the organization. The Center supports the bill since this provision would create a new (or at least improved) fundraising opportunity for some nonprofits. Last month, the House approved a similar bill (H.B. 374) that would raise the maximum value of real estate that a nonprofit can raffle each year to $2 million. 

The House passed the regulatory reform bill last month, and the Senate could vote on its version – including the nonprofit raffle provision – in the next few weeks.

NC House Approves Bill That Could Limit Nonprofits’ Ability to Provide Some Types of Training to Government Agencies

On Wednesday, the NC House of Representatives approved a bill (S.364) that would prohibit state agencies from offering workplace trainings covering 13 specific topics related to race and gender equity (see page 2 of the bill text for a listing of the 13 topics). This would mean that nonprofits that offer trainings to state employees would no longer be able to include content on topics related to equity, diversity, and inclusion in these trainings. The bill would allow contractors (including nonprofits) providing trainings for state agencies to answer questions about these topics as long as they are clear that the state agency does not endorse these concepts. 

The House passed the bill in a party-line vote and made changes (to other parts of the bill) to the version that the Senate had approved last month with some bipartisan support. That means the Senate will need to vote on the House-approved version before sending it to Governor Cooper for his consideration. Because the bill passed both chambers with enough votes to override a veto, it is likely to become law regardless of what action Governor Cooper takes on it. The bill would take effect on December 1, 2023.

Election Law Changes Introduced in NC Senate

A bill (S.747) filed in the NC Senate yesterday would make a variety of changes to state election laws. Several of these changes could affect nonprofits and the people they serve, including:

1. A provision that would prohibit nonprofits from providing funding to the State Board of Elections or to county election boards. In the past, legislators have expressed concern that some organizations – including nonpartisan 501(c)(3) nonprofits – could provide funding to local elections boards to bolster support in communities with strong partisan leanings.
2. A provision that would eliminate the three-day grace period after Election Day for receipt of absentee ballots. This change would mean that absentee ballots would need to be received by the county board of elections by 7:30 p.m. on Election Day.
3. A requirement that anyone who uses same-day registration during Early Voting must submit a provisional ballot. This change could lead to more challenges of ballots from people who registered or updated their registration during Early Voting. Many nonprofits encourage their staff, volunteers, and clients to vote early.

Unlike other election law legislation introduced this session, the new Senate bill would not shorten the Early Voting period, which is currently set at 17 days.

Legislators are likely to approve these election law changes this month. If the bill becomes law, most of the changes would take effect beginning with this fall’s municipal elections.

Charlotte Invests ARPA Funds into Nonprofit Grant Program

The City of Charlotte recently announced that it is using some of its American Rescue Plan Act (ARPA) funds to create a $2.5 million Community Resilience Fund to support operational costs of Charlotte-based nonprofits that serve communities that have been financially and/or disparately impacted by COVID-19. The grant program will prioritize work that fosters racial equity and economic mobility in marginalized communities. Charlotte-based nonprofits have until June 30 to apply for grants.

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Nonprofit Policy Update is North Carolina Center for Nonprofits' weekly newsletter of state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy priorities and agenda, or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.