Federal Court Issues Injunction to Stop Federal Grants Pause

As you are likely aware from reading these policy updates and other sources, the federal Office of Management and Budget (OMB) sent a memo to federal agencies last month ordering them to pause most of their grants and loans – including billions of dollars in grants to nonprofits. Even though OMB rescinded the memo, lawsuits are moving through two federal courts seeking to stop the implementation not only of the original OMB memo but of any other action from OMB or the White House that would broadly freeze federal funding for grants to nonprofits and state and local governments. On Tuesday, a federal judge in the District of Columbia issued a preliminary injunction preventing the funding freeze from taking effect nationwide and preventing OMB and other federal agencies from implementing another similar broad freeze on federal grants.

The preliminary injunction comes in a lawsuit initiated by the National Council of Nonprofits, along with small business and public health advocates. The injunction means that OMB can’t move forward with a broad freeze on federal grants while the judge rules on the merits of the case in the coming months. In her opinion, the judge wrote: “In the simplest terms, the freeze was ill-conceived from the beginning. Defendants either wanted to pause up to $3 trillion in federal spending practically overnight, or they expected each federal agency to review every single one of its grants, loans, and funds for compliance in less than twenty-four hours. The breadth of that command is almost unfathomable.”

It is quite likely that OMB will appeal the injunction. Visit the Center’s resource page on the federal grants pause for the latest information and resources for North Carolina nonprofits.

Federal Judge Blocks Most Parts of Executive Orders on DEI in Federal Grants and Contracts

Last Friday, a federal judge in Maryland issued a preliminary injunction blocking two Executive Orders (EOs) (EO 14151 and EO 14173) attempting to terminate or change federal grants and contracts for programs related to diversity, equity, and inclusion. The judge ruled that the policies and term “diversity, equity, and inclusion” as used in the EOs were potentially vague, discriminatory, and unconstitutional by penalizing private organizations, including charitable nonprofits. However, agencies are permitted to proceed with their review of various programs related to these EOs and to issue any reports as required under the EOs. The ruling applies nationwide.

NC House Approves Bill Making Significant Changes to Unemployment Benefits

On Tuesday, the NC House of Representatives approved a bill (H.B. 48) that makes three significant changes to the state’s unemployment laws:

1. It would ratify an executive order from former Governor Roy Cooper that provided unemployment relief for individuals and employers affected by Hurricane Helene. Among other things, the executive order, which extends through March 1, temporarily increased maximum weekly unemployment benefits to $600 per week (up from $350 per week) and ensured that nonprofits (including those that pay state unemployment tax and those that reimburse for unemployment claims) and other employers will not be charged for Hurricane Helene-related unemployment claims of their employees. The Center has a resource page with more information on the ways this executive order would help nonprofits. 
2. It would increase the maximum weekly benefit amount for unemployment benefits from $350 to $450, beginning with claims filed on March 2, 2025. This change would help unemployed workers who receive services from nonprofits and also would benefit staff who are laid off or furloughed by nonprofits. However, it also could create additional liability for nonprofit organizations that elect to reimburse for unemployment claims instead of paying state unemployment tax.
3. It would offer an unemployment tax credit for 2025 for employers that would be equal to the amount of unemployment taxes they paid in the fourth quarter of 2024. Nonprofits that pay state unemployment taxes would be eligible for this tax credit, although reimbursing nonprofits would not.

The bill now goes to the Senate for consideration.

If you’ve read all the way through this and are confused by the references to “reimbursing” nonprofits and those that pay state unemployment taxes, here is some quick background. Nonprofits fall into one of three categories for the purposes of unemployment laws:

1. Some charitable nonprofits pay state unemployment taxes like other businesses. These organizations pay quarterly taxes based on their “experience rating,” a formula based on the recent history of unemployment claims by their former employees.
2. Charitable nonprofits have the option of electing to self-insure rather than pay state unemployment taxes. Nonprofits that elect this option are required to reimburse their state unemployment insurance trust funds for the amount of benefits their terminated or laid off employees claim. In North Carolina, self-insuring nonprofits must also maintain an escrow account with the state with 1% of their annual payroll.
3. Some nonprofits are exempt from unemployment laws. These include houses of worship, religious organizations that are affiliated with houses of worship, and religious schools. Nonprofits with fewer than four employees who work during 20 weeks of the year are also exempt. Employees of SUTA exempt charitable organizations are not eligible to receive state unemployment insurance benefits if they lose their jobs.

NC House Approves Hurricane Helene Relief Legislation

On Tuesday, the NC House of Representatives approved a $500 million proposal for Hurricane Helene relief (H.B. 47). Among other things, the bill would provide:

• $10 million to the Division of Emergency Management in the NC Department of Public Safety to make grants to nonprofits that are Volunteer Organizations Active in Disaster (VOADs) that are providing assistance in Hurricane Helene relief and recovery.
• $10 million to the State Fire Marshall for grants to small and volunteer fire departments in western North Carolina, many of which are nonprofits.
• $135 million for home construction and repair in western North Carolina.
• $55 million to establish a grant program for local governments to expedite infrastructure repairs that impact the operation of small businesses (potentially including nonprofits) in western North Carolina. While local governments would be the recipients of these grants, the infrastructure repairs or improvements funded by the grants could benefit some nonprofits. 
• $15 million to the Golden LEAF Foundation to make grants to certain western NC nonprofits that will then make grants of $50,000 or less for small business revitalization or other disaster recovery efforts. This small business relief provision, which uses nonprofits as intermediaries for small business relief grants, was added as an amendment on Tuesday. It is unclear whether nonprofits will be eligible to be recipients of the small business relief grants. 
• A provision allowing VOADs working on Hurricane Helene relief and recovery efforts to access heavy construction equipment and motor vehicles from the state’s surplus property.

The bill now moves to the Senate for consideration. It is unclear what changes the Senate may make to the bill. Lawmakers will consider additional relief later this winter or spring, and the Center will continue to advocate for future relief legislation to include support for nonprofits in western North Carolina that have suffered economic harm.

NC House Committee to Hear Bill That Would Prohibit Nonprofits from Using State or Local Funds for DEI Programs

A bill (H.B. 171) filed in the NC House of Representatives last Friday seeks to eliminate diversity, equity, and inclusion (DEI) initiatives in state and local government in North Carolina. Among other things, the bill would:

1. Prohibit nonprofits from using state or local funds to promote, support, fund, implement, or maintain DEI initiatives or programs.
2. Prohibit North Carolina nonprofits from applying for, accepting, or using federal funds, grants, or financial assistance that require compliance with DEI policies, initiatives, or mandates. Nonprofits would be required to discontinue any existing federally-funded DEI programs or initiatives. While this provision is consistent with a recent presidential Executive Order, it also would apply to federally-funded DEI programs in future presidential administrations. 
3. Require the State Auditor to conduct periodic compliance audits of nonprofits with state or local grants and contracts to determine their compliance with these anti-DEI policies and refer noncompliant nonprofits to local district attorneys for criminal prosecution.
4. Provide for civil penalties for nonprofits that use state or local funds for DEI programs or initiatives and provide standing for nonprofit employees to sue their employers for violations of the law.

The bill also would prohibit state agencies from promoting, supporting, funding, implementing, or maintaining workplace DEI programs, policies, or initiatives and would require the State Auditor to conduct periodic compliance audits to ensure that state agencies did not support DEI programs and initiatives. 

Unlike the federal Executive Order and subsequent guidance from the U.S. Department of Justice on DEI programs, the NC House bill provides a clear definition of DEI: 

“A program, policy, initiative, or activity designed or implemented to:

1. Influence State government practices with respect to race, sex, color, ethnicity, nationality, country of origin, or sexual orientation other than for compliance with applicable State and federal antidiscrimination laws.
2. Promote (i) differential treatment of or providing special benefits to individuals on the basis of race, sex, color, ethnicity, nationality, country of origin, or sexual orientation; or (ii) a difference in policy, practice, or action that impairs equal access to opportunities or benefits, based on a protected characteristic. This definition does not apply to antidiscrimination measures, reasonable accommodations, legal requirements, bona fide occupational qualifications, or any trait protected by State or federal antidiscrimination laws.”

The House Judiciary 1 Committee is scheduled to consider the bill next Tuesday afternoon.

NC Senate Border Protection Bill Could Affect Some Nonprofits with State Grants and Contracts

A bill (S.153) filed in the NC Senate on Monday would make a variety of changes to state laws intended to protect the borders of the state. Among other things, the bill would require the NC Office of State Budget and Management (OSBM) to certify that a wide variety of state benefits are not being used to benefit “unauthorized aliens.” Among the public benefits that would be included in OSBM’s certification process are state and local grants and contracts. This certification process could affect state grants and contracts with nonprofits that employ or provide services to undocumented immigrants. Both the Senate Judiciary Committee and the Senate Rules Committee approved the bill this week, and the full Senate is expected to vote on it next week.

U.S. House Approves Budget Resolution

On Tuesday, the U.S. House of Representatives approved its budget resolution, which begins the budget reconciliation process. The House budget resolution would use a single bill to pass most of President Trump’s policy priorities on tax cuts, spending cuts, energy policy, border security, and defense policy. The Senate, on the other hand, is proposing two separate bills – one focusing on border security, energy, and defense policy and another focusing on tax policy and other domestic spending cuts. The Senate approved the first of its budget resolutions bills in a 52-48 vote last week.The House approved its budget resolution in a 217-215 vote on Tuesday night. The House and Senate will work over the next month to agree on the same budget resolution.

While most legislation requires 60 votes to pass the U.S. Senate, a budget reconciliation bill can be used to pass major legislation that affects federal taxes or spending with a simple majority vote in the Senate. Budget reconciliation is most frequently used when the same party controls both houses of Congress and the White House. In the past, Congress has passed bills like the 2010 Affordable Care Act, the 2017 Tax Cuts and Jobs Act, and the 2022 Inflation Reduction Act through the budget reconciliation process. This year, Congress is planning to use the budget reconciliation process to make significant federal tax law changes (including extending many parts of the Tax Cuts and Jobs Act that are set to expire after this year) and to enact parts of President Trump’s policy and spending agenda.

U.S. Senate Bill Would Improvement Retirement Options for Nonprofits

A new bipartisan bill (S.424) in the U.S. Senate would expand investment options for 403(b) retirement plans, often used by nonprofit employers. The bill would allow 403(b) plan participants to invest in collective investment trusts similar to 401(k) plans. Senator Thom Tillis (R-NC) is a co-sponsor of the bill.

NC Senate Committees Approve Bill to Limit Attorney General’s Ability to Challenge Presidential Executive Orders

This week, the Senate Judiciary Committee and Senate Rules Committee both approved a bill (S.58) that would prohibit the NC Attorney General from participating in litigation challenging an Executive Order issued by the President. The bill would not likely prevent NC Attorney General Jeff Jackson from continuing to be a plaintiff in the lawsuit challenging the OMB funding freeze (see the first item in today’s update). However, it could prevent him and future attorneys general from joining in other lawsuits challenging presidential actions that could have adverse impacts on North Carolina nonprofits and the communities they serve. The full Senate is expected to vote on the bill next week.

Take 30 Minutes to Complete 2025 State of the Nonprofit Sector Survey

There has never been a more critical time to understand the biggest challenges and opportunities facing the nonprofit sector in North Carolina. To help get a sense of sector trends, the Nonprofit Finance Fund (NFF) opened its 2025 State of the Nonprofit Sector Survey to gather data about timely social sector issues such as federal funding, real estate ownership, workforce and staffing, and other topics relevant to creating community wealth and well-being.  

The Center encourages every North Carolina nonprofit to take 25-35 minutes to complete the survey. Results of past surveys have been helpful to the Center and other nonprofit advocates in making the case to policymakers about policy solutions that can benefit nonprofits and the communities they serve. The survey is open until March 7. Please take the survey today. Note: NFF requests that only one person from your nonprofit complete the survey.

Several Other New State Bills Would Affect Some Nonprofits

Dozens of new bills were introduced in the NC Senate and NC House of Representatives this week. Several of these bills could affect the operations, missions, programs, and services of some nonprofits. These include:

• A House bill (H.B. 234) that would amend the state constitution to dramatically change representation in the NC Senate by establishing 50 two-county districts. Currently, the 50 Senate districts have roughly equal population, meaning that urban counties have multiple representatives in the Senate and that some rural districts encompass multiple counties. The change proposed in this bill would significantly reduce Senate representation of urban and suburban counties.
• House (H.B. 181) and Senate (S.211) bills that would reinstate the state earned income tax credit to provide tax relief to working families.
• Two House bills that would reform the state budget process. One bill (H.B. 178) would increase transparency of the budget process by requiring the state budget to be available to the public for at least a week prior to legislative votes on the budget and to make legislators’ communications related to the budget subject to public records laws. Another bill (H.B. 180) would require the executive and legislative branches to work together on long-term budget forecasting and planning rather than simply focusing on state revenues and expenses for the upcoming two years. 
• A House bill (H.B. 188) that would require conspicuous notice of automatic renewal provisions in certain contracts for sale or lease of products or services. This bill could help prevent some nonprofits from unwittingly being stuck in long-term contracts with vendors.

The Center has not taken a position on any of these bills.

Info Session on New Association Health Plan for NC Nonprofits

North Carolina nonprofits now have the opportunity to join the Center's new association health plan (AHP) with options to offer health insurance, among other benefits, to your employees. Learn more about the program and plan options and ask questions during a free, virtual information session on March 7 at 11:00 a.m. Register now.

Note: All nonprofits are welcome to join the March 7 session or complete an interest survey to get more information. If your nonprofit is not a current Center Member, your organization will need to join the Center before becoming a participant of the AHP.

Nonprofit Policy Update is the 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 agenda or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.

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