Nonprofit Issues at Center of State Budget Negotiations 

Three weeks into the state’s new fiscal year, legislators remain at an impasse on the state budget for FY2023-25 (H.B. 259). Legislative leaders have indicated that they don’t expect to have a final budget ready for votes until at least next month. Two of the issues at the center of negotiations involve nonprofits, either directly or indirectly:

1. The Senate budget includes steep cuts in the individual income tax rate. Currently, the individual income tax rate is 4.75% for 2023 and is set to decrease to 3.99% in 2027 and subsequent years. The Senate is proposing dropping the rate to 3.99% in 2025 and then reducing it further so that it decreases to 2.49% in 2030 and subsequent years. The decrease in income tax rates is expected to reduce state revenue by about $1.2 billion over the next two years and by $7.1 billion per year once the rate goes down to 2.49%. The House didn’t include these income tax cuts in its budget, largely out of concerns that it could make it hard to generate sufficient revenue to fully fund state functions. For nonprofits, the drop in state revenue from lower individual income tax rates could mean reduced state funding for grants and services to nonprofits, cuts in other key state investments like child care or health care, and the imposition of new taxes and fees on nonprofit organizations to make up some of the lost revenue from lower income tax rates.
2. The Senate budget also includes a $1.43 billion appropriation for NCInnovation, a 501(c)(3) economic development nonprofit that works to transform academic research into business opportunities across North Carolina. The Senate envisions NCInnovation using the large appropriation to set up an endowment. This investment in a single nonprofit, which would account for nearly 5% of the total state budget, would be unprecedented. This large investment in a single nonprofit could come at the expense of state funding for many other nonprofits serving a wide variety of communities and missions. The House and Governor Cooper both support state investment in NCInnovation, but both only included $50 million in new appropriations in their versions of the state budget.

Unlike with the federal government, the failure to pass a state budget on time doesn’t cause parts of state government to shut down. Under state law, spending levels will continue in place at current levels until a new state budget becomes law. Even without the threat of a government shutdown, legislators have two reasons to try to come to agreement on a new state budget as quickly as possible:

1. Medicaid expansion in North Carolina cannot begin until a new state budget is in place; and
2. Without a new state budget, legislators cannot make adjustments to existing spending levels to account for inflation and new or changing needs in communities, and legislators cannot make changes to state tax laws.

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 and a tutorial video on the state budget.

New Report Finds That Most NC Nonprofits Have Job Vacancies

Earlier this year, the National Council of Nonprofits launched a new survey to learn how nonprofit workforce shortage issues have changed since their research began in 2021. Preliminary data from North Carolina nonprofits who responded to this new survey shows that 81% are still experiencing job vacancies, most affected by salary competition, budget constraints, and employee stress and burnout. In response to the ongoing nonprofit workforce shortage, the Center continues to advocate for a wide range of state and federal policy solutions that will help nonprofits operate more effectively, save money, and have stronger tools to recruit and retain paid staff and volunteers.

While nonprofits are still struggling with workforce shortages, they report they’ve also taken action within their own organizations to address employee recruitment and retention, and proposed ways nonprofits and partners across the sector can address continuing workforce issues.

Read more on the North Carolina nonprofit workforce shortage on the Center’s blog and stay tuned for the full report from the National Council of Nonprofits later this summer.

Let Us Know: Does Your Nonprofit Have Questions About New Workplace Training Law?

A new state law (S.364) that takes effect on December 1 will prohibit any “State employee training  program” from covering 13 specific topics related to race and gender equity. The prohibited topics are:

1. One race or sex is inherently superior to another race or sex.
2. An individual, solely by virtue of his or her race or sex, is inherently racist, sexist, or oppressive.
3. An individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex.
4. An individual's moral character is necessarily determined by his or her race or sex.
5. An individual, solely by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex.
6. Any individual, solely by virtue of his or her race or sex, should feel discomfort, guilt, anguish, or any other form of psychological distress.
7. A meritocracy is inherently racist or sexist.
8. The United States was created by members of a particular race or sex for the purpose of oppressing members of another race or sex.
9. The United States government should be violently overthrown.
10. Particular character traits, values, moral or ethical codes, privileges, or beliefs should be ascribed to a race or sex or to an individual because of the individual's race or sex.
11. The rule of law does not exist, but instead is a series of power relationships and struggles among racial or other groups.
12. All Americans are not created equal and are not endowed by their Creator with certain unalienable rights, including life, liberty, and the pursuit of happiness.
13. Governments should deny to any person within the government's jurisdiction the equal protection of the law.

The law does not prohibit nonprofits – including those with state grants and contracts – from offering workplace training for their own staff on any topics. However, depending on how the law is interpreted, it could limit some nonprofits’ ability to offer certain types of training on topics related to equity, diversity, and inclusion to state agencies or state employees. The Center is seeking guidance from state officials on exactly how this law would apply to training offered by nonprofits. Specifically, the Center is seeking guidance on:

1. What types of training offered by nonprofits would constitute a part of a “State employee training program” (e.g., whether a nonprofit training would be covered by the law if any state employee attended or whether a nonprofit would need to contract with a state agency to provide a training for all or a portion of the agency’s staff for the nonprofit training to be covered by the law); and
2. Whether any topics that are commonly covered in nonprofit equity, diversity and inclusion training would fall within the scope of the 13 prohibited topics.

Let us know if your nonprofit offers training to state agencies or state employees and/or if your nonprofit offers training on topics that could potentially fall within one or more of the 13 topics. Your input may be helpful in getting guidance that could minimize the impact of the new law on nonprofit training programs. The Center will not share your nonprofit’s name or other identifying information unless you would like us to do so. Thank you if you have already reached out with your input.

Take Action: Help People Connected to Your Nonprofit Maintain Medicaid Coverage

During the COVID-19 pandemic, Congress created a temporary exemption (known as continuous coverage) from annual Medicaid recertification rules that normally require Medicaid recipients to provide verification of their income, family size, and other information to ensure they remain qualified. The Medicaid continuous coverage provision ended on April 1, and the NC Department of Health and Human Services (DHHS) has begun the process of recertifying Medicaid beneficiaries in North Carolina. Medicaid recipients need to contact their local Division of Social Services (DSS) office to ensure that it has their current contact information. While the process isn’t difficult, many North Carolinians stand to lose their Medicaid coverage if they don’t contact their local DSS office.

DHHS originally projected that as many as 300,000 North Carolinians – many of whom receive services from nonprofits – could lose their Medicaid benefits if they don’t recertify. Many of these North Carolinians may have begun participation in Medicaid during the pandemic and may be unfamiliar with the recertification process. A new report from NC Health News this week indicates that the impact may be even worse than initially expected; in June alone, more than 35,000 North Carolinians lost their Medicaid coverage.

Your nonprofit can help make sure that the people you serve keep their Medicaid coverage by sharing information with them about the recertification process and the need to confirm their contact information with their local DSS office. Three nonprofits – The Charlotte Center for Legal Advocacy, Pisgah Legal Services, and Legal Aid of North Carolina – recently launched NCMedHelp.org to answer questions about NC Medicaid services, including eligibility determination. The website has direct links to each county’s DSS office and information about legal help and health coverage options for people who have lost their Medicaid coverage through this process.

Second Quarter Lobbying Reports Due by July 24

Nonprofits that are registered as lobbyist principals (and their staff or contractors who were registered as lobbyists) must file their second quarterly reports of 2023 with the Secretary of State Lobbying Compliance Division by July 24. All reports must be filed electronically. To help you understand the basics of state lobbying laws affecting nonprofits, check out the Center's summary of NC lobbying laws for nonprofits.

DOL Plans to Issue Proposal for New FLSA Overtime Threshold Next Month (For Real This Time!)

The U.S. Department of Labor (DOL) plans to release new proposed regulations on the salary threshold under the Fair Labor Standards Act (FLSA) next month. The draft regulations reportedly are at the Office of Management and Budget (OMB) for final review before publication. DOL had previously indicated that it planned to release the regulations in June 2022, October 2022, and May 2023, but it never got to the point of sending draft regulations to OMB.

Currently, FLSA requires employers, including nonprofits, to pay their employees at least $7.25 per hour and to pay employees one-and-one-half times their regular rate of pay when they work more than 40 hours in a workweek. Employees are exempt from the FLSA overtime pay requirement if they:

1. Are paid on a salary basis (meaning they are paid the same amount each week regardless of how many hours they actually work);
2. Are paid at least $684 per week ($35,568 per year); and
3. Exercise job duties that are classified as administrative, executive, or professional.

In 2016, near the end of the Obama administration, DOL attempted to raise the salary threshold for exemption from overtime pay to $47,476 per year. Ultimately, federal courts stopped the implementation of the Obama-era overtime rule, and the Trump administration elected to use a lower salary threshold (the current level of $35,568) for exemption from overtime pay. It is likely that the forthcoming DOL regulations will set a salary threshold closer to that of the 2016 proposal. DOL also could make changes to the duties tests for administrative, executive, and professional employees.

It is important for nonprofits to review their employees’ job descriptions regularly to see whether they meet the criteria for one of these three duties tests. Unfortunately for nonprofits, the DOL guidance on the three duties tests often focuses on typical for-profit positions and doesn’t provide analysis of nonprofit positions (e.g., the guidance isn’t clear on whether certain fundraising/development jobs or volunteer management positions meet one of the duties tests). The new regulations also could provide a chance for DOL to fix this issue and provide clearer guidance for nonprofits.

The Center will provide an analysis of the proposed regulations – and their potential impact on nonprofits – once DOL makes them public. Nonprofits and others will likely have 60 days to submit public comments once the proposed regulations are released. 

New FCC Rule Limits Robocalls Made by Nonprofits

A new Federal Communications Commission (FCC) rule on “robocalls” (i.e., calls using an artificial or pre-recorded voice) by nonprofits and other entities making non-commercial communications took effect yesterday. These rules limit nonprofits to making three robocalls to any landline phone in any 30-day period without getting prior consent from the recipient of the calls and giving them the ability to opt out of receiving future calls. Some nonprofits use robocalls for fundraising of volunteer management purposes. Venable LLP (a national law firm that represents many nonprofits) has a helpful analysis of the new regulations and how nonprofits can comply with them.

New U.S. Education Department Regulations Should Help More Nonprofit Workers Qualify for PSLF

More student loan borrowers, including workers at charitable nonprofits, will be able to apply for loan forgiveness under the Public Service Loan Forgiveness (PSLF) program as the result of U.S. Department of Education’s final regulations that went into effect on July 1. The rules will now allow more payments to count toward loan forgiveness (including some late and partial payments), ease administration for determining eligibility by permitting digital signatures from both employers and borrowers, allow for more types of loans to be consolidated or counted, and amend the definition of “full time” to mean 30 hours per week. See the PSLF Coalition’s FAQs for more information.

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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.