NC Senate Approves State Budget

Yesterday, the NC Senate passed its version of the state budget for FY2023-25 (H.B. 259). Like the proposed House budget, which was passed last month, the Senate budget would include $29.8 billion in total state spending in FY2023-24 and $30.9 billion in FY2024-25. Now that both chambers have passed their versions of the state budget, House and Senate leaders will negotiate on a final version to send to Governor Cooper. Legislators expect to have a state budget in place before the start of the new fiscal year on July 1, 2023. The Senate budget proposal includes a variety of appropriations and provisions that could affect nonprofits, including:

• A provision increasing the cap on the amount of state funds a nonprofit can use to pay any individual employee’s salary from $120,000 to $140,000. The Center asked for this change to help nonprofits by adjusting the state funding salary cap for inflation. The current $120,000 cap has been in place since 2015. The House also increased the nonprofit salary cap to $140,000 in its budget, so there is a very good chance this provision will be in the final version of the budget. 
• Directed grants for a wide variety of specific nonprofits across the state. The House budget includes many more directed grants to nonprofits than the Senate budget.
• Elimination of the NC Department of Health and Human Services (DHHS) competitive grant program for nonprofits. A few of the nonprofits that typically receive funding through the DHHS competitive grant program received direct appropriations in the Senate budget but most did not.
• Some investment in child care and early education programs, but much smaller increases in early childhood funding than many nonprofit advocates feel are adequate to meet child care and early education needs across the state.
• Significant increases in funding and eligibility for the Opportunity Scholarship program, which provides financial assistance to families with students in private (mostly nonprofit) K-12 schools. 
• Several provisions that could create significant financial and operational challenges for nonprofit hospitals, including repeal of most of the state’s certificate of needs law, requirements that urban hospitals agree to reduce costs to the state health plan or lose their licenses to operate, and provisions that make it easier for government-run hospitals to take over nonprofit hospitals. 
• $15 million per year ($30 million over the biennium) in one-time funding for free and charitable clinics.
• Increased 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. 
• $3 million in one-time funding for Boys and Girls Clubs.
• $1.4 billion (not a typo!) to NCInnovation to create an endowment. The one-time funding comes with a variety of operational, governance, and accountability requirements for the nonprofit.
• $1.5 million per year in increased funding for grassroots arts grants in 96 counties (every county except Buncombe, Durham, Mecklenburg, and Wake).
• $1 million over the next two years to create a new competitive grants program for nonprofits providing services to victims of human trafficking and $1.25 million in new funding over the next two years for domestic violence grants programs and sexual assault grants programs. 
• Increase in the annual fee for lobbyist principals (including many nonprofits that lobby) and lobbyists (including many nonprofit staff and contractors) from $250 per year to $500 per year. This fee increase could create financial challenges for small nonprofits that advocate with the state legislature or state agencies.
• Steep reductions to the individual income tax rate. In 2024, the rate would drop from 4.6% to 4.5%, and in 2025 the rate would drop from 4.5% to 3.99%. The rates would continually decrease to 2.49% starting in 2030. Overall, these tax cuts 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.

The Center has prepared an updated analysis of the nonprofit provisions and appropriations in the House and Senate budgets. Let us know of any appropriations or provisions of interest to nonprofits that we missed in our analysis; we’ll continue to update this comparison chart in the coming weeks. We also have 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.

Legislators Prepare to Take Up Non-Budget Bills

Now that the House and Senate have each passed their versions of the state budget, legislators will spend much of the next month finalizing other legislation to send to Governor Cooper for his consideration. Officially, most legislation needed to pass at least one chamber prior to the May 4 crossover deadline to be eligible to become a law in 2023 or 2024. Legislation affecting state spending, taxes, election laws, and redrawing congressional or state legislative districts aren’t subject to the crossover deadline. Last week, the General Assembly posted a list of the 406 bills that have passed one chamber prior to the crossover deadline and remain eligible for consideration this year or next year. Many of these bills are relevant for the operations and missions of some or all charitable nonprofits. The Center has prepared a short tutorial video to help your nonprofit understand potential next steps in the legislative process for: (1) bills that have passed one chamber; (2) legislation that isn’t subject to the crossover deadline; and (3) other policy proposals that legislators may still consider even if they aren’t included in legislation that has passed either chamber of the General Assembly this year.

Several Center-Recommended Nonprofit Bills Remain Eligible for Consideration This Year

Several Center-recommended bills remain eligible for consideration this legislative session. These include:

• House (H.B. 882) and Senate (S.397) bills that would exempt most 501(c)(3) nonprofits from paying sales tax on their purchases. Under existing law, nonprofits must pay sales tax when they buy goods and services in North Carolina, but they can apply for semi-annual refunds from the NC Department of Revenue. Thanks to your advocacy, 28% of House members have joined as sponsors or cosponsors of the House version, increasing the likelihood that legislators will give the proposal serious consideration this year. Currently, the Senate bill has been referred to the Senate Rules Committee, and the House bill has been referred to the House Finance and Rules committees. The Senate version also would exempt nonprofits from charging sales tax on most fundraising events; otherwise, the two bills are identical.
• A Senate bill (S.429) that would make three important reforms to the state charitable solicitation licensing statute: (1) Making automatic extensions of charitable solicitation filings identical to those for IRS Form 990; (2) exempting more small nonprofits from needing charitable solicitation licenses; and (3) counting charitable solicitation forms as timely filed if they are postmarked by the filing deadline. The Senate passed the bill unanimously last week, and the Center is working on getting it heard in the House this year.
• House (H.B. 741) and Senate (S.529) bills that 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. Currently, the Senate bill has been referred to the Senate Rules Committee, and the House bill has been referred to the House Judiciary 1, Finance, and Rules committees. The House bill also includes the provision of the Senate-approved charitable solicitation legislation; otherwise, the bills are identical.
• A Senate bill (S.449) that would create a new state income tax credit for charitable contributions by taxpayers who use the standard deduction. This tax credit would be a significant fundraising tool for nonprofits since it would create a tax incentive for more than 90% of North Carolinians – including most low-income and middle-income individuals and families – to donate to charitable nonprofits or to increase the amount of their charitable contributions. Currently, this bill has been referred to the Senate Rules Committee. 

The Center will let you know when there are opportunities to take action on these bills and other legislation that could help (or harm) charitable nonprofits.

Charitable Act Introduced in U.S. House of Representatives

On Wednesday, a bipartisan group of U.S. House members introduced the Charitable Act (H.R. 3435), which would create a non-itemizer, universal charitable deduction. The legislation would enable taxpayers who use the standard deduction (which includes more than 90% of North Carolinians) to deduct charitable donations of up to one-third of the standard deduction, about $4,600 for individuals and $9,200 for married couples. An identical bipartisan bill (S.566) was introduced in the U.S. Senate in March. 

In advance of the bill filing, the Center signed on to national letters of support for the Charitable Act from the National Council of Nonprofits and the Charitable Giving Coalition. The Center plans to meet with members of Congress from North Carolina next month to encourage them to become co-sponsors of the Charitable Act and other federal legislation that could help support the work of charitable nonprofits. We will keep you posted when there are opportunities for your nonprofit to take action to support the Charitable Act.

Nonprofit-Government Relations Bill Introduced in U.S. House of Representatives

The bipartisan ‘Nonprofit Stakeholders Engaging and Advancing Together (SEAT) Act of 2023 (H.R.3245) was introduced in the U.S. House of Representatives last week. The bill is designed to create dialogue between the nonprofit sector and the federal government while addressing numerous, longstanding challenges like federal grants reform. According to the bill sponsors, “The legislation will improve access to data about the nonprofit sector, and leverage the mission, knowledge, and impact of thousands of nonprofits to work together more effectively in pursuit of shared goals.”

Legislators Override Governor Cooper’s Veto of Abortion Legislation

Last Saturday, Governor Cooper vetoed a bill (S.20) that makes a variety of changes to the state’s abortion laws, including prohibiting most abortions after 12 weeks of pregnancy. On Tuesday, both the NC Senate and NC House of Representatives voted along party lines to override Governor Cooper’s veto. 

The new law, most of which will take effect on July 1, will directly affect nonprofit health care providers that provide abortion services. Apart from the abortion law changes, the bill includes several provisions of interest to many nonprofits, including:

• $3.5 million in funding for nonprofit community health centers to increase access to contraceptives.
• $75 million in new funding to increase access to child care by increasing child care subsidy rates starting on July 1, 2023. 
• More than $10 million per year in new funding to increase foster care and adoption assistance rates.
• A new state law providing eight weeks paid parental leave for state employees and public school teachers. While this provision doesn’t require nonprofits to provide equivalent parental leave for their employees, it may be a model policy for nonprofit organizations to consider.

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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.