A bill (H.B. 190) filed in the NC House of Representatives this week at the request of the NC Department of Health and Human Services (DHHS) would make several changes to the DHHS-nonprofit contracting reform law (H.B. 791) that the General Assembly passed last summer. The 2022 law made four reforms to 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 nonprofits’ 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 newly-filed bill 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;
2. Excluding nonprofits with administrative expense limitations in other federal or state laws or regulations from the de minimis 10% indirect cost rate provision; 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. 

Over the past year (and the past decade), the Center has heard from MANY nonprofits about challenges they are experiencing with government grants and contracts. We are working with state agencies and state legislators to try to identify ways to strengthen the contractual partnerships between state government and nonprofits. With the 2023 legislative session underway and many nonprofits in the middle of their FY 2022-23 contracts with the state, the Center is seeking input to help identify policy solutions that could strengthen nonprofit-government contracting. If your nonprofit has state grants or contracts, please take a few minutes to complete a brief survey on the challenges your nonprofit is experiencing, your positive experiences with state agencies, and potential policy solutions. If it’s easier, you can share your input with us by email. Thank you if you have recently shared your input with us!

The Taxpayer Protection Act (H.B. 146) was introduced in the NC House of Representatives this week. The bill would place a constitutional amendment on the November 2024 ballot to limit the growth of state spending to a formula based on population growth and inflation. State legislators could only exceed this formula by a two-thirds vote of both the NC House of Representatives and the NC Senate (which would be unlikely to happen in most circumstances).

The Center opposes this proposed constitutional amendment because it could cause lasting harm to North Carolina’s nonprofit sector. If enacted, the constitutional limit on spending growth would diminish the ability of state government to pay for services provided by nonprofits, particularly in challenging economic times when demand for nonprofits’ services is higher than normal. Colorado is the only state that has fully implemented a similar constitutional limit on state spending growth (known there as the Taxpayer Bill of Rights or TABOR). According to the Colorado Nonprofit Association: “TABOR has undermined the ability of Colorado nonprofits to meet current demands for services and respond to future changes in economic conditions, population growth, and the costs of delivering public services.”

To become law, the constitutional amendment would need to pass both the House and Senate by 60% super-majority votes. If legislators approve it, a majority of voters would need to vote in favor of it on the November 2024 ballot. Unlike most bills, the Governor cannot veto constitutional amendments (and does not need to sign them into law). The Center will let you know when there are opportunities to take action to oppose this proposed constitutional amendment.

On Tuesday, the NC Senate Judiciary Committee approved a bill (S.52) that would make the NC High School Athletic Association (NCHSAA), a nonprofit that administers interscholastic high school athletic activities in North Carolina, subject to state open meeting laws like a government agency. During the committee meeting, one Senator suggested that the legislation should be expanded to “include another 100 different kinds of organizations.” One of the bill sponsors said he agreed with that idea but the NCHSAA legislation would likely not be the vehicle for making other nonprofits subject to open meeting laws.

Generally, nonprofits are not subject to state open meeting or public records laws, even if they contract with the state to provide programs and services. The Center opposes government policies that limit nonprofits’ governance as independent, nongovernmental corporations with control over their own organizational policies and practices. The Center has long taken the position that nonprofits should be independent, nongovernmental organizations with control over their own organizational policies and practices and that nonprofits should not be treated as quasi-governmental entities that are subject to open meeting and public records laws. While we are aware that a few other nonprofits are currently subject to open meeting and public records laws, we are concerned that legislation imposing these requirements on additional nonprofits can set a precedent of the state limiting the ability of a nonprofit organization to operate as an independent organization.

AmeriCorps, in collaboration with the U.S. Census Bureau, released its annual Volunteering and Civic Life in America report that shows volunteerism trends at the beginning of the COVID-19 pandemic. The research finds that formal volunteering through organizations dropped from 30% of the public in 2019 to 23.2% in 2021. The report found that 22.8% of North Carolinians volunteered with nonprofits in 2021, contributing a total of 139.5 million hours of service. This means that North Carolina volunteers provided service equivalent of about 67,000 full-time employees in 2021. For perspective, North Carolina volunteers contributed the equivalent of 100,000 full-time workers prior to the COVID-19 pandemic. For organizations that rely on volunteers, the challenge to create and expand formal volunteer opportunities was clearly exacerbated by the pandemic. Nonprofits may want to check out this recent blog post on ways to strengthen their volunteer programs so they can successfully recruit and retain their volunteers.

In a national survey on the nonprofit workforce shortage from late 2021, nonprofits identified lack of access to affordable, high-quality child care as the second biggest factor for nonprofits being unable to fully fill staff vacancies. Because child care is a sector-wide issue, the Center has included investment in accessible and affordable child care as part of our 2023 legislative agenda. One opportunity for nonprofits to advocate for increased state investment in child care is by participating in the Child Care for NC – United for Change advocacy day at the General Assembly on April 20. The Center will keep you posted on additional opportunities for your nonprofit to advocate on child care issues.

On Wednesday, the U.S. Supreme Court issued an opinion finding that a worker with annual compensation of more than $200,000 was eligible for overtime pay under the Fair Labor Standards Act (FLSA) because he wasn’t paid on a salary basis. 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 meet all three of these criteria:

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.

A separate FLSA exemption applies to highly-compensated employees whose jobs include some administrative, executive, or professional duties if their total annual compensation is $107,432 or more, and at least $684 per week of their compensation is paid on a salary basis.

In the case decided this week, the worker was paid a fixed amount per day. The Supreme Court found that the salary-basis requirement is only met for workers who are paid a fixed amount for a period of a week or longer. For nonprofits, this ruling means that it is important to ensure that employees who are treated as exempt workers and don’t receive overtime pay are paid weekly, biweekly, or monthly salaries rather than being compensated a fixed amount per day of work. 

The U.S. Department of Labor is expected to issue updated regulations on FLSA exemptions this May. Those regulations will raise the threshold for minimum weekly pay and could also make changes to the duties tests.

A bill (H.B. 167) filed in the NC House of Representatives on Tuesday would prohibit local law enforcement agencies from accepting Community Action ID cards as a form of identification. Nonprofits have partnered with local law enforcement agencies in various parts of the state to make Community Action ID cards available to the people they serve – particularly immigrants who may not be eligible for other forms of government-issued IDs like driver’s licenses. The IDs can also be used to access social services and healthcare.

Yesterday, the NC House State Government Committee approved a bill (H.B. 11) that would create independent boards for three state schools for individuals with disabilities. One provision in the bill would enable the schools to create independent nonprofits to raise private funds to support their operations. Unfortunately, the bill requires that these nonprofits “shall not engage in partisan political activity or policy advocacy.” While the prohibition on partisan political activity makes sense and is the same limitation that is in place for any 501(c)(3), the limitation on “policy advocacy” may be problematic for nonprofits established to support these schools. Because “policy advocacy” is a very broad term, this limitation could prevent nonprofits formed by these schools from engaging in many forms of legal and legitimate policy advocacy such as educating the public about policy issues and advocating with local governments on matters affecting their organizations’ operations or the people they serve.

Governor Roy Cooper vetoed a similar bill (S.593) that was introduced and quickly passed near the end of last year’s legislative session. At the time, the Center explained to legislators and the Governor’s staff that the bill could set a troublesome precedent by limiting the ability of a few 501(c)(3) nonprofits to engage in policy advocacy. The Center will continue to work with legislators to educate them that 501(c)(3) nonprofits can – and often should – legally engage in policy advocacy and to ensure that future legislation doesn’t set unreasonable limits on some nonprofits’ advocacy.

The language in the bill tracks a similar (and similarly problematic) provision in state law that prohibits nonprofits formed by local school systems from engaging in “partisan political activity” or “policy advocacy.” The Center is trying to learn whether any nonprofits have been created under the existing law and, if so, how the law has limited those organizations’ advocacy efforts. Let us know if your nonprofit was created to support a local school system or if you know of any nonprofits in your area that were created by school systems.

Legislation filed in the NC Senate (S.142) and NC House of Representatives (H.B. 165) this week would end the phase-out of the state corporate income tax. Currently, businesses pay a 2.5% tax on their net income each year. Under a 2021 law, the rate is set to decrease to 2.25% in 2025, 2% in 2026 and 2027, 1% in 2028, with the corporate income tax going away altogether beginning in 2029. Nonprofits pay the state corporate income tax on their unrelated business income. 

The phase-out of the corporate income tax will likely reduce overall state revenue later in this decade and beyond. This could create more pressure on lawmakers to cut investment in state grants and contracts with nonprofits and to explore new taxes on nonprofits to make up for the foregone revenue from corporate income tax.

It is unlikely that the legislature will give serious consideration to the bills that were introduced this week.

On Tuesday, the NC Senate State and Local Government Committee approved a bill (S.83) that would limit the use of the TikTok and WeChat apps on state-owned devices. The bill was triggered by security concerns surrounding the Chinese-owned apps. During the committee meeting, the bill was amended from the original version, which also would have prohibited the use of TikTok and WeChat during participation in state-funded programs, which could have potentially applied to many nonprofit employees, volunteers, and clients.

The Center provides Nonprofit Policy Update as a weekly benefit to its nonprofit members. However, to help all North Carolina nonprofits respond to continuing challenges from the COVID-19 pandemic, we're temporarily providing this newsletter to non-member nonprofits. Become a member to continue receiving these updates along with many other valuable benefits.