Leaders of the NC Senate and NC House of Representatives announced on Wednesday that they have agreed on spending levels for the state budget for FY2023-25. The budget for FY2023-24 will include a 6.5% spending increase over the current budget for total spending of $29.7 billion, and the FY2024-25 budget will grow by another 3.75% for total spending of $30.8 billion. In recent years, legislators have invested some of the state’s increased spending in the work of nonprofits, both through increases in state grants and contracts to nonprofits that provide public services and through direct earmarked appropriations to individual nonprofits.

The agreement on spending levels is an important first step in the development of the state budget. Governor Roy Cooper will release his budget recommendations later this month, and then legislators will work on the details of how to spend the nearly $30 billion in the state budget. The House is planning to vote on its version of the budget the first week of April, and the Senate will likely pass its version of the budget in May. Legislators hope to send a final version of the state budget to Governor Cooper in June before the start of the new fiscal year on July 1, 2023.

This week, three NC Senate committees approved Medicaid expansion legislation (H.B. 76). The bill, which passed the House with bipartisan support last month, would provide health coverage for about 600,000 North Carolinians in the health coverage gap who have incomes too high to qualify for Medicaid but too low to receive health care subsidies under the Affordable Care Act marketplace. Medicaid expansion has been a major policy priority for the Center and hundreds of other nonprofits for more than a decade. 

The Medicaid expansion bill will enable North Carolina to participate in the Healthcare Access and Stabilization Program (HASP), a federal program that will help provide better financial stability for many nonprofit hospitals. The bill also will develop a program to improve access to workforce development services for North Carolinians enrolled in the state’s Medicaid programs. It also makes some changes to the state’s Certificate of Need (CON) laws that limit the ability of health care providers to offer a variety of health-related services. Hospitals and health systems – many of which are 501(c)(3) nonprofits – have been concerned that major changes to CON laws could significantly reduce their revenue, potentially causing some hospitals to close. The Senate version of the bill would not fully repeal CON laws, but would remove some psychiatric beds, chemical dependency treatment beds, and replacement equipment from CON review throughout the state and would eventually exempt ambulatory surgery centers and MRI machines from CON review in counties with populations of more than 125,000 people.  

The full Senate is expected to vote on the bill next week. Because the Senate has made changes to the House-approved version of the bill, the House would need to vote on it again before it goes to Governor Cooper for his signature. Once the bill is signed into law, Medicaid expansion would begin in North Carolina after a state budget for FY 2023-24 is in place.

As we explained in a Care4Carolina blog post last summer, the Center strongly supports Medicaid expansion because it would support the work of charitable nonprofits by:

1. Complementing the work of many nonprofits that provide services to North Carolinians who don’t currently have adequate health coverage;
2. Providing health coverage for some employees of nonprofits that don’t offer group health plans and whose salaries leave them in the health care coverage gap; and 
3. Providing payment for some types of Medicaid-eligible services that nonprofits currently provide to clients for free.

Thank you to the many nonprofit leaders who have advocated for Medicaid expansion over the years.

Yesterday, the NC Senate unanimously approved a bill (S.174) that would enable nonprofits to offer up to six tax-exempt annual sales events per year. Under existing law, nonprofits are exempt from collecting and remitting sales tax on a fundraising sales event (e.g., Girl Scout cookie sales) that it held on an annual basis where all sales take place within a 60-day period. The new legislation, which is part of a larger bill making changes to various state tax laws, would permit nonprofits to offer up to six of these tax-exempt sales events per year as long as:

1. The events don’t overlap with one another;
2. The nonprofit sells different products during each sales event; and 
3. Each event funds a distinct project from the other annual sales periods occurring during the year. 

The Center supports this change, which would expand tax-exempt fundraising opportunities for nonprofits.

Two other provisions in the tax legislation could affect some nonprofits:

1. One provision would enable any representative of a nonprofit to request a quarterly refund of motor fuel tax paid by the nonprofit. Under current law, only the nonprofit’s chief executive officer may make this request on behalf of the organization.
2. Another provision would clarify that marketplace facilitators like Amazon.com or eBay.com don’t need to remit sales tax to the state if sellers on their platforms have already remitted sales tax on the same transactions. This proposed change is a good reminder to nonprofits that sell products through third party websites that the marketplace facilitators, not the nonprofits themselves, are now responsible for collecting and remitting sales tax.

The bill now moves to the NC House of Representatives for consideration.

Six bipartisan bills filed in the NC General Assembly yesterday would increase access to affordable, high quality child care in North Carolina:

1. A Senate bill (S.288) and House bill (H.B. 343) would improve the child care subsidy rate structure in North Carolina by increasing the child care subsidy rates to those in the 2021 market rate study, automatically increase rates in the future when new market rate studies are released, and setting a statewide child care subsidy floor. Currently, child care subsidy rates – which set the amount of state child care support that families receive based on factors like income and family size – are set based on the 2018 market rate study. The bill would appropriate nearly $100 million over the next two years to make these improvements to the child care subsidy rate structure. Improving the child care subsidy rate structure would help nonprofit child care providers cover the cost of care and would help keep child care costs lower for working families, including nonprofit workers. 
2. A Senate bill (S.292) and House bill (H.B. 342) would appropriate $300 million to extend child care stabilization grants through 2025. This temporary funding was designed to provide emergency funding to help keep early childhood providers operating during the COVID-19 pandemic. Federal funding for early childhood stabilization grants is set to end soon, and the lack of additional federal or state funding could exacerbate the existing workforce shortage among early childhood providers.  
3. A Senate bill (S.293) and House bill (H.B. 322) would establish a three-year Tri-Share Child Care pilot program as a public-private partnership between the NC Department of Health and Human Services and the nonprofit NC Partnership for Children. The pilot program would seek to improve access to affordable, high quality child care for working families – including nonprofit workers – by splitting the costs of child care equally between employers, employees, and the state.

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. The Center supports all of the child care bills that were filed yesterday.

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. Registration is now open for this advocacy day, and the NC Early Education Coalition has developed an advocacy toolkit on child care issues at the NC General Assembly.

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!

This year, state lawmakers could revisit legislation intended to protect donor privacy after Governor Roy Cooper vetoed a donor privacy bill (S.636) in 2021. Legislators are asking the Center what, if any, donor privacy legislation nonprofits would like to see this year. In some states, legislation branded as “donor privacy” protections have been used to limit the ability of state officials to regulate potential inappropriate activities by nonprofits, including 501(c)(4) social welfare organizations that make partisan political contributions. Under existing federal law, donor information in Schedule B of the Form 990 is already shielded from the public. Let us know if your nonprofit is concerned about donor privacy, and whether your organization is interested in, or would be opposed to, donor privacy legislation in North Carolina. 

Note: As part of the Center’s 2023 public policy agenda, the Center supports policies that ensure that personal information about individual donors to 501(c)(3) nonprofits remains protected from public disclosure while also ensuring that state agencies that regulate 501(c)(3) nonprofits and other tax-exempt organizations have access to information they need to protect the public and the integrity of the nonprofit sector by providing oversight of nonprofits.

This week, the NC Senate 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. Most of the Senate discussion of the bill did not center around the application of the state open meeting laws to a nonprofit but rather focused on an unrelated provision that would change the appeal process for high school athletics eligibility determinations. The House could take up the bill next week.

The Center is opposed to the bill because of concerns that applying the state open meeting laws to NCHSAA could set a precedent of the state limiting the ability of nonprofits to operate as independent organizations. 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.

North Carolinians will need to set their clocks forward an hour tomorrow night to adjust for the beginning of Daylight Savings Time at 2 a.m. on Sunday. A bill (H.B. 326) filed yesterday in the NC House of Representatives would eliminate the need to “spring forward” every March (and to “fall back” each November) by adopting Daylight Savings Time year-round in North Carolina if Congress authorizes the state to do so. You may be asking: Why does this proposed legislation matter for nonprofits? The answer is that it may increase charitable giving. A recent research report found that charitable contributions are 10% lower than normal during the first week of Daylight Savings Time in March but that there is no corresponding increase in giving during the first week of Standard Time in November.

On Tuesday, the NC Senate Judiciary Committee approved a bill (S.58) that would create new criminal penalties for anyone who knowingly and willfully damages or destroys energy facilities and other utility infrastructure in the state. The legislation was filed in response to an incident two months ago that left most of Moore County without power for several days. That incident created hardships for nonprofits that had to provide increased services to the community while the organizations themselves were without power. The bill now goes to the Senate Rules Committee for consideration.

Several bills affecting election laws were introduced in the NC General Assembly this week:

1. A House bill (H.B. 304) would move the deadline for receipt of absentee ballots to 7:30 p.m. on Election Day. Under current law, absentee ballots are counted if they are postmarked by Election Day and received within three days after Election Day. Over the past several years, many nonprofits have encouraged their staff, volunteers, and clients to consider using mail-in absentee ballots. With an earlier deadline for receipt of absentee ballots, nonprofits would likely need to change their messaging to encourage people to mail in their absentee ballots early to ensure that their votes are counted.
2. A House bill (H.B. 303) would shorten the Early Voting period from 17 days to eight days. Many nonprofits encourage their staff, volunteers, and clients to use Early Voting since: (a) it is the only time North Carolinians can register and vote at the same time; (b) it offers more options of voting times for people with busy schedules on Election Day; and (c) people can vote at any Early Voting site in their county during the Early Voting period, whereas they must vote at their assigned precinct on Election Day.
3. Bills in the House (H.B. 293) and Senate (S.226) would increase funding for election administration, add legal protections against voter intimidation, make voter registration easier by establishing online voter registration, and create an independent redistricting process for North Carolina. Neither bill is likely to be considered since both bills have only Democratic sponsors.

Yesterday, the White House released President Joe Biden’s proposal for the federal budget for FY2024 (starting on October 1, 2023). Overall, President Biden is asking Congress for a 7% (or $688 billion) increase in non-defense spending and a 3% (or $886 billion) increase in funding for military and national security programs. The White House also released a summary of some highlights in President Biden’s proposal. The President’s proposal includes several important provisions for nonprofits including:

1. Deficit Reduction: The budget proposal would cut the deficit by $3 trillion over the next decade, largely through tax increases.
2. Child Tax Credit: The President calls for a full restoration of the child tax credit that was temporarily in place in 2021 as part of the American Rescue Plan Act. That extended and expanded child tax credit was the main reason that child poverty dropped to record-low levels last year.
3. Child Care: The President is calling for increasing funding for child care and universal pre-k.
4. Paid Leave: The Budget proposes to establish a national, comprehensive paid family and medical leave program, providing up to 12 weeks of leave.
5. Medicare: The President seeks to boost Medicare’s solvency for the next 25 years by raising taxes on taxpayers making over $400,000 annually, among other tax changes. The President also proposes expanding prescription-drug negotiation authority to save $200 billion over 10 years.
6. Philanthropy Provisions: The President once again is seeking tax law changes that would limit the ability of private foundations to make distributions to donor-advised funds disqualify and to count payments to family members and other insiders as part of their payout requirements. Some foundations have concerns about these proposals, but they could potentially lead to a slight increase in overall foundation grants to charitable nonprofits.

While Congress is very unlikely to pass the President’s budget proposal – or even most parts of it – the details will shape the spending, tax, and other policy debates for the remainder of the year.

With the federal budget process now officially underway, members of Congress will soon submit their recommendations for “congressionally directed spending” or earmarks for appropriations within their states (for Senators) or districts (for House members). Many of these earmarks go to support the work of nonprofits. Many members of Congress from North Carolina have set up pages on their official websites where nonprofits and local governments can request earmarks. Most North Carolina members of Congress have set deadlines next week (ranging from next Wednesday through next Friday) for requesting earmarks. If your nonprofit is interested in seeking a federal earmark, it is best to reach out to our U.S. Senators and/or your U.S. House members as soon as possible. Note that federal earmarks are only made if Congress passes a full budget for the upcoming fiscal year rather than funding the federal government through a continuing resolution. The prospects for agreement on a full budget are lower this year with a Republican-controlled U.S. House of Representatives and a Democratic-controlled U.S. Senate.

Thousands of North Carolina nonprofit employees had their student debt forgiven in 2022 through the Public Service Loan Forgiveness (PSLF) program. If you received PSLF loan forgiveness last year and are in the process of filing your income tax forms for 2022, don’t forget that you do not need to pay federal or state taxes on the amount of your loan forgiveness under PSLF. The Center prepared an analysis last fall explaining why PSLF is not taxable for state income tax purposes. The NC Department of Revenue recently confirmed this analysis in the footnote of a tax notice on state taxability of loan forgiveness (see footnote 8).

Separately, legislation was filed yesterday in both the NC Senate (S.295) and NC House of Representatives (H.B. 345) to exclude other forms of student loan forgiveness, including certain income-based loan forgiveness programs and President Biden’s proposed $10,000 debt cancellation program (which is currently being challenged in federal court), from state taxes.

Two bills introduced in the NC House of Representatives this week would make changes to state laws affecting nonprofits but neither should have any impact on 501(c)(3) organizations. One bill (H.B. 311) would give the NC Attorney General greater authority to regulate “community associations.” While some charitable nonprofits may self-identify as “community associations,” this legislation would only apply to nonprofit homeowners associations, which are not 501(c)(3) organizations. A second bill (H.B. 346) would create a new type of entity known as a “nonprofit holding corporation” that could be used when health insurance companies are restructuring or reorganizing. Because neither bill appears to have any impact on 501(c)(3) organizations, the Center does not plan to take a position on either of them.

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.