Legislators Unlikely to Pass State Budget Before Start of New Fiscal Year

The state’s new fiscal year begins next Saturday (July 1), but legislative leaders are still negotiating details of the final version of the state budget for FY2023-25 (H.B. 259). Legislators are unlikely to have a final budget in place until July or later. Unlike with the federal government, there is no risk of a state government shutdown if a budget isn’t in place by July 1. 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 and Governor Roy Cooper have two reasons to try to come to agreement on a new state budget soon:

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 Shows Steep Drop in Charitable Giving in 2022

The annual Giving USA report, which was released this week, found that charitable giving from individuals, businesses and foundations dropped by 10.4% relative to inflation last year, and that individual giving declined by 13.4%. The National Council of Nonprofits has posted an analysis of the report, noting that the decline in giving is just one of several challenges currently facing the nonprofit sector. From a public policy perspective, the report highlights the critical importance of Congress passing the Charitable Act (S. 566/H.R. 3435), which would create a universal charitable deduction that would help offset the reductions in individual philanthropy by encouraging people to give more generously to nonprofits. Specifically, the Charitable Act would create an above-the-line tax deduction for non-itemizers who make charitable contributions. The deduction would be capped at one-third of the standard deduction (about $4,600 for individuals and $9,200 for couples).

NC Senate Committee Approves Changes to DHHS-Nonprofit Contracting Reform Legislation

Yesterday, the NC Senate gave initial approval to a bill (H.B. 190) that would make several changes to the nonprofit contracting reform law (H.B. 791) that the General Assembly passed last summer. The 2022 law made four reforms to NC Department of Health and Human Services (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 the 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 bill approved by the committee this week, which was recommended by DHHS, 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 (meaning that DHHS could, at least in theory, choose not to use the de minimis rate for some nonprofits);
2. Excluding nonprofits with administrative expense limitations in other federal or state laws or regulations from the de minimis 10% indirect cost rate provision (e.g., nonprofits that are required by state budget provisions to have overall administrative costs of 8% or 9% would not automatically get 10% indirect cost rates on their state grants); 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, DHHS, and other state officials to ensure that any changes don’t weaken the existing law.

The Senate amended the bill yesterday to include some changes to the state’s new abortion laws. The Senate passed the bill in a party-line vote. The Senate will take a final vote on the bill on Monday. Because the Senate made changes to the House-approved bill, the House also will need to vote on the bill again before it goes to Governor Cooper for his consideration.

Center Accepting Applicants for President & CEO Role

With Jeanne Tedrow’s recent retirement announcement, the Center is accepting applications for the position of President & CEO through July 14. Take a minute to read the position profile and share with colleagues who may be interested – or apply for the position yourself.

NC House Rules Committee Expected to Vote on Legislation to Modernize Nonprofit Laws

Next week, the House Rules Committee is expected to take up a bill (H.B. 741) that would make important changes to two state laws affecting nonprofits. Specifically, the bill would reform the state charitable solicitation licensing statute and 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. The Center has recommended this legislation based on input from nonprofits and from attorneys and accountants who represent nonprofit organizations. 

Once the Rules Committee approves the bill, it can go to the full House for consideration. The Center is working with legislators from both chambers to try to get these nonprofit reforms passed into law this summer.

Today Is Deadline to Submit Comments on Voter ID Rules

In April, the NC Supreme Court issued a decision reinstating a 2018 law that requires North Carolinians to show photo identification when voting in elections. Many nonprofit organizations have expressed concerns that the voter ID law could make voting more difficult for many people served by nonprofits, particularly seniors, people with disabilities, and low-income citizens. Voter ID requirements will go into effect for this fall’s municipal elections. 

Earlier this month, the NC State Board of Elections published proposals for two temporary rules to implement the photo ID requirements for in-person and absentee-by-mail voters in North Carolina, beginning with the 2023 municipal elections. Both proposed rules are open for public comment through today (Friday, June 23). Nonprofits who serve people who may be affected by the new photo ID requirements may want to consider submitting comments on the proposed rules. NCSBE has posted the text of the rules and information for how to submit comments. If you need help getting started, the National Council of Nonprofits has useful tips on submitting public comments to proposed rules.

Center Speaks Out Against Legislative Reporting Mandates on Nonprofits without State Appropriations

On Wednesday, the NC Senate Health Committee approved a bill (H.B. 361) that would require Disability Rights North Carolina, a 501(c)(3) that does not receive state appropriations, to provide the General Assembly with significant reports about its programs, activities, and advocacy work. The stated reasoning behind the mandate is that the activities of the nonprofit directly impact the state budget, presumably through its litigation against and settlements with various state agencies. Some nonprofits that provide services to people with disabilities support the bill as a way to make public more information about litigation related to their clients and services. If the bill becomes law, Disability Rights NC would have to provide the General Assembly with reports about its past 10 years of activities by December 1, 2023 and would then need to submit reports to the General Assembly twice every year. This unfunded mandate could create significant financial and personnel costs for the private nonprofit. 

The Center recognizes that other nonprofits may have interest in obtaining the information that would be made public through the reports mandated by the bill, and we are supportive of identifying other means of obtaining appropriate information without burdening a non-state entity. The Center spoke in committee on Wednesday to express its concern that the bill sets a precedent of allowing legislators to impose burdensome information requirements on any 501(c)(3) nonprofit, even organizations that receive no state funding. Although the committee approved the bill, several committee members echoed the Center’s concerns about the precedent the bill could create for other nonprofits without state appropriations and noted this precedent could have a chilling effect on advocacy nonprofits. The committee chairs expressed a willingness to consider alternative ways of working with Disability Rights NC and other entities to make public more information about the organization’s litigation and advocacy.

Governor Vetoes Bill That Could Limit Nonprofits’ Ability to Provide Some Types of Training to Government Agencies

Last Friday, Governor Cooper vetoed a bill (S.364) that would prohibit state agencies from offering workplace trainings covering 13 specific topics related to race and gender equity (see page 2 of the bill text for a listing of the 13 topics). This would mean that nonprofits that offer trainings to state employees would no longer be able to include content on topics related to equity, diversity, and inclusion in these trainings. The bill would allow contractors (including nonprofits) providing trainings for state agencies to answer questions about these topics as long as they are clear that the state agency does not endorse these concepts.

In his veto message, Governor Cooper explained: “In North Carolina, the diversity of our people is a strength. This legislation attempts to eliminate training that can help us understand the unconscious bias we all bring to our work and our communities... Instead of pretending that bias and racism don’t exist, the legislature should instead encourage training that can help eliminate discrimination so we can work toward common goals.”

In a party-line vote on Tuesday, the Senate voted to override Governor Cooper’s veto. The House will vote on the veto override next Wednesday. If at least 60% of the House members present vote to override the veto, the bill will become law and take effect on December 1, 2023.

NC Senate Approves Election Law Changes

On Wednesday, the NC Senate approved a bill (S.747) that would make a variety of changes to state election laws. Several of these changes could affect nonprofits and the people they serve, including:

1. A provision that would prohibit nonprofits from providing funding to the State Board of Elections or to county election boards. In the past, legislators have expressed concern that some organizations – including nonpartisan 501(c)(3) nonprofits – could provide funding to local elections boards to bolster support in communities with strong partisan leanings. The bill provides that nonprofits can make in-kind donations of facilities to be used as voting sites, but cannot make other in-kind donations (e.g., use of the nonprofit’s staff, resources, or facilities) for other purposes.
2. A provision that would eliminate the three-day grace period after Election Day for receipt of absentee ballots. This change would mean that absentee ballots would need to be received by the county board of elections by 7:30 p.m. on Election Day.
3. A requirement that voters who use same-day registration during Early Voting must submit a provisional ballot if the documents they use to verify their identity when they register to vote have different addresses. This change could lead to more challenges of ballots from people who registered or updated their registration during Early Voting. Many nonprofits encourage their staff, volunteers, and clients to vote early.

The committee approved a separate bill (S.749) that would change the appointment and structure of the NC State Board of Elections (NCSBE) and county election boards. Currently, the five-member board is appointed by the Governor, with three members of the Governor’s political party and two members of the other major political party. The bill would create an eight-member board – with four members from each major political party – that would be appointed by legislative leaders. Currently, local boards of elections have five members, with four (two from each major political party) appointed by NCSBE and one chosen by the Governor. The bill would instead create four-member election boards (two from each major political party) that would be appointed by legislative leaders.

Both bills passed in party-line votes, and both now go to the House for consideration.

NC House Committee Considers Constitutional Limit on State Spending

On Tuesday, the NC House Judiciary 1 Committee held a hearing to discuss the Taxpayer Protection Act (H.B. 146), a bill that 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).

If enacted, the constitutional limit on spending growth could 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.” While the mechanics of the formula that would be used in the Taxpayer Protection Act are a bit different from TABOR in Colorado, the Center is concerned that a constitutional limit on state spending could have similar negative consequences for North Carolina nonprofits.

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). Right now, the House does not have plans to vote on the bill, but legislators could hold a special session later this year to consider this proposal and other possible amendments to the state constitution.

New Law Imposes Steeper Penalties to Help Prevent Future Power Disruptions

On Monday, Governor Cooper signed into law a bill (S.58) that creates new criminal penalties for anyone who knowingly and willfully damages or destroys energy facilities and other utility infrastructure in the state. The law was developed in response to an incident last fall 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.

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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.