This morning, the NC House of Representatives gave final approval to its version of the state budget for FY2023-25 (H.B. 259). The proposed House budget would include $29.8 billion in total state spending in FY2023-24 and $30.9 billion in FY 2024-25.  The House budget proposal includes a variety of appropriations and provisions that could affect nonprofits, including:

• A provision that would require state agencies to make prompt payments to nonprofits receiving direct grants (i.e., one-time appropriations) in the budget and to make advance payments rather than reimbursement payments to most of these organizations. While the Center has asked legislators to apply these prompt payment and advance payment provisions to all nonprofits with state grants and contracts, the House provision is a positive step forward in contracting reform.
• 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.
• Directed grants for a wide variety of specific nonprofits across the state.
• Some investment in childcare 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.
• Increased funding for scholarships to nonprofit private K-12 schools and nonprofit private colleges and universities.
• $5.5 million per year ($11 million over the biennium) in one-time funding for free and charitable clinics.
• $3.75 million in one-time funding for Boys and Girls Clubs.
• $1.8 million in one-time funding for hospice and palliative care nonprofits.
• $176 million per year in recurring funding to raise wages of some direct care workers, including many nonprofit employees.
• $14.7 million per year in recurring funding for federally-qualified health centers.
• $3.5 million per year in increased funding for grassroots arts grants.
• Reinstatement of the conservation tax credit that helps support the work of many land conservation nonprofits.
• Creation of a new refundable tax credit for families that adopt children.
• Changes to state sales tax laws applicable to (mostly nonprofit) continuing care retirement communities.
• Several changes to income tax and franchise tax laws, including a reduction of the individual income tax rate in 2025 from 4.6% to 4.5% and increases to the standard deduction and the child tax deduction and significant reductions in the franchise tax rate (which businesses pay but from which nonprofits are exempt). Overall, these tax law changes are projected to reduce state revenue by more than $500 million over the next two years.

The Center has prepared an initial analysis of the nonprofit provisions and appropriations in the House budget (much more comprehensive than the bullet points listed above), and inevitably we have missed some things in the 1,056 pages of budget documents. Let us know if you notice missing items of importance to nonprofits or other mistakes in this analysis, and we’ll fix them in the next version. The House has posted the bill text (416 pages) and money report (640 pages) for the budget on the General Assembly’s website. Nonprofits with interest in particular budget items may want to do word searches in both documents for the appropriations and/or provisions of interest to their organizations.

Now that the House has approved its budget, the Senate will begin working on its own version. The Senate plans to pass the budget in May, and then House and Senate leaders will negotiate on a final version to send to Governor Cooper. Legislators hope to have a state budget in place before the start of the new fiscal year on July 1, 2023.  

A bill (S.529) introduced in the NC Senate on Monday 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 state. These changes include:

• Creating a simple, online, no-fee annual report for North Carolina nonprofits. This change would help protect the reputation of our state’s nonprofits by helping prevent fraud and abuse of defunct nonprofits. Almost all other states currently have annual reporting requirements for nonprofits.
• Allowing nonprofits to merge with unincorporated nonprofit associations or limited liability companies (LLCs) that are treated as 501(c)(3) charitable organizations for federal tax purposes. As more nonprofits are looking to collaborate with other organizations or consolidate their operations, this revision would help ensure that they have the option of merging with other charitable organizations, regardless of their corporate form.
• Simplifying the process for nonprofits incorporated in other states to become North Carolina nonprofit corporations. This type of “domestication” provision could allow nonprofits to relocate to North Carolina without having to re-apply for tax-exempt status with the Internal Revenue Service.
• Creating a process for other business entities to convert to become nonprofit corporations.
• Requiring nonprofits incorporated in North Carolina in the future – other than private foundations – to have at least three board members. This would make the North Carolina law consistent with nonprofit best practices and with most other state nonprofit statutes.

The Center is also working with bill sponsors to add a provision to the bill that would remove a requirement that nonprofits that are ending their operations must have the NC Attorney General approve of their distribution of assets. This change could help nonprofits ensure that any remaining assets go to programs consistent with their missions and their donors’ intent – rather than to attorney’s fees – when they are going out of business.

The Center has advocated for this bill to be filed based on input from many nonprofits and from attorneys who work with nonprofit organizations. The Center appreciates Senators Tim Moffitt (R-Henderson), Mike Woodard (D-Durham), and Ted Alexander (R-Cleveland) for filing this bill.

On Tuesday, the NC House of Representatives 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. 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.

Two House members – Representative Pricey Harrison (D-Guilford) and Representative Marcia Morey (D-Durham) – spoke against the bill on Tuesday and noted that it would set a dangerous precedent of allowing legislators to impose burdensome information requirements on any 501(c)(3) nonprofit, even organizations that receive no state funding. The Center opposes the bill because of the concern that it sets a precedent of state government interfering with the operations of a private 501(c)(3) 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. Since litigation and settlements involve both the nonprofit and a state agency, the simpler means to obtain the information is to require the state agency, not the nonprofit, to report on the status of lawsuits or threats of lawsuits. The bill moved quickly through two committees earlier in the day on Tuesday before being added to the House calendar and approved on Tuesday afternoon. The bill now moves to the Senate for consideration.

A major national survey and report in late 2021 identified the scope of the problems related to nonprofit workforce shortages. That report identified both public policy and practical solutions that have helped organizations hire and retain the staff they need to advance their missions. The results of that survey – particularly the responses from North Carolina nonprofits – have been particularly useful in helping the Center and our state and national partners advocate more effectively for state and federal policy solutions that help build nonprofits’ staff capacity.

This week, the National Council of Nonprofits opened an updated survey to find out the current state of the nonprofit workforce shortage. We invite you to complete the updated survey and help the nonprofit sector tell its story. Thank you if you have already completed the survey!

This winter and spring, the Center has hosted a series of Nonprofit Policy Conversations around the state to bring together nonprofit leaders and state legislators to discuss public policy issues that are important to charitable nonprofits and the people and communities they serve. At each Conversation, the Center provides a briefing on 2023 state legislative priorities, nonprofit sector trends, and potential public policy solutions and challenges for nonprofits in 2023 and beyond. The Conversations also include discussions about state and federal public policy issues affecting local nonprofits.

The Center had originally scheduled one of these policy conversations in Kannapolis in February for nonprofits and legislators from Cabarrus and Rowan counties. We had to cancel that event, but we have rescheduled it for Friday, April 21 from 1-3 p.m.  Registration is now open!  While we request a registration fee in support of these events, please let us know if this is a barrier as we can assist if asked.

A bill (H.B. 346) that is pending in the NC House of Representatives would allow the state’s two hospital service corporations – BlueCross BlueShield of North Carolina and the Delta Dental Plans Association – to create “nonprofit holding corporations” to restructure some of their assets. Under existing law, hospital service corporations are regulated by the NC Department of Insurance, and these entities need state approval for many types of transactions. This legislation would enable hospital service corporations to move some or all of their operations to other nonprofits that are not regulated by the NC Department of Insurance, potentially cutting red tape that can undercut their ability to make investments or engage in certain transactions.

In 1998, the Center worked with a large coalition of nonprofits to help ensure that if a nonprofit health insurer were to convert to a for-profit that the full fair market value of the nonprofit would remain in the nonprofit sector by being transferred to a charitable foundation. The Center is working with a variety of stakeholders to ensure that the bill preserves this important provision in state law. The House could consider the bill later this month.

Two bills filed this week in the NC Senate could provide legal protections for some nonprofits with state grants and contracts:

1. One bill (S. 571) would limit liability of nonprofits that are sued while providing a variety of health-related services through contracts with the NC Department of Health and Human Services.
2. A second bill (S.564) would create a new cause of action for individuals and entities that are harmed because a state agency knowingly fails to comply with its obligations. Successful claimants would be eligible for damages between $5,500 and $11,000. If this law were to be enacted, nonprofits that experience significant payment delays in their state grants and contracts may be able to take action against state agencies to receive damages. 

A donor disclosure bill (S.505) introduced in the NC Senate on Tuesday would: (1) prohibit nonprofits from disclosing “the identity of any person donating monies or other tangible goods to the nonprofit corporation” if a donor notifies the nonprofit that they would like their identity kept confidential; and (2) prohibit state officials from providing Schedule B of nonprofits’ Forms 990 or 990-EZ (the attachment that includes donor information) in public records requests. The bill is identical to 2021 donor privacy legislation (S.636) that was ultimately vetoed by Governor Roy Cooper, who explained that “this legislation is unnecessary.”

The Center didn’t take a position on the final version of that bill because it neither addresses an issue that nonprofits have identified nor creates any problems for the nonprofit sector. The newly-filed bill incorporates language recommended by the Center in 2021 that fixes a problematic provision in the original version of the 2021 legislation. That provision could have new fundraising burdens – and potentially legal liability – for many 501(c)(3) nonprofits. At this time, the Center does not anticipate either supporting or opposing the new donor disclosure legislation in its current form.

Yesterday, the NC House Judiciary 2 Committee approved a bill (H.B. 374) that would increase the maximum value of real estate that nonprofits can raffle each year from $500,000 to $2 million. Nonprofits occasionally receive houses or other real estate as bequests or donations. For some nonprofits, the best way to make use of this donated property is to raffle it as a high-value fundraiser to support the organization’s programs and services. With increased property values in recent years, the current $500,000 threshold may be well below the value of property that nonprofits receive and may want to raffle. The committee also amended the bill to require that any real estate raffled by a nonprofit was free of liens or encumbrances – essentially ensuring that a nonprofit isn’t raffling property that will come with significant and unexpected costs for supporters of the organization. The Center supports the bill since it would create a new (or at least improved) fundraising opportunity for some nonprofits. The bill would still need approval from the House Rules committee before being consider by the full House.

A separate Senate bill (S.666) would increase the maximum value of real estate that any nonprofit can raffle from $500,000 to $750,000. The Senate bill would allow nonprofits to offer up to three raffles of real property each year. 

Yesterday, leadership in the NC Senate introduced a bill (S.651) that would cut the state individual income rate over the next five years. With tax cuts that were included in the 2021 state budget, the current individual income tax rate is 4.75% this year and is scheduled to gradually decrease to 3.99% after 2026. Under the Senate tax plans, income tax rates would be further cut to 4.5% this year, 3.99% in 2024, 3.49% in 2025, 2.99% in 2026, and 2.49% in years after 2026. The Center is concerned that these steeper cuts to the individual income tax rates could lead to future revenue shortfalls that could result in cuts to state funding for nonprofits. These tax cuts are likely to be included in the Senate’s version of the state budget next month.

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 several legislative proposals being considered this year to expand state investment in affordable, accessible, high quality child care and early education programs.

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.

As noted in the first item in today’s Nonprofit Policy Update, the House budget includes less investment in child care and early education programs than nonprofit advocates believe is necessary. A bill (S.493) filed in the NC Senate on Tuesday would make significant ongoing investments in early education programs, but it is unlikely to be considered this session since it has only Democrats as sponsors.

With legislators considering so much nonprofit sector legislation, and with many nonprofits supporting or opposing other bills that have been introduced and/or are moving through committees that may affect their missions, many nonprofits may be wondering how they can keep track of fast-moving legislation. The Center recognizes that most nonprofits don’t have dedicated staff who come to Raleigh every day when the General Assembly is in session to track legislation and lobby on issues important to their organizations. Fortunately, the General Assembly’s website offers many helpful tools to help nonprofits track bills – and interact with legislators – from their homes or offices (or really anywhere else where Internet access is available). To help you take advantage of these free resources, the Center has put together a brief (18-minute) tutorial video with tips on how your nonprofit can track what’s happening at the General Assembly in real time.

On Tuesday, the NC House Committee on Election Law and Campaign Finance Reform approved a bill (H.B. 304) that 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. The bill would still need approval from the House Rules committee before being consider by the full House.

Two separate bills filed in the Senate could make election law changes that could make it easier to vote:

• One bill (S.471) would create an automatic voter registration process at driver’s license offices, public agencies, and higher education institutions to help young people and new North Carolina citizens more easily register to vote.
• Another bill (S.484) would make Election Day a state holiday, which could make it easier for more North Carolinians to have time to vote or to volunteer as nonpartisan elections officials.

Both of the new Senate bills have only Democrats as sponsors and are unlikely to be considered this year.

Yesterday, the NC House Judiciary 2 Committee approved a bill (H.B. 167) that 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. The bill would still need approval from the House Rules committee before being consider by the full House.

A bill (S.642) filed in the NC Senate yesterday would amend the North Carolina Constitution to create an independent redistricting commission that would draw congressional and state legislative districts every 10 years. Currently, state legislators have the sole authority to draw these maps. The Center supports independent redistricting legislation because it would strengthen nonprofits’ voices on public policy advocacy. 

A bill (S.481) filed in the NC Senate would create a new $250 million grant program to provide relief to small businesses that suffered economic harm during the COVID-19 pandemic. The language of the bill would not make nonprofits eligible for these grants. The bill is unlikely to be considered this year, since it has only Democrats as sponsors. However, the Center will continue to work with legislators to ensure that nonprofits are included in any small business relief that may be considered as part of the state budget or other legislation this year. 

Five bills filed in the NC General Assembly this week would make significant changes to state employment laws affecting nonprofits and employers and service providers:

1. Two Senate bills (S.545 and S.689) would create a short-term unemployment insurance program – also known as a work-sharing program – in North Carolina. This type of program would allow employers to avoid layoffs by reducing working hours for employees during challenging economic times and enabling those workers to receive partial unemployment benefits from the state to offset a portion of their reduced wages. Currently, 27 other states have similar programs in place.
2. A Senate bill (S.721) filed this afternoon would codify the state’s worker classification law. Currently, nonprofits and other employers rely primarily on North Carolina case law to determine whether their workers are properly classified as employees or independent contractors for the purpose of state labor laws. From the Center’s initial review of the bill, it appears to enable employers to classify more workers as independent contractors than current North Carolina case law and than federal worker classification regulations.
3. Identical Senate (S.555) and House (H.B. 569) bills would make a variety of employment law changes, including raising the state minimum wage from $7.25 per hour to $15 per hour, enabling local governments to set higher minimum wages than the federal or state rate, increasing the child care subsidy rate, requiring employers to offer paid family and medical leave, and establishing a state grant program to help employers cover the costs of paid family and medical leave. Both the Senate and House versions of the bill have only Democratic sponsors and are unlikely to be considered this session.

A bill (S.636) filed in the NC Senate yesterday would make changes to the governance and operations requirements on the NC High School Athletic Association, the 501(c)(3) nonprofit that administers interscholastic high school athletic activities in North Carolina. The bill would require the nonprofit to sign a memorandum of understanding with the state that would limit the organization’s contracting, and fundraising ability and would make the organization subject to state open meeting laws and public records laws. The Center opposes government policies that limit nonprofits’ governance as independent, nongovernmental corporations with control over their own organizational policies and practices, and we expressed concerns that the bill would have created a precedent of the state limiting the ability of a nonprofit organization to operate as an independent organization. 

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