State Legislators Help Nonprofits by Approving Modernization of NC’s Charitable Solicitation Law

On Tuesday, the NC House of Representatives unanimously approved a bill (S.429) that would make three important reforms to the state charitable solicitation licensing statute: 

• Make automatic extensions of charitable solicitation filings identical to those for IRS Form 990. The IRS currently allows nonprofits to receive an automatic six-month extension of their filing deadline for 990s. The North Carolina charitable solicitation statute only allows for a three-month automatic extension, and further extensions may be made at the discretion of the NC Secretary of State. Practically, this creates situations where some nonprofits are unable to file their charitable solicitation paperwork in a timely manner if their Forms 990 have not yet been completed. This change will take effect as soon as the bill is signed into law.
• Exempt more small nonprofits from needing charitable solicitation licenses. Currently, nonprofits are exempt from having charitable solicitation licenses if they receive less than $25,000 in contributions per year (which generally includes foundation grants but not government grants and contracts) and do not pay compensation to fundraisers. The $25,000 threshold was established when the Internal Revenue Service (IRS) had a threshold of $25,000 in annual expenses for filing Form 990 (the annual information return for tax-exempt entities). Because the IRS threshold is now $50,000 (and organizations below that threshold now need to file the simple, online Form 990-N), some small nonprofits need to have charitable solicitation licenses – and spend significant time completing paperwork and preparing financial statements – even though they are exempt from basic filing requirements from the IRS. This change will take effect on October 1, 2023.
• Count charitable solicitation forms as timely filed if they are postmarked by the filing deadline. This change could help prevent nonprofits from being identified as out of compliance if there are mail delays. This change will also take effect on October 1, 2023.

The Center has advocated for this bill to be filed based on input from many nonprofits and from attorneys and accountants who work with nonprofit organizations. The Senate approved the bill unanimously in May, so it now goes to Governor Roy Cooper for his consideration. The Center has been in touch with Governor Cooper’s staff to explain why the bill would benefit nonprofits. We expect Governor Cooper to sign it into law soon.

The Center is appreciative of the many nonprofits, attorneys, and accountants who provided input on the substance of the bill over the past five years and of the bill’s legislative champions, especially Rep. Brandon Lofton (D-Mecklenburg), Senator Tim Moffitt (R-Henderson), Senator Mike Woodard (D-Durham), and Representative Harry Warren (R-Rowan). Their combined efforts will help make the charitable solicitation licensing process a smoother experience for North Carolina nonprofits.

Center Submits Comments to U.S. House Committee on Nonprofits’ Election-Related Activities

Yesterday, the Center submitted a written response to the U.S. House of Representatives Ways and Means Committee’s recent “request for information” about election-related activities of 501(c)(3) charitable nonprofits and 501(c)(4) social welfare organizations. Federal tax law prohibits 501(c)(3) nonprofits from engaging in partisan election-related activities like endorsing or opposing candidates for public office or making financial contributions to political campaigns. However, longstanding guidance from the Internal Revenue Service makes clear that 501(c)(3) organizations can participate in nonpartisan voter registration, voter education, and get-out-the-vote work.

In addition to responding to the Committee’s 10 questions, the Center response highlights that:

1. Charitable nonprofits support the provision in Section 501(c)(3) of the Internal Revenue Code that protects the public’s trust in nonprofits by requiring charitable organizations to operate in a nonpartisan manner.
2. The rules on permissible nonpartisan election-related activities for 501(c)(3) are already quite clear. Nonprofits have access to plenty of information about these rules, both in the form of formal guidance from the IRS (e.g., IRS Revenue Ruling 2007-41) and in the form of free, user-friendly materials from the Center and other partners (e.g., the Center’s answers to common questions about nonprofits and elections and many great resources from Nonprofit VOTE).
3. It is important for Congress to continue to allow 501(c)(3) nonprofits to engage in nonpartisan voter education activities. We explained that: “Charitable nonprofits engage in nonpartisan voter education not because it is profitable (it isn’t) or because they want to influence partisan election outcomes (they don’t), but rather because they see this type of nonpartisan civic engagement as a necessary public service to their clients and their community, and therefore something that is complementary to their charitable missions.”

The Center also shared its responses with Congressman Greg Murphy (R-NC), who serves on the House Ways and Means Committee.

Legislators Expected to Vote on State Budget Next Week

More than two months into the state’s new fiscal year, legislators have yet to approve a state budget for FY2023-25 (H.B. 259). Leaders of the NC Senate and NC House of Representatives are finalizing their negotiations on a variety of differences between the versions of the budget passed by each chamber in the spring. Legislative leaders said this week that they are nearly done with these negotiations and expect the House and Senate to vote on a final version of the budget next week.

Unlike with the federal government, the failure to pass a state budget on time does not cause parts of state government to shut down. 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, the continued delay in the state budget creates challenges for nonprofits, including:

1. Preventing many nonprofits from knowing whether they will have state appropriations in the current fiscal year and/or knowing how much state funding they will receive. 
2. Delaying the start dates of many state grants and contracts with nonprofits.
3. Exacerbating the workforce shortage in state government by freezing state employee wages at last year’s levels and delaying other policy changes intended to help state agencies fill vacant positions. The high vacancy rates in state government are one of the most significant factors in several of the challenges that nonprofits are experiencing with their state grants and contracts.
4. Delaying the start of Medicaid expansion.

To help your nonprofit better understand the differences between the two competing versions of the state budget, the Center has posted an analysis of the nonprofit provisions and appropriations in the House and Senate budgets. We plan to provide an updated comparison document next week highlighting nonprofit provisions and appropriations in the final version of the budget.

Federal Government Shutdown Looming Next Month

The new federal fiscal year begins on October 1. That means that over the next three weeks, Congress needs to either:

1. Pass 12 appropriations bills to fund the federal government through September 30, 2024; or
2. Pass a stopgap spending bill known as a “continuing resolution” to provide temporary funding for the federal government and give the U.S. Senate, U.S. House of Representatives, and the White House more time to negotiate full details of an appropriation plan.

If Congress is unable to take either of these actions, large parts of the federal government will shut down beginning on October 1. Government shutdowns can harm nonprofits and the communities they serve by causing delays in nonprofits’ payments from federal agencies and creating disruption in the delivery of federal benefits.

While Congress and the White House agreed to spending levels in June as part of the Fiscal Responsibility Act, both chambers appear to be ignoring that agreement, with the Senate proposing significantly more spending, and the House asking for greater spending cuts. Negotiations are more challenging than usual this year because a small group of House members are poised to block any spending plan or continuing resolution that does not include severe spending cuts and controversial policy provisions that are unlikely to meet the Senate’s approval.

The Center will let you know if there are opportunities this month for your nonprofit to take action to urge Congress to prevent a federal government shutdown. 

DOL Proposal for New FLSA Overtime Threshold Will Likely Affect Many NC Nonprofits

Last week, the U.S. Department of Labor (DOL released new proposed regulations on the salary threshold under the Fair Labor Standards Act (FLSA). The proposed regulations would increase the salary threshold for overtime pay by nearly 55% over the current level. The Center anticipates that this change would affect thousands of North Carolina nonprofits.

Currently, 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:

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.

The proposed new rule would raise the salary threshold for exempt employees from $684 per week ($35,568 per year) to $1,059 per week ($55,068 per year). If the rule were to take effect, this would mean that nonprofits with exempt employees with salaries between $35,568 per year and $55,068 per year would need to either increase these workers’ salaries or pay them one-and-on-half times their regular rate of pay when they work more than 40 hours in a workweek.

The proposed regulations make no changes to the duties tests for administrative, executive, and professional employees. However, in addition to raising the salary threshold to $55,068 per year, the proposed regulations would create a process to automatically increase this threshold every three years. This would effectively force nonprofits to regularly increase compensation of their exempt employees to keep up with the higher salary threshold.

Practically, the proposed overtime rule would have two major implications for nonprofits:

1. Many nonprofits would have increased labor costs and/or would need to cut back on the hours that many staff work. This change could cause significant financial challenges for nonprofits and could exacerbate the nonprofit workforce shortage crisis.
2. Many people who receive services from nonprofits and would be subject to being reclassified as non-exempt would be paid more and/or would work fewer hours than they currently do. This change could help complement the work of many nonprofits.

The Center has posted its preliminary analysis of the proposed regulations and their potential impact on nonprofits. The analysis includes practical solutions for how nonprofits can adapt to a higher salary threshold while still complying with federal law. The Center is still analyzing salary data on North Carolina nonprofits to gain a better sense of how many organizations in our state will be affected. We plan to include that data in the public comments that we will submit to DOL this fall on the proposed rule.

Nonprofits and others have until November 7 to submit public comments on the proposed rule. After DOL receives and reviews these comments, it could make some changes to the proposed regulations before issuing final regulations. The new salary threshold will likely take effect sometime in 2024.

Medicaid Expansion Likely to Begin in North Carolina on December 1

Last week, the NC Department of Health and Human Services (DHHS) announced that it will have to delay the start of Medicaid expansion in North Carolina. DHHS had worked out a plan with the federal government to begin Medicaid expansion on October 1, as long as it had authority to do so by the end of August. This spring, legislators and Governor Roy Cooper agreed on a law (H.B. 76) giving DHHS authority to begin Medicaid expansion once a state budget for FY2023-24 is in place. While DHHS has not announced a new starting date for Medicaid expansion, it appears likely to begin on December 1 if a state budget is approved next week.

Medicaid expansion will 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. DHHS Secretary Kody Kinsley explained this week: "The delay tragically results in hundreds of thousands of people not being able to access care when they may need it most. Nearly half of the people eligible for expansion would be automatically enrolled in full coverage on day one. Each month of delay costs the state hundreds of millions of dollars flowing into communities across North Carolina to support care and treatment for people and help keep providers’ doors open."

Medicaid expansion has been a major policy priority for the Center and hundreds of other nonprofits for more than a decade. 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. 

Take Action: Help People Connected to Your Nonprofit Maintain Medicaid Coverage

During the COVID-19 pandemic, Congress created a temporary exemption (known as continuous coverage) from annual Medicaid recertification rules that normally require Medicaid recipients to provide verification of their income, family size, and other information to ensure they remain qualified. The Medicaid continuous coverage provision ended on April 1, and the NC Department of Health and Human Services (DHHS) began the process of recertifying Medicaid beneficiaries in North Carolina in June. Medicaid recipients need to contact their local Division of Social Services (DSS) office to ensure that it has their current contact information. While the process isn’t difficult, many North Carolinians stand to lose their Medicaid coverage if they don’t contact their local DSS office. Recent data suggests that a significant number of North Carolinians are losing their Medicaid coverage for “procedural reasons.” Your nonprofit may be able to help others in your community maintain their coverage by providing clear information to the people you serve.

DHHS originally projected that as many as 300,000 North Carolinians – many of whom receive services from nonprofits – could lose their Medicaid benefits if they don’t recertify. Many of these North Carolinians may have begun participation in Medicaid during the pandemic and may be unfamiliar with the recertification process. According to data from DHHS, in June and July alone, more than 68,000 North Carolinians lost their Medicaid coverage, including about 60,000 people who lost coverage for “procedural reasons.” Based on these trends, it’s possible that far more than 300,000 North Carolinians will ultimately lose coverage through this review, the vast majority for preventable “procedural” reasons. Some of the people losing their Medicaid coverage may qualify again once Medicaid expansion begins in North Carolina, but they will still have a gap in coverage for at least the next few months.

Your nonprofit can help make sure that the people you serve keep their Medicaid coverage by sharing information with them about the recertification process and the need to confirm their contact information with their local DSS office. Three nonprofits – The Charlotte Center for Legal Advocacy, Pisgah Legal Services, and Legal Aid of North Carolina – recently launched NCMedHelp.org to answer questions about NC Medicaid services, including eligibility determination. The website has direct links to each county’s DSS office and information about legal help and health coverage options for people who have lost their Medicaid coverage through this process.

Nonprofits Are Important Messengers about Obtaining Free IDs for Voting This Fall

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. That means that many North Carolinians who don’t have a current photo ID will need to obtain one in the coming weeks to be able to vote in this fall’s municipal elections.

Nonprofit organizations have historically been among the most effective messengers for educating the people they serve about what steps to follow in order to vote because nonprofits are trusted by the people they serve. Nonprofits often serve people who don’t have photo IDs, so it is important for nonprofit organizations to share resources for getting free photo IDs with the people they serve. The NC State Board of Elections (NCSBE) recently explained that voters without photo IDs have two options for obtaining free photo IDs:

1. The NC Department of Motor Vehicles (DMV) offers free photo IDs that can be used for voting. Carolina Demography recently posted information about the 116 DMV offices in the state and the number of voters living in the vicinity of each of these sites.
2. Voters also can obtain free photo IDs from their county board of election. NCSBE explained this week that voters will simply need to provide their name, date of birth, and the last four digits of their Social Security number, and have their photo taken to get these IDs.

For more information, check out NCSBE’s 10 facts about photo IDs for voting. The Center will continue to share information about how your nonprofit can help people in your community understand voting rules as we get closer to this fall’s municipal elections. 

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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.