Several New State Bills Could Affect Nonprofits

Yesterday was the deadline for state legislators to file bills (except local bills affecting only one county or a few counties) that can be considered during the 2024 short session. This week, lawmakers filed 269 new bills (141 in the House and 128 in the Senate). Several of these bills would provide appropriations for specific nonprofit organizations and could potentially be included in the state budget for FY2024-25. Some other newly filed bills that could affect nonprofits include:

• A bill (S.785) that would require state agencies to submit “zero-based budget” plans every eight years. “Zero-based budget” plans would require state agencies to plan for the most cost effective way of meeting their goals, starting from scratch rather than using the previous year’s budget as a starting point. Under a “zero-based budget” approach, state agencies could recommend ending some longstanding contractual partnerships with nonprofits but also could recommend contracting with nonprofit service providers for programs and services that traditionally have been provided by the state agencies themselves. Under the bill, agencies would rotate in when they had to submit these plans, with several divisions within the NC Department of Health and Human Services (DHHS) submitting their plans this year and other agencies submitting their first plans in 2026, 2028, and 2030.
• A bill (H.B. 789) that would authorize the NC Department of Insurance to establish and operate a state-run health benefit exchange. In 2013, as the federal government was implementing the Affordable Care Act, the NC General Assembly passed a law (S.4 from 2013) that prohibited North Carolina from forming its own health benefit exchange under the ACA. As a result, North Carolina individuals, nonprofits, and businesses have had to use the federal ACA marketplace to search for, and enroll in, ACA subsidized health insurance plans. In 2013, some health policy analysts suggested that a state-run health benefit exchange could provide better and clearer information to individuals and employers, helping nonprofits, businesses, and individuals find better quality and more affordable options for health insurance. It is unclear whether these potential benefits would still exist today if North Carolina established a state-run health benefits exchange. 
• Three bills to address the child care crisis in North Carolina. These include: (a) a bill (S.825) to make significant increases in state funding for NC Pre-K and Smart Starts, to increase reimbursement rates for child care providers, and to create a state tax credit for early education professionals; (b) a bill (S.822) to provide financial assistance to child care providers; and (c) bills (S.829 and H.B. 1055) to reduce families’ copayments for child care services. These bills could help to ease the “child care cliff” that is expected when temporary expanded federal funding for child care ends on July 1. Without significant additional state funding this year, the current shortage of affordable, accessible, high-quality child care – which affects nonprofits as both employers and service providers – could get much worse.
• A bill (H.B. 977) requiring DHHS to study and report on nonprofit crisis pregnancy centers operating in North Carolina.  
• A bill (H.B. 958) that would make a variety of changes to state employment laws, including: (a) ending at-will employment (meaning nonprofits would only be able to terminate employees for “just cause”); (b) requiring employers (including nonprofits) to provide paid 15-minute work breaks and paid 60-minute meal breaks to employees who work for periods of six consecutive hours or longer; and (c) enabling local governments to require employers operating in their jurisdictions to pay a minimum wage higher than the current federal (and state) level of $7.25 per hour. It is very unlikely that legislators will take up this bill, but if this legislation were to be enacted, these labor law changes would have significant ramifications for nonprofits as employers.

The Center will keep you posted with any developments on these bills or other legislation affecting nonprofits during the short session.

Reminder: New DOL Overtime Rule Raises Salary Threshold to $58,656 in 2025

Last week, the U.S. Labor Department (DOL) announced its final rule on the salary threshold for overtime pay under the Fair Labor Standards Act (FLSA) that specifies that most employees earning less than $58,656 per year will soon be entitled to overtime compensation, regardless of whether they are currently classified as executive, administrative, or professional (white-collar) workers. 

Under FLSA, employers, including nonprofits, must pay employees one-and-one-half times their regular rate of pay for all time worked in excess of 40 hours in any work week. However, workers are exempt from this overtime pay requirement if they:

1. Are paid at least the minimum salary level under DOL regulations (currently set at $684 per week or $35,568 per year);
2. Are paid on a salary basis; and
3. Exercise job duties that are classified as exempt under FLSA (which means administrative, executive, or professional job duties for most nonprofit positions).

The new rule raises the salary threshold in a two-step process over the next eight months:

1. The salary threshold goes up from the current level of $35,568 per year to $43,888 per year ($844 per week) on July 1, 2024. This is essentially adjusting the salary threshold from the 2019 rule for inflation since it maintains the current methodology of setting the threshold at the 20th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).
2. The salary threshold then goes up to $58,656 per year ($1,128 per week) on January 1, 2025, which is the 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South).

Under the new rule, the salary threshold will be automatically adjusted for inflation every three years, beginning on July 1, 2027 to reset it at the then-current 35th percentile of weekly earnings of full-time non-hourly workers in the lowest-wage Census Region (currently the South), which is the same methodology used to set the salary threshold on January 1, 2025.

DOL estimates that the final rule will result in about 4.34 million currently exempt employees becoming non-exempt. Of these workers, DOL estimates that more than 460,000 work in the nonprofit sector. DOL also estimates that nonprofits are more likely than for-profit businesses to feel the impact of the overtime rule, with about 18.9% of nonprofit employees being reclassified as non-exempt (as opposed to 13.6% of for-profit employees). Since nonprofit wages in North Carolina are below the national average, it is likely a higher percentage of nonprofit employees in North Carolina will be reclassified as non-exempt. 

It is likely that business groups will challenge the final rule in federal court in the coming months. The outcome of this potential litigation is uncertain, so it is important for your nonprofit to start preparing now so you can make the necessary operational changes to adapt to the increased salary thresholds on July 1 and January 1. To help your nonprofit get ready for the higher salary thresholds, the Center has prepared an analysis of the final overtime rule and its likely impact on North Carolina nonprofits, concluding with 15 compliance options and eight next steps for nonprofits to take now to be ready to adapt to the significantly higher salary threshold in eight months.

Want to Learn More? Join a Free Webinar on the Overtime Rule

While we hope that the Center’s comprehensive analysis of the final overtime rule will help your nonprofit prepare for the higher salary thresholds on July 1 and January 1, we recognized that many nonprofits may have more questions about the rule. To provide more information and help answer your questions, the Center is offering a free webinar on the overtime rule on Friday, May 10 from 10:00-11:30 a.m. Register now.

Note: If you have already registered for the webinar, don’t panic if you haven’t yet received a confirmation email! We’ll be sending an email later today or Monday with webinar details and login information.

State Legislators Approve Budget Technical Corrections without Addressing High Lobbying Fees

This week, both the NC House of Representatives and NC Senate approved a bill (S.508) to make a variety of technical and clarifying changes to the state budget for FY2023-25. Among other things, the bill correctly identifies several nonprofits that receive directed grants but were listed incorrectly in the original state budget. Unfortunately, the budget technical corrections bill does make any changes to the increased lobbying fees that were included in the budget.

A provision in last year’s state budget increased the annual fee for lobbyist principals (including many nonprofits that lobby) and lobbyists (including many nonprofit staff and contractors) from $250 per year to $500 per year. This means that any nonprofit that registers to lobby with the state must pay a fee of at least $1,000 – and more if the organization has multiple registered lobbyists. North Carolina’s new lobbyist principal fee is, by far, the highest of any state in the country, and the lobbyist registration fee is also among the highest in the country. The fee increases have created financial challenges for some small and mid-sized nonprofits that advocate with the state legislature or state agencies and have discouraged some nonprofits from lobbying or registering their staff as lobbyists. The Center opposed this provision in the budget, and we worked with the NC Professional Lobbyist Association (NCPLA) and others to advocate for financial relief for 501(c)(3)s that lobby. The House delayed the fee increases until January 1, 2025 in the original version of the budget technical corrections bill that it passed in October 2023. Unfortunately, this change was not in the final version of the bill this week. The Center will continue to advocate for lower lobbying fees for charitable nonprofits. 

The House passed the budget technical corrections bill by a 110-6 margin on Wednesday, and the Senate passed it by a 39-2 margin yesterday. It now goes to Governor Roy Cooper for his consideration.

NC Senate Approves Legislation to Fund Opportunity Scholarship Waiting List

Yesterday, the NC Senate approved a bill (H.B. 823) that would provide a total of $463.5 million in funding for the Opportunity Scholarship program, which provides vouchers that families can use to cover tuition to (mostly nonprofit) private schools. Nearly 72,000 families applied for the significantly expanded voucher program for the 2024-25 school year, and more than 55,000 are currently on the waiting list for the 2024-25 school year. The bill that the Senate approved yesterday would include $248 million in funding to provide Opportunity Scholarships for all of the families currently on the waiting list for the upcoming school year, along with a $215.5 million increase in funding for future years to help fully fund applicants for vouchers. 

The bill passed the Senate in a party-line 28-15 vote. It now moves to the House, which is expected to vote on it next week. Governor Cooper has strongly hinted that he will veto the bill, but legislators are likely to have the votes to override a veto. If the bill becomes law, legislators will invest $248 million of the projected $1.4 billion in excess revenue for the current biennium on expansion of the Opportunity Scholarship program, leaving more than $1.1 billion for legislators to make additional investments, tax cuts, or deposits into savings reserve funds as they adjust the FY2024-25 state budget in the coming weeks.

Free Webinar on Improvements to Federal Rules for Nonprofit Grants

Last month, the federal Office of Management and Budget (OMB) released its major rewrite of the Uniform Guidance, the set of common rules governing most federal grantmaking to charitable nonprofits. The reforms correct longstanding challenges in the government grants process that have limited nonprofit effectiveness, discouraged qualified organizations from seeking and performing under federal grants, and wasted billions of dollars and countless hours in needlessly complex application and reporting requirements. Of particular note, the revised Guidance raises the de minimis indirect cost rate that governments using federal funds must pay to every grantee to 15% (up from 10%), removes multiple barriers to accessing federal grant funding, mandates streamlining and simplifying of Notices of Funding Opportunities (requests for proposals), and raises the Single Audit threshold to $1 million (from $750,000). The changes go into effect on October 1, 2024. The National Council of Nonprofits has a helpful new resource highlighting the key provisions affecting charitable nonprofits working with governments at all levels.

To help your nonprofit better understand the new rules, the National Council of Nonprofits is also hosting a free webinar, OMB Uniform Guidance: What the Updates Mean for Nonprofits, on Thursday, May 30 from 3:30-4:30 p.m. Register now.

U.S. House Members Ask Treasury Department to Listen to Public Feedback on Proposed DAF Rules

Two weeks ago, a bipartisan group of 33 members of the U.S. House Ways and Means Committee sent a letter to the U.S. Treasury Secretary expressing concerns about the Treasury Department’s proposed regulations on the definitions and rules related to donor advised funds. The proposed regulations would establish definitions of donor advised funds, donors, and donor-advisors. They also would provide clarity on exemptions from the definition of a DAF and on taxable distributions from DAFs. The proposals could impact the way that nonprofits administer their DAFs, and the broad definitions could mean that some other types of nonprofit arrangements – including fiscal sponsorships, giving circles, certain scholarships, and other types of restricted funds – could be treated as DAFs and be subject to more stringent rules. In their recent letter, the members of Congress asked the Treasury Department to “adequately respond to the concerns raised by the respondents to Treasury’s request for comments before issuing final regulations.”

In February, the Center submitted public comments on the proposed regulations. The Center’s public comments reference the excellent public comments that the National Council of Nonprofits submitted. Ultimately, the Center is concerned that some provisions in the proposed regulations could have the unintended consequence of reducing contributions from DAFs to support the work of charitable nonprofits. Among other things, the Center recommends:

1. Exempting fiscal sponsorship arrangements from DAF requirements;
2. Providing clearer guidance on whether other funding arrangements like giving circles would be treated as DAFs;
3. Removing language from the regulations that could discourage DAFs from supporting legal (and important) advocacy work of charitable nonprofits, like lobbying and nonpartisan voter registration and voter education work;
4. Providing greater flexibility in allowing DAF sponsors to provide investment advice to DAF donors; and
5. Listening to the input of DAF sponsors (including community foundations and other entities), DAF donors, fiscally-sponsored programs, and giving circles in deciding the effective date of final regulations

U.S. Department of Labor Rescinds 2018 Association Health Plan Rule 

On Monday, the U.S. Department of Labor (DOL) issued a regulation rescinding a 2018 rule that sought to make it easier for groups of nonprofits or businesses to form association health plans (AHPs). Association health plans are a way for groups of similar employers (such as charitable nonprofits) to pool together to negotiate more affordable and/or higher quality health insurance than small nonprofits or small businesses could get on their own. The 2018 rule would have enabled more groups of employers to form AHPs and would have enabled these plans to offer lesser benefits than would be required for plans under the Affordable Care Act (potentially leading to up-front cost-savings for employers). A federal court temporarily stopped the implementation of the rule in 2019, so DOL has indicated that the new regulation should not affect any existing AHPs.

Over the past decade, the Center has heard from many organizations asking about the possibility of creating an association health plan for North Carolina nonprofits. While this is not currently feasible (due to a combination of state law and healthcare market reasons), the Center continues to explore the possibility for the future. To help your nonprofit better understand the pros and cons of association health plans, we are sharing our analysis of AHPs and nonprofits. While our analysis was written in 2019, most of the information (including the “operational benefits” and “mission-related concerns”) remains true today.

More Than 400,000 North Carolinians Have Health Coverage Through Medicaid Expansion

According to the most recent data from the NC Department of Health and Human Services (DHHS), more than 416,000 North Carolinians have enrolled in health care through Medicaid expansion since it became available in December, with about 1,000 more people enrolling every day. DHHS estimates that more than 200,000 additional North Carolinians may be eligible for coverage under Medicaid expansion. Almost all potential Medicaid expansion enrollees receive services from nonprofits, so it is important for nonprofit organizations to spread the word about Medicaid expansion eligibility and the application process. 

The DHHS website includes basic information on eligibility for Medicaid coverage, details of costs and coverage, and free materials to help nonprofits provide clear and accurate information about Medicaid and Medicaid expansion to their clients and communities. Please share this information widely, especially with clients who may now be eligible to apply.

New Analysis Highlights Nonprofit Investments from American Rescue Plan Act

Last month, the U.S. Treasury Department released data on how state and local governments have used their share of State and Local Fiscal Recovery Funds (SLFRF) from the American Rescue Plan Act (ARPA) to advance recovery from the pandemic, including information on projects that mention charitable nonprofits. As of December 31, 2023, state and local governments report that they collectively had obligated an estimated $11.9 billion of SLFRF on charitable nonprofits, which is approximately 5.1% of their total allocated SLFRF dollars. The National Council of Nonprofits has prepared an interactive map that shows the number of projects involving nonprofits and an estimate of the remaining funds by state. According to the analysis, state and local governments in North Carolina have allocated more than $159 million to 82 nonprofit projects.

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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 agenda or contact David Heinen, Vice President for Public Policy and Advocacy, for more information.

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