Governor Stein Releases Recommendations for State Budget for FY2025-2027

On Wednesday, Governor Josh Stein released his recommendations for the state budget for FY2025-27. Governor Stein’s budget proposal includes about $33.6 billion in spending for FY2025-26 and about $34.3 billion for FY 2026-27. Some highlights of recommendations relevant to nonprofits include:

• Providing about $125 million in additional funding for child care and early education in FY2025-26 and about $150 million in FY2026-27. This investment includes increases to subsidized child care rates for low-income families and expansion of NC Pre-K programs. 
• Making steep cuts to the Opportunity Scholarship program, which provides scholarships to families of children attending (mostly nonprofit) private schools and adding new reporting and accountability requirements for the schools (again, most of which are nonprofits) that accept Opportunity Scholarships. Governor Stein’s proposal would phase out the Opportunity Scholarship program altogether by 2036-37.
• Increasing unemployment benefits by raising the maximum weekly amount of benefits from $350 per week to $470 per week and by extending the duration of benefits – from the current range of 12-20 weeks to a range of 16-26 weeks, based on the unemployment rate in the state. 
• Providing an unemployment tax credit for employers – including many nonprofits – that pay state unemployment taxes.
• Repealing scheduled cuts to the individual income tax (which would remain at the current rate of 4.25%) and corporate income tax (which would remain at the current rate of 2.25%), which could help prevent expected state revenue shortfalls in coming years. 
• Replacing the state child care tax deduction with a refundable child tax credit and creating a refundable child and dependent care tax credit and a working families tax credit. These new tax credits would reduce state taxes for low and moderate income families, many of whom receive services from nonprofits. 

Governor Stein’s budget recommendations mark the official start of the process of developing the state budget. As is custom in North Carolina, state legislators are expected to ignore Governor Stein’s recommendations and develop their own version of the state budget. The NC Senate will begin the legislative budget process this spring. Once the Senate approves its version of the state budget, the NC House of Representatives will develop its own version. House and Senate leaders will then negotiate a final version of the budget (which Governor Stein will have an opportunity to sign into law, veto, or allow to become law without his signature) with the hope of having a new budget in place when the state’s new fiscal year begins on July 1.

NC House Committee Approves Bill That Would Prohibit Use of State Funds for DEI Initiatives

On Tuesday, the NC House Judiciary 1 Committee approved a bill (H.B. 171) that seeks to eliminate diversity, equity, and inclusion (DEI) initiatives in state and local government in North Carolina. Among other things, the House bill would:

1. Prohibit nonprofits from using state or local funds to promote, support, fund, implement, or maintain DEI initiatives or programs.
2. Prohibit North Carolina nonprofits from applying for, accepting, or using federal funds, grants, or financial assistance that require compliance with DEI policies, initiatives, or mandates. Nonprofits would be required to discontinue any existing federally-funded DEI programs or initiatives. While this provision is consistent with a recent presidential Executive Order, it also would apply to federally-funded DEI programs in future presidential administrations. It is possible that the term “grants” in this provision could be read broadly to include any grants – including foundation grants. If it were interpreted broadly, nonprofits could be criminally liable if they applied for or accepted private foundation or community foundation grants that required compliance with DEI policies, initiatives, or mandates. 
3. Require nonprofits receiving state grants and contracts – and, if the bill is read literally, every nonprofit, business, and individual in the state, regardless of whether they receive state funding – to report annually to the State Auditor and post on their website the steps they have taken to ensure compliance with state anti-DEI policies. This reporting requirement would take effect on February 1, 2026. 
4. Require the State Auditor to conduct periodic compliance audits of nonprofits with state or local grants and contracts to determine their compliance with these anti-DEI policies and refer noncompliant nonprofits to local district attorneys for criminal prosecution.
5. Provide for civil penalties for nonprofits that use state or local funds for DEI programs or initiatives and provide standing for nonprofit employees to sue their employers for violations of the law.

The bill, which includes a clear definition of “diversity, equity, and inclusion,” also would prohibit state agencies from promoting, supporting, funding, implementing, or maintaining workplace DEI programs, policies, or initiatives and would require the State Auditor to conduct periodic compliance audits to ensure that state agencies did not support DEI programs and initiatives. Two more House committees would need to approve the bill before the full House votes on it.

Appeals Court Reinstates DEI Executive Orders

Last Friday, a federal appellate court issued a ruling ending a nationwide preliminary injunction that had blocked two Executive Orders (EOs) (EO 14151 and EO 14173) directing federal agencies to terminate or change federal grants and contracts for programs related to diversity, equity, and inclusion. The appellate court’s ruling means that both EOs are now in effect again. 

While the three judges on the appellate panel unanimously agreed to reinstate the DEI EOs, each judge wrote a separate opinion. One judge explained that the court issued its ruling because the EOs are very limited in scope but noted that a preliminary injunction may be appropriate if federal agencies are overzealous in their enforcement of the EOs. A second judge highlighted the importance of DEI programs, noting that: “despite the vitriol now being heaped on DEI, people of good faith who work to promote diversity, equity, and inclusion deserve praise, not opprobrium.” The third judge questioned whether the nonprofits that initiated the lawsuit had standing to sue since any harm they might suffer would not come from the EOs themselves but rather through agency enforcement of them. If other federal courts follow the third judge’s line of reasoning, plaintiffs (including some nonprofits) challenging other recent EOs in court may not be able to get legal relief until they have suffered harm due to federal agencies’ enforcement of the EOs.

EEOC Questions DEI Practices of 20 Major Law Firms

On Monday, the U.S. Equal Employment Opportunity Commission (EEOC) sent letters to 20 major law firms expressing concerns that their diversity, equity, and inclusion (DEI) policies and practices may violate Title VII of the Civil Rights Act of 1964 because they may demonstrate disparate treatment of some employees, prospective employees, interns, and clients based on race or sex. The letters require the law firms to answer a wide range of questions about their employment practices, internship programs, leadership and staffing demographics and trends, and the DEI practices of their clients by April 15.

While the EEOC investigation of law firms doesn’t directly affect nonprofits, 

1. Some North Carolina nonprofits may be clients of these firms. The letters request that the law firms “fully identify all clients that have ‘diversity requirements,’ ‘diversity preferences,’ or any demographic-related requirements for matters, including but not limited to race or sex requirements for the employees staffed on their matters.”
2. The letters give strong hints about the types of race-based and sex-based preferences in employment practices, internships, and provision of services that EEOC and other federal agencies believe is impermissible under Title VII and recent Executive Orders. 
3. The US. Department of Justice has directed federal agencies to review DEI practices and policies of private sector employers, including nonprofits, foundations, and businesses. It is quite possible that large nonprofits and foundations may soon receive similar letters from the EEOC or other federal agencies requesting information about their race-based and sex-based policies and practices.  

It is possible that the EEOC’s assertions and record requests may be challenged in court – these are major law firms after all!

EEOC Publishes Fact Sheets on DEI Compliance

On Wednesday, the EEOC published two fact sheets on its new interpretation of the ways that diversity, equity, and inclusion (DEI) initiatives, policies, programs, and practices may be impermissible discrimination under Title VII of the Civil Rights Act of 1964. Both fact sheets appear to be aimed at employees who believe that their employers’ DEI policies have discriminated against them. One of the fact sheets provides answers to 11 common questions about the EEOC’s position on DEI and Title VII discrimination, noting (among other things) that “[t]he EEOC’s position is that there is no such thing as ‘reverse’ discrimination, there is only discrimination.” The other fact sheet provides tips for how employees can identify DEI-related workplace discrimination and the steps they can take to initiate legal action against their employers. This new guidance from EEOC could potentially lead to more legal action against nonprofits with personnel policies that provide special treatment of some employees based on their race or sex. It is important for small nonprofits to remember that Title VII generally does not apply to organizations with fewer than 15 employees.

Lawmakers Approve Compromise Version of Hurricane Helene Relief Legislation

This week, the NC Senate and NC House of Representatives agreed on a final version of the first Hurricane Helene relief bill of 2025  (H.B. 47). The House approved the bill on Tuesday in a 115-1 vote, and the Senate unanimously approved it on Wednesday. Among other things, the $524 million disaster recovery bill provides:

• $10 million to the Division of Emergency Management in the NC Department of Public Safety to make grants to nonprofits that are Volunteer Organizations Active in Disaster (VOADs) that are providing assistance in Hurricane Helene relief and recovery.
• $10 million to the State Fire Marshall for grants to small and volunteer fire departments in western North Carolina, many of which are nonprofits.
• $120 million for home construction and repair in western North Carolina. This was slightly less than the amount included in the House ($135 million) or Senate ($140 million) versions of the bill.
• $55 million to establish a grant program for local governments to expedite infrastructure repairs that impact the operation of small businesses (potentially including nonprofits) in western North Carolina. While local governments would be the recipients of these grants, the infrastructure repairs or improvements funded by the grants could benefit some nonprofits.
• No funding for small business or nonprofit relief grants. The House version would have provided $15 million to the Golden LEAF Foundation to make grants to certain western NC nonprofits that would then make grants of $50,000 or less for small business revitalization or other disaster recovery efforts. This small business relief provision would have used nonprofits as intermediaries for small business relief grants. It was unclear whether nonprofits would have been eligible to receive the small business relief grants. 
• A provision allowing VOADs working on Hurricane Helene relief and recovery efforts to access heavy construction equipment and motor vehicles from the state’s surplus property.

Governor Josh Stein signed the bill into law yesterday.

Congress Approves Federal Funding Through September 30

Last Friday, the U.S. Senate approved a continuing resolution (H.R. 1968) to fund the federal government through the end of the current fiscal year (September 30). The continuing resolution includes about $13 billion in cuts to non-defense spending, which could include the reduction or elimination of some grants to nonprofits. The U.S. House of Representatives had approved it last Tuesday, and President Trump signed it into law last Friday. The bill, which prevented a partial shutdown of the federal government last Friday, passed with bipartisan support in the Senate.

Join a Nonprofit Policy Conversation in May

The Center is hosting a pair of Nonprofit Policy Conversations in May:

• Monday, May 5 in Fayetteville in collaboration with the Cumberland Community Foundation; and
• Monday, May 19 in Charlotte in collaboration with Foundation For The Carolinas. 

At each event, the Center will provide a public policy briefing that includes the latest information about recent federal executive actions that could affect nonprofits, a preview of what nonprofits can expect from Congress this year, and highlights from the first few months of the state legislative session. We’ll also have a discussion for participants to share their insights about important state and federal policy issues for 2025. Register today!

NC House Committee Approves Bill to Prevent Discrimination in Disaster Grants

On Tuesday, the NC House Judiciary 1 Committee approved a bill (H.B. 251) that prohibits discrimination in state emergency management grants, which are typically grants to individuals, businesses, and nonprofits that have been impacted by disasters. The bill also would provide that emergency management grant applicants would not need to provide personal demographic information unless this information is necessary for administration of the grant or is required by federal or state law. Two more House committees would need to approve the bill before the full House votes on it.

Several Other New State Bills Would Affect Some Nonprofits

Dozens of new bills were introduced in the NC Senate and NC House of Representatives this week. Several of these bills could affect the operations, missions, programs, and services of some nonprofits. These include:

• A wide-ranging Senate bill (S.326) that would make a variety of changes to state employment laws, including raising the minimum wage to $22 per hour and adjusting it for inflation, requiring employers (including nonprofits) to provide paid sick leave to workers who aren’t exempt from the Fair Labor Standards Act and corresponding state laws, reinstating the state earned income tax credit, establishing a state tax credit for child and dependent care expenses, and increasing the maximum amount and duration of unemployment benefits (to 26 weeks and $680 per week).
• A Senate bill (S.304) to reinstate the state earned income tax credit. Two other bills (H.B. 181 and S.211) have already been filed for the same purpose.
• A House bill (H.B. 411) to shorten the Early Voting period for primary elections from 17 days to six days. Many nonprofits encourage their staff, volunteers, and clients to vote early in elections.
• A House bill (H.B. 438) that would require employers (including nonprofits) to offer at least one paid 20-minute rest break for employees who work at least six hours in a day.
• A House bill (H.437) that would establish a drug-free zone within 300 feet of any facility (including a nonprofit) that provides housing, temporary shelter, or services to people experiencing homelessness. If the bill became law, nonprofits that primarily serve people experiencing homelessness would be required to post at least one permanent sign at their facilities identifying them as drug-free zones. 
• A Senate bill (S.310) that would allow religious nonprofits to receive property tax exemption even if they file their application for property tax exemption up to three years late. 
• House (H.B. 455) and Senate (S.370) bills to repeal 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.
• House (H.B 413) and Senate (S.350) bills to legalize marijuana. Both would establish an excise tax on marijuana sales in North Carolina, 25% of which would go to a new Community Repair and Reinvestment Fund. The Community Repair and Reinvestment Fund would be used largely for grants to a wide variety of nonprofits, including those providing housing assistance, reentry services, scholarship programs for low-income students, legal or civic aid, violence prevention programs, youth development services, early intervention programs for youth and families, and programs that promote community stability and safety.
• A Senate bill (S.380) that would allow associations, including associations of nonprofits, to have standing to challenge certain state agency regulations.  
• A House bill (H.B. 454) that would allow the NC General Assembly to declare federal laws, regulations, or Executive Orders unconstitutional and to require the NC Attorney General to take legal action to challenge the federal laws, regulations, or Executive Orders. The bill also would prohibit nonprofits receiving state funds from “implement[ing] any federal action that restricts a person’s rights” as determined by the NC General Assembly. Those who have been involved in public policy for a while may remember when the state of South Carolina attempted something similar in 1832 (spoiler alert: it didn’t end well!). 
• A House bill (H.B. 469) that would require the athletic teams from University of North Carolina at Chapel Hill and North Carolina State University to compete at least once per year in football, men’s basketball, and women’s basketball, and at least three times per year in baseball and softball. Unfortunately, the bill does nothing to protect in-state rivalries of the two North Carolina nonprofit higher education institutions in the Atlantic Coast Conference – Duke University (which recently won both the men’s and women’s ACC tournament championships) and Wake Forest University. 

Next Tuesday is the deadline for most bills to be filed in the NC Senate for consideration in 2025 or 2026. Like most of us, state lawmakers sometimes procrastinate, so expect to see many new Senate bills next Monday and Tuesday!

Nonprofit Policy Update is the 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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