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Federal Shutdown Update
A shutdown of the U.S. Department of Homeland Security (DHS) seems likely, as Congress and the White House are still far apart from reaching a bipartisan agreement on changes to Immigration and Customs Enforcement (ICE) operations. Funding runs out Friday at midnight. A DHS shutdown would largely impact TSA, Coast Guard, and FEMA. Because separate funding for ICE and Customs and Border Protection (CBP) were included in H.R. 1 last year, those agencies would have enough funding on hand to continue operations, despite a shutdown.
All other federal agencies and programs will not be impacted by a shutdown because Congress has already enacted full-year spending bills for those focus areas.
Federal Hearing on Nonprofits This Week
The United States House Ways and Means Committee held a hearing on Tuesday, titled “Foreign Influence in American Nonprofits: Unmasking Threats from Beijing and Beyond.” The goal of the hearing was to focus “on the ways foreign actors have funneled millions of dollars through networks of tax-exempt organizations to create, support, and fuel disruption and illegal activity across the country.”
There was some bipartisan support for greater disclosure of foreign donations to nonprofits to allow for IRS oversight. Many of the witnesses argued in support of modernizing IRS Form 990 to better understand where nonprofits receive funding. They suggested requiring nonprofits to disclose whether they received funding from donor-advised funds or foreign sources, and whether the organization was acting as a fiscal sponsor.
Other legislative proposals raised by Republicans in the hearing are less likely to garner bipartisan support. Some Republicans suggested legislation to bar nonprofits from receiving any foreign donations to support advocacy/election efforts, including work on ballot measures, voter engagement, or issue advocacy. Other Republicans advocated for revoking tax-exempt status from nonprofits that have connections to the Chinese Community Party, provide material support to terrorist organizations, consistently engage in "disruptive" or violent protests (such as pro-Palestinian protests on college campuses, anti-ICE protests, or Code Pink), or promote anti-Semitism or "illegal" DEI.
SAVE Act
As part of the negotiations to garner enough support to enact the legislative funding package earlier this month to reopen and fund key parts of the federal government, the White House and House leadership agreed to hold votes on legislation impacting federal elections and to make changes to the filibuster to ensure its passage. The legislation, known as the SAVE Act, would require in-person proof of citizenship to register for federal elections. This would eliminate automatic, mail-in, online, and same-day voter registration. If enacted, the SAVE Act could directly impact nonprofits that operate voter registration drives and other attempts at nonpartisan voter registration drives.
Senate Leader Thune, however, says that there is not enough support in the Senate to change the filibuster. At a press conference, he stated, “there aren’t anywhere close to the votes, not even close, to nuking the filibuster." As a result, Congress is unlikely to enact the SAVE Act at this time.
National Council of Nonprofits Lawsuits Updates
There are developments in two major lawsuits NCN filed last year. In both cases, U.S. Courts of Appeal held oral arguments last week after the Trump Administration appealed the preliminary injunctions NCN won at the lower court level to protect nonprofits and their communities. We anticipate the courts will issue their decisions - for both cases - in the coming weeks/months.
NCN v. OMB
The U.S. Court of Appeals for the D.C. Circuit held a hearing last week to consider the Trump Administration’s appeal of a preliminary injunction, preventing the administration from attempting a broad freeze to all federal funding.
During oral arguments, attorneys for the federal government refused to state clearly that the Administration would not attempt another broad funding freeze. Their repeated refusal to make such a statement raises significant concerns that Administration officials may be planning another attempt to indiscriminately freeze federal funding, perhaps as it applies to sanctuary cities.
Based on the judges' line of questioning, the court may vacate the preliminary injunction, or it could remand the case back to the lower court to make a factual determination of whether the issue is now moot. Under these circumstances, if the Trump Administration were to attempt another arbitrary, broad funding freeze, NCN would need to take legal action again.
Woonasquatucket River Watershed Council v USDA
The First Circuit Court of Appeals held a hearing last week on the Trump Administration’s appeal of a nationwide preliminary injunction, halting the freeze of Inflation Reduction Act (IRA) & Infrastructure Investment and Jobs Act (IIJA) funding.
Most of the court's questions focused on the scope of relief, and how to understand that scope in light of recent Supreme Court precedent (Trump v CASA), which limited the circumstances that allow for a nationwide injunction. While the scope of relief should always include the plaintiffs, including NCN's network, the remaining question is whether the appeals court will approve broader relief.
Based on how the judges were asking questions, the court may send this case back to the district court to ask the judge to explain her opinion in light of Trump v. CASA.
Separately, it is important to know that the lower court recently ordered a schedule timeline for when the federal government must complete the process of releasing funds by February 15.
Federal Court Reopens Johnson Amendment Litigation
Yesterday, a federal court in Texas officially reopened a lawsuit in which the Internal Revenue Service has requested a consent judgment that would allow two churches to make political endorsements to members of their congregations. Like other 501(c)(3) tax-exempt organizations, churches may not “participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.” The IRS is interpreting the nonpartisanship requirement, known as the Johnson Amendment, as having a narrow exemption for communications from churches and other houses of worship to their congregations “through [their] customary channels of communication on matters of faith in connection with religious services.”
The case had been on hold since December when the judge denied an advocacy group’s request to intervene in the litigation. The judge reopened the case after the advocacy group didn’t appeal his ruling for 60 days. The court could issue a ruling on the consent judgment in the coming days, weeks, or months. If the court issues the consent judgment, it would not be appealable and would limit the exception to the Johnson Amendment to the two churches that are parties to the case.
Public Service Loan Forgiveness
The National Council of Nonprofits and its attorneys are preparing a Motion for Summary Judgment in litigation challenging the final rule issued from the U.S. Department of Education to allow the Secretary to exclude nonprofits from participating in PSLF based on their missions and who they serve. The motion is due today, after which, the Administration will have the opportunity to respond. We will keep you updated as the case proceeds.
The Public Service Loan Forgiveness (PSLF) Coalition is launching a new PSLF Storytelling Campaign to elevate the voices of service professionals and coalition members who have been directly affected by recent changes to the PSLF program. The stories will be an integral part of the Coalition's advocacy campaign, aimed at lawmakers and the general public. If you would like to participate, please click this survey link.
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