December 10, 2021
In this issue...
New local government conflict-of-interest law could affect some nonprofit board members
Let us know whether your nonprofit has local elected officials on its board
New state budget includes $849 million in new nonprofit funding 
Federal vaccination requirements on hold pending court decisions
Governor Cooper vetoes bill that would prohibit nonprofits from funding election boards
U.S. Senate takes key step to preventing federal government default
Is your nonprofit experiencing delays with your state contracts or payments?
NC Supreme Court delays 2022 primary election
IRS and Congress address retroactive repeal of Employee Retention Tax Credit
U.S. Senate plans vote on “Build Back Better” legislation this month
New Local Government Conflict-of-Interest Law Could Affect Some Nonprofit Board Members
Yesterday, Governor Roy Cooper signed into law a bill (S.473) that will require local government elected officials who serve on nonprofit boards to recuse themselves from decisions to provide government funding to those organizations. The new law takes effect on January 1, 2022. Essentially, the law means that most local officials who serve on nonprofit boards won’t be allowed to vote on local government budgets that include funding for the nonprofits on whose boards they serve.

Over the past seven months, the Center has worked with the bill sponsor and other legislators to improve the bill by minimizing unintended consequences that could jeopardize nonprofit funding and/or board recruitment and retention. The original version of the bill was problematic for nonprofits because it would have prevented county and municipal governments from engaging in grants and contracts with nonprofits that had local government employees and elected officials serving on their boards. The Senate largely addressed this issue in May by adopting a Center-recommended amendment to allow these nonprofits to receive local funding as long as any local elected officials with potential conflicts of interest recuse themselves from the funding decision. An amendment passed by the House on Monday further improved the bill by making two important changes, both of which were recommended by the Center:
  1. It limits the applicability of the nonprofit funding provision in the bill to “knowing” actions by local elected officials. This means that it won’t apply to many instances where nonprofits receive subgrants or subcontracts from other organizations that receive local funding. For example, it would enable local arts organizations that receive arts council funding (some of which may initiate from county or municipal grants) to continue to receive these funds, even if a board member of the funded arts organization serves on city council or as a county commissioner.
  2. It clarifies that the bill does not apply to local government staff or contractors. This means that nonprofit funding is not in jeopardy if a county or municipal employee or contractor serves on the nonprofit’s board of directors. 

The nonprofit funding provision in the bill only applies to cities, towns, or villages with more than 15,000 residents and to counties that have municipalities with 15,000 or more residents. This means that it will only apply in about 60 of the 100 counties in North Carolina. 

The Center remains concerned that the bill could create challenges that would make it difficult for some local governments to pass budgets with nonprofit funding if a majority of the members of a city council or county board of commissioners serve on boards of nonprofits that would likely receive local government funding. In those instances, so many local elected officials may have to recuse themselves that there would not be a quorum to vote on a budget without eliminating funding for some nonprofits. The Center continues to work with lawmakers, state officials, and local government advocates for a solution to this potential issue.
Take 2 Minutes to Let Us Know Whether Your Nonprofit Has Local Elected Officials on Its Board
To help the Center better understand the impact of the new law on conflicts of interest between nonprofits and local elected officials (see the item above), we are seeking input from nonprofits on their experiences with local government elected officials serving as board members. Please take two minutes to send us an email answering these three questions:
  1. Does your nonprofit have local elected officials (e.g. county commissioners and/or city or town council members or mayors) on your board of directors?
  2. If so, do your bylaws require your organization to have local elected officials on your board?
  3. Do any federal laws or other funding sources require your nonprofit to have elected officials on your board?

Your answers will help the Center and our partners advocate for changes to this new law in 2022.
New State Budget Includes $849 Million in New Nonprofit Funding
State legislators included an unprecedented $849 million in new funding for nonprofits in the recently-enacted state budget for FY2021-23 (S.105). To help you digest the more than 1,400 pages of budget documents, the Center has developed an 12-page synopsis of nonprofit provisions and appropriations in the budget (updated significantly from the preliminary version we shared last week).

State agencies are likely to begin making payments to newly-funded nonprofits in late winter or early spring of 2022. Many nonprofits will be receiving state funding for the first time, so they will need to comply with a variety of reporting requirements. The Center is working with the NC Office of State Budget and Management (OSBM) on a webinar early next year to help nonprofits receiving state grants or appropriations understand the process for disbursement of these grants and the reporting requirements that accompany state funding. Look for more details in the coming weeks.
Federal Vaccination Requirements on Hold Pending Court Decisions
The future of three federal rules requiring certain workers – including many nonprofit employees – to be vaccinated for COVID-19 remains uncertain as a variety of federal courts weigh in on their constitutionality. Here is the latest on each rule:
he future of three federal rules requiring certain workers – including many nonprofit employees – to be vaccinated for COVID-19 remains uncertain as a variety of federal courts weigh in on their constitutionality. Here is the latest on each rule:
  1. This week, a federal judge blocked the implementation of President Joe Biden’s September executive order requiring all federal contractors and subcontractors – including nonprofits that contract with the federal government – to be vaccinated for COVID-19. Last week, another federal judge had blocked the implementation in three states (Kentucky, Ohio, and Tennessee), but the latest injunction applies to contractors throughout the country, including those based in North Carolina. Note that the executive order would only apply to nonprofits that are federal contractors or subcontractors, not those that receive federal grants.
  2. The U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) Emergency Temporary Standard on COVID-19 vaccinations remains uncertain as federal courts determine whether it is constitutional. The rule would require employers with 100 or more employees – including many large nonprofits – to require their employees to be vaccinated for COVID-19 or to be tested at least once a week. Last month, a three-judge panel in a federal appellate court ordered OSHA to “take no steps to implement or enforce” this rule. For now, OSHA has suspended implementation of the employer vaccination rule until it is decided by the courts. 
  3. Last week, two federal court rulings blocked the implementation and enforcement of the Centers for Medicare & Medicaid Services (CMS) Emergency Temporary Standard. That rule would require workers in most Medicaid and Medicare reimbursed health care facilities, including at hospitals and other nonprofit healthcare providers, to be vaccinated for COVID-19. 

Regardless of the ultimate fate of the OSHA and CMS rules and the federal contractor executive order, individual nonprofits can still require their employees to be vaccinated for COVID-19. To help your nonprofit answer questions about vaccination policies, the Center has published an analysis of vaccination considerations for nonprofits, including tips to help your organization develop a COVID-19 vaccination policy for your employees.
Governor Cooper Vetoes Bill That Would Prohibit Nonprofits from Funding Election Boards
Yesterday, Governor Cooper vetoed a bill (S.725) that would prohibit nonprofits from providing funding to the State Board of Elections or to county election boards. Legislators have expressed concern that some organizations – including nonpartisan 501(c)(3) nonprofits – could provide funding to local elections boards to bolster support in communities with strong partisan leanings. In vetoing the bill, Governor Cooper explained: “Elections are fundamental to our democracy and in 2020, grants from nonpartisan nonprofits were needed for necessities such as masks, single-use pens, and other protective equipment so voters stayed safe during the pandemic. The legislature should start properly funding elections boards to ensure accessible, safe, and secure elections every time, which would end the need for grants.”
U.S. Senate Takes Key Step to Preventing Federal Government Default
Yesterday, the U.S. Senate passed a procedural vote that should enable Congress to raise the nation’s debt limit in the coming days. The Senate voted to move forward with a debt limit by a 64-36 margin, with both Senator Richard Burr (R-NC) and Senator Thom Tillis (R-NC) voting in favor of the measure. Without a higher debt limit, the federal government would default on its financial obligations on December 15. A federal government default would have dire economic consequences for the country. 

If Congress does not raise the debt limit by next week, nonprofits could feel both short-term and long-term impacts of the resulting economic challenges. Most immediately, nonprofits would be expected to provide a wide variety of basic services if government programs are shut down. If the United States defaults on its financial obligations and goes into a recession, nonprofits would likely experience several years of reduced contributions from individuals, businesses, and foundations with declining incomes and investments.
Let Us Know: Is Your Nonprofit Experiencing Delays with Your State Contracts or Payments?
This summer, several nonprofits alerted the Center of recent problems they have experienced with state agencies being late in issuing contracts or making payments. The Center has begun discussions with state legislators and state agency officials to identify the sources of the problem and to find solutions.

The Center plans to convene a group of nonprofits this winter to identify the scope of this problem and to work together to develop policy solutions. We hope that nonprofits, legislators, and state officials can collaborate in 2022 to limit state contracting and payment delays to nonprofits. Please let us know if your nonprofit has had challenges with late contracts or late payments from state agencies in the past two years. Thank you if your nonprofit has already responded.
NC Supreme Court Delays 2022 Primary Election
On Wednesday, the NC Supreme Court ordered North Carolina’s primary elections to be delayed until May 17, 2022. The primary election had been scheduled for March 9, but will be moved back two months to allow state courts to hear three cases challenging the constitutionality of the new congressional and state legislative districts that the NC General Assembly approved last month.

The lawsuits challenge the House, Senate, and congressional maps that are supposed to be used for elections between 2022 and 2030 and were all approved in party-line votes last month. The litigation alleges that the maps are impermissible as racial and partisan gerrymanders and asks the court to require lawmakers to redraw the maps.

Redistricting analysts have noted that the vast majority of the new congressional and legislative districts will be non-competitive. In the past, the Center has expressed concerns that this type of gerrymandering (i.e. overly partisan redistricting plans) diminishes nonprofits’ influence on public policy because it tends to create non-competitive congressional and legislative districts and makes elected officials more responsive to their partisan political donors than to the nonpartisan nonprofits providing services in their districts.
IRS and Congress Address Retroactive Repeal of Employee Retention Tax Credit
The bipartisan infrastructure law, which was enacted on November 15, included the repeal of the Employee Retention Tax Credit (ERTC) retroactive to September 30, even though many nonprofits had already budgeted to use the ERTC for financial support during the fourth quarter of 2021. On Monday, the Internal Revenue Service issued guidance to employers on dealing with the retroactive repeal of the ERTC for the fourth quarter of 2021. The IRS guidance provides details for how nonprofits anticipating the ERTC are to revise their payments and paperwork. Specifically:
  • Nonprofits that received advance payments under the ERTC for the fourth quarter must repay them in a timely manner or face potential penalties. 
  • Nonprofits that reduced their payroll tax deposits in anticipation of ERTC must repay the reduced amounts of payroll taxes. The IRS will waive failure to deposit penalties for amounts due on or before December 20, 2021 if the nonprofit deposits the amounts owed by December 31 and reports the tax liability on the appropriate tax returns. 

The National Council of Nonprofits issued a statement explaining why the IRS guidance isn’t particularly helpful for nonprofits: “This guidance may be as good as the IRS thought it could provide under the law, but it is not good enough. Not for the thousands of employers that were hiring workers in reliance on this important tax incentive, and certainly not for the tens of thousands of workers who may lose their jobs because of the repeal of the employment tax credit. Notice 2021-65 provides very narrow accounting relief for charitable nonprofit employers suffering major staffing challenges because they cannot raise prices or reimbursement rates needed to increase salaries. The ERTC was a lifeline for nonprofit employers and employees; it must be restored and extended.” 

Responding to the National Council of Nonprofits’ advocacy, a bipartisan group of U.S. Representatives filed the Employee Retention Tax Credit Reinstatement Act (H.R. 6161) on Tuesday. The bill would reinstate the ERTC for the fourth quarter of 2021. The bill’s sponsors include four members of Congress from North Carolina – Rep. Virginia Foxx (R-NC), Rep. Dan Bishop (R-NC), Rep. David Rouzer (R-NC), and Rep. Richard Hudson (R-NC).
U.S. Senate Plans Vote on “Build Back Better” Legislation This Month
The U.S. Senate is planning to vote on the legislation to implement President Biden’s “Build Back Better” agenda by Christmas. Last month, the House passed a $1.75 trillion “Build Back Better” bill that includes a wide variety of investments in federal programs, such as:
  • Continuing the expanded Child Tax Credit ($3,600 per child under age 6 and $3,000 per child aged 6-18) for one year, along with permanent refundability of the tax credit. 
  • Funding for universal pre-K for young children for the next six years.
  • Establishing four weeks of paid family and medical leave, which would be subsidized by the federal government, beginning in 2024. This provision was recently added.
  • Funding for Medicaid expansion in North Carolina and the other 10 states that have opted out of this provision of the Affordable Care Act. This would provide health coverage for more than half a million North Carolinians in the health care coverage gap (who make too much to qualify for Medicaid, but not enough to receive health care subsidies).
  • Limiting child care costs for many families for the next six years.
  • Extending by one year the expanded earned income tax credit for childless workers. 
  • Providing $3.2 billion in additional funding for national service programs, as well as $600 million for AmeriCorps.
  • Expanding Medicaid home care services for seniors and people with disabilities. 
  • Providing $150 billion toward public housing, rental assistance, down payment support, and "building more than 1 million new affordable rental and single-family homes." 
  • Investing $555 billion for climate programs, including $320 billion expanded tax credits for clean energy. 

The National Council of Nonprofits has prepared a useful synopsis of key provisions in the legislation for nonprofits

The Senate may make changes to the bill (likely to reduce or eliminate certain programs) to ensure that all 50 Democratic Senators vote for it. Because the legislation is being passed using the budget reconciliation process, it only needs a simple majority vote in both the U.S. Senate and the U.S. House of Representatives, meaning it can pass with only Democrats in Congress voting for it.
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Nonprofit Policy Update is a weekly newsletter for current members of the North Carolina Center for Nonprofits. We track state and federal policy issues that affect all 501(c)(3) nonprofits. Learn about the Center's public policy priorities. For more information, contact David Heinen, Vice President for Public Policy and Advocacy.