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In this week's issue...
State legislators learned last week that they’ll have a bit less revenue available than originally expected as they prepare adjustments to the state budget for the upcoming fiscal year. This week’s Nonprofit Policy Update explains what that might mean for appropriations affecting nonprofits. We also share details about state legislation related to wearing masks in public places and tax filing deadlines and about federal legislation about donor privacy. And because readers tell us that they can’t get enough information on the new overtime rule from the U.S. Department of Labor, we share a link to the recording of our webinar answering nonprofits’ questions about the rule and compliance options for their organizations.
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State Revenue Surplus Smaller than Expected
Last Friday, economists at the NC General Assembly and NC Office of State Budget and Management released an updated forecast for state revenue that reduced the state’s expected revenue surplus from the FY2023-24 and FY2024-25 from about $1.4 billion to about $1 billion. This means that state legislators will have about $400 million less in state funds available as they consider adjustments to the state budget for FY2024-25 in the coming weeks. Legislators could use the $1 billion extra revenue for a variety of purposes, including:
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Helping 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.
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Providing more earmarked appropriations to nonprofits and local governments. Typically, earmarks in the budget go primarily to nonprofits in influential legislators’ districts and don’t have an application process. Last year’s state budget included more than $1.5 million in direct appropriations to more than 600 nonprofits.
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Accelerating state income tax rate cuts that are already scheduled to reduce the tax rate from 4.75% this year to 2.49% by the end of the decade. Further tax rate cuts could ultimately lead to budget cuts for nonprofits later this decade and into the 2030s. Legislative leaders have also said that they may consider returning some of the revenue surplus to taxpayers by providing one-time refund payments to some or all individual income tax filers in North Carolina.
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Providing additional 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 this year, and more than 55,000 are currently on the waiting list for the 2024-25 school year. Earlier this month, 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. 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 NC House of Representatives could vote on the bill as soon as next week, but the House may explore other revenue sources to fund the Opportunity Scholarship expansion; otherwise, the additional funding for vouchers could take up nearly half of the $1 billion in remaining revenue available for the state budget.
Legislative leaders are currently working behind closed doors on details of the state budget, which could begin moving through the legislature later this month or in early June.
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Center Offers Resources for Nonprofits on the DOL Overtime Rule
Last month, the U.S. Labor Department (DOL) announced its final rule on the salary threshold for overtime pay under the Fair Labor Standards Act (FLSA) which 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. The Center has offered two resources to help nonprofits better understand this new rule, its potential impact on North Carolina nonprofits, and compliance options for nonprofit organizations:
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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.
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A webinar (held last Friday) to provide more information on FLSA and the new overtime rule and to answer nonprofits’ questions. If you missed the webinar, the recording is now available online.
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NC Senate Approves Bill to Reinstate Ban on Masks in Public Spaces
On Wednesday, the NC Senate approved a bill (H.B. 237) that would prohibit people from wearing masks on public property in North Carolina, even if they are wearing the mask to protect their own health or safety or the health and safety of others. The North Carolina criminal code has included the ban on wearing masks in public places for more than 70 years. However, at the height of the COVID-19 pandemic in 2020 when public health officials recommended that people wear facial coverings in public places, the NC General Assembly amended the law to create an exception allowing people to wear masks for public health purposes. The new Senate bill would remove that public health exception. Several nonprofits spoke out against the bill, noting that it could endanger people with disabilities and other immunocompromised North Carolinians.
The NC House of Representatives could vote on the bill as soon as next week. If the bill becomes law, nonprofits that provide programs and services – or hold events – in public spaces like schools, government-owned buildings, and public parks and sidewalks, may want to discourage people from wearing masks at these events to ensure compliance with the law. Note that, even if the new law passes, nonprofits would still be able to allow – or even require – people to wear masks at their own facilities and at events, programs, and services that take place on private property.
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Join a Free Webinar on the 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.
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NC House Committee Passes Tax Legislation
On Wednesday, the NC House Finance Committee released and passed a bill making a wide variety of changes to state tax laws. Most of the provisions of the bill were technical and clarifying changes that should not directly affect charitable nonprofits. Two provisions in the bill could impact some nonprofits:
- The bill would provide for automatic extension of state tax income tax returns when the Internal Revenue Service (IRS) grants an extension of the corresponding federal returns. Under current state law, individuals, businesses, and nonprofits are required to ask the NC Department of Revenue (DOR) for extension of their tax filing deadlines. For nonprofits that have unrelated business income and file Form 990-T with the IRS, this change would mean that any extension of their 990-T filing deadline would automatically apply to their state corporate income tax filing.
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The bill would make a slight change in sales tax laws for marketplace facilitators (e.g., Amazon or eBay) that are required to collect and remit sales tax on sales made through their platforms. Nonprofits generally don’t need to collect and remit sales tax and goods and services sold through these marketplace facilitators. The current North Carolina law requires marketplace facilitators to handle sales tax if they have either: (1) $100,000 in gross sales in North Carolina; or (2) more than 200 individual transactions in North Carolina each year. The bill would change this to make the threshold simply $100,000 in gross sales. It is unclear whether this change would affect any marketplace facilitators that nonprofits use for selling goods or services.
The full House could vote on the bill as soon as next week.
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Governor Cooper Signs Budget Technical Corrections Bill into Law
On Wednesday, Governor Roy Cooper signed into law a bill (S.508) that makes 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.
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Congressional Committee Approves Legislation on Donor Privacy and Nonprofit Transparency
On Wednesday, the U.S. House Ways and Means Committee approved a bill (H.R. 8293) that would prohibit many parts of the federal government (but excluding the Internal Revenue Service, the Federal Elections Commission, and Congress) from collecting or disclosing information about donors to tax-exempt nonprofits. This provision does not appear to make any changes to the way nonprofits file Schedule B on Form 990 (where nonprofits list their contributors). The bill also would require tax-exempt nonprofits to disclose information about contributions they receive from outside the United States.
The committee also approved three other bills that would affect tax-exempt nonprofits, including:
- A bill to prohibit nonprofits from making contributions to state and local elections boards. North Carolina already passed a state law with the same restriction on nonprofits last year.
- Two other bills related to foreign contributions to tax-exempt entities that are used for election-related activities.
Also on Wednesday, two U.S. Senators introduced legislation to increase the penalties for willful disclosure of information about donors to tax-exempt nonprofits.
It is also possible that state legislators could consider donor privacy legislation during this year’s short session. The Center, along with most 501(c)(3) nonprofits – supports the idea that public disclosure of donors’ personal information is not appropriate. However, legislation that limits the ability of the NC Attorney General and other state and local law enforcement officials from having confidential, non-public access to donor information could harm the nonprofit sector by limiting the state’s ability to enforce laws that deter illegal or unethical behavior in nonprofits, which in turn could jeopardize the reputation of all charitable nonprofits.
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Nearly 450,000 North Carolinians Have Health Coverage Through Medicaid Expansion
Medicaid expansion began in North Carolina in December. According to the most recent data from the NC Department of Health and Human Services (DHHS), more than 447,000 North Carolinians have enrolled in health care through Medicaid expansion since December, with about 1,000 more people enrolling every day. DHHS estimates that about 150,000 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.
DHHS has launched a website to help nonprofits and others with community outreach on Medicaid expansion. 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!
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