2012 Legislative Summary

David Heinen

Earlier this month, the N.C. General Assembly wrapped up its eight-week short session. During this flurry of lawmaking, legislators considered nearly two dozen bills that affected nonprofits.

The General Assembly’s top priority for the short session was adjusting the state budget for the year beginning July 1, 2012. Despite nonprofits’ advocacy, legislators did little to restore the deep cuts in state grants and contracts with nonprofits from the past three years. In fact, legislators decided to eliminate state appropriations for a few nonprofit programs – such as the Teaching Fellows and the N.C. Healthy Start Foundation – despite their longstanding success and proven results. 

Appropriations for other nonprofits, including food banks and programs for seniors and people with disabilities, were converted from recurring to non-recurring money, meaning these organizations will need to fight harder to keep their funding next year. These non-recurring grants come with strings attached, including matching funds and new reporting requirements.

The budget also includes other less obvious reductions in nonprofit funding. The N.C. Department of Health and Human Services (DHHS) must reduce its grants and contracts with nonprofits by $5 million this year, and the N.C. Department of Commerce must cut out $1.2 million in nonprofit grants. DHHS was supposed to do this last year, but wisely sought out other funding to avoid these cuts. Unfortunately for nonprofits, this year’s budget strips DHHS of this flexibility. Other state agencies that make grants to nonprofits are required to make unspecified budget cuts which could be passed on to nonprofits.

The N.C. Center for Nonprofits has prepared a comprehensive analysis of the impact of this year’s state budget on nonprofits.

In addition to reducing funding for some nonprofits, legislators approved new accountability rules for organizations with government support (H.B. 572). Starting October 1, nonprofits that receive $5,000 or more in federal, state, or local grants or loans will be required to make their most recent 990s and basic financial information available to the public. This is consistent with what nonprofits already must do to comply with federal and state laws. The biggest difference is that organizations’ financial statements must specify how much funding nonprofits receive from government grants and loans and how this money was used. Nonprofits typically include this information in their grant reports. The N.C. Center for Nonprofits worked with legislators from both parties to ensure that the new accountability rules will not be burdensome for nonprofits.

For nonprofits, this is a more reasonable approach to accountability than another proposal (H.B. 100/S.460) that the General Assembly considered in 2011. That bill would have required nonprofits with state grants to limit administrative expenses to less than 15 percent of their budgets and to get at least 35 percent of their funding from non-governmental sources. A coalition of more than 150 nonprofits successfully defeated this “one-size-fits-all” approach to nonprofit accountability, which would have arbitrarily made many nonprofits ineligible for state funding.

The Regulatory Reform Act of 2012 (S.810) included some good news for the many nonprofits that bemoan overly complex government reporting and monitoring requirements. Each state agency will need to report by October 31 on the amount of notice it provides before auditing, reviewing, or examining nonprofits. This should give a clearer picture of the red tape that nonprofits encounter, and it could be a first step in easing some administrative burdens on nonprofits.

Unfortunately, the short session ended without final action on a bill that would have increased corporate philanthropy. The Senate did not hold a hearing on legislation that would have increased the tax incentive for small businesses to contribute to nonprofits (H.B. 886). The House overwhelmingly passed this bill in 2011, and the N.C. Center for Nonprofits plans to advocate for it again in 2013.

 David Heinen is director of public policy and advocacy at the N.C. Center for Nonprofits, a statewide network of more than 1,600 nonprofits.

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