A Halftime Report on NC Nonprofit Legislation in 2021

Last updated: May 26, 2021

David Heinen, Vice President for Public Policy and Advocacy

May 13, 2021 was the crossover deadline in the NC General Assembly – the date by which most bills must pass either the House or the Senate to be considered during the 2021-22 legislative session. Bills that have "made crossover" by passing one chamber are still alive during the remainder of the session. Legislators can also still consider bills that affect taxes or spending, the state constitution, election laws, or redistricting, even if they haven’t yet been approved by the House or Senate. And some bills that didn't meet the crossover deadline – and, in fact, some ideas that haven't even been formally introduced as legislation – may still make their way through the General Assembly as amendments or committee substitutes to other bills later this year or next year. 

At the unofficial midway point of the legislative session, the Center is offering a "halftime report" on the status of legislation affecting North Carolina nonprofits. This halftime report includes an update on seven nonprofit sector proposals recommended by the Center and on several other bills that could affect the work of many charitable nonprofits.

Nonprofit Sector Legislation Recommended by the Center

The Center has recommended seven legislative proposals this year that would help 501(c)(3) nonprofits. Only two of these proposals were subject to the crossover deadline, and both remain alive:

1. Both the House (H.B. 320) and Senate (S.410) unanimously passed bills that would make it easier for nonprofits with members to conduct meetings remotely and for nonprofit board members to use email to take action by unanimous written consent. The Center is working with legislators to ensure that one of these bills becomes law this year.
2. The House unanimously passed a bill (S.695) that would modernize the North Carolina charitable solicitation statute by: (a) raising the threshold for exemption from charitable solicitation licensure (from $25,000 in contributions to $50,000 in contributions per year); (b) aligning charitable solicitation filing extensions with automatic extensions for 990 filings; and (c) eliminating the requirement that nonprofits have their charitable solicitation forms notarized. The Senate didn't take up an identical bill (S.681) in time to meet the crossover deadline, so the Center is advocating for the Senate to vote on the House-passed version later this spring or summer.

Legislators could still take up four other Center-recommended bills that include taxes or fees (and therefore are not subject to the crossover deadline):

1. A Senate proposal (S.441) to exempt most 501(c)(3) nonprofits from paying sales and use tax when they purchase goods and services. Under current law, charitable nonprofits pay sales tax and can apply for refunds from the NC Department of Revenue. Sales tax exemption would save nonprofits time and money.
2. A Senate bill (S.504) to create a new state tax credit for charitable contributions by individuals who use the standard deduction. This could help encourage North Carolinians to give more generously to support the work of nonprofits serving communities throughout the state.
3. A Senate proposal (S.440) to exempt nonprofits from collecting and remitting sales tax on the ticket price or admission fees from most fundraising events. This clarifying change would help nonprofits use more of the revenue from their fundraising events for programs and services related to their missions.
4. Bills in both the House (H.B. 696) and Senate (S.540) to modernize the North Carolina Nonprofit Corporation Act to bring the state’s nonprofit statute into better alignment with best practices for nonprofit organizations.

The Center is working with legislators to ensure that each of these proposals is considered in the coming weeks and months.

In addition to the six bills that have been introduced to help nonprofits, the Center is asking legislators to include a nonprofit relief fund in its next COVID-19 relief legislation. This type of nonprofit relief fund would provide financial support to nonprofits that have suffered economic distress during the pandemic.

You can make a difference in helping get legislators to pass some or all of these policy solutions for nonprofits. To help the Center understand which of these proposals would be most helpful to your nonprofit – and to help us make it easy for you to take meaningful action on these bills – we encourage you to take four minutes to complete a short survey about these policy solutions and your ability to speak with legislators about nonprofit sector policy issues.

Other Legislation Affecting the Nonprofit Sector That Made the Crossover Deadline

In the two weeks leading up to the crossover deadline, the state Senate approved three other bills that would affect the work of many nonprofits. The Center worked with state Senators to ensure that two of the bills were amended to fix language in their original versions that would have created challenges for many nonprofits.

One bill (S.636) is designed to create privacy protection for donors to nonprofits. The version of the bill that passed the Senate along party lines would essentially do two things:

1. Prohibit nonprofits from disclosing “the identity of any person donating monies or other tangible goods to the nonprofit corporation” if a donor notifies the nonprofit that they would like their identity kept confidential. There is an exception for disclosures required by law, court order, or criminal investigations. The Center worked with the bill's sponsor on an amendment (which passed) that addressed nonprofits’ concern about a provision in the original version that could have created new fundraising burdens – and potentially legal liability – for many 501(c)(3) nonprofits. 
2. Prohibit state officials from providing Schedule B of nonprofits’ Forms 990 or 990-EZ (that is the attachment that includes donor information) in public records requests. This is consistent with federal tax law, which makes Schedule B donor information confidential.

Another bill (S.473) originally would have prohibited local governing bodies from awarding contracts, grants, or appropriations to nonprofits if any member of the local governing body served on the nonprofits’ board of directors. Many nonprofits had told the Center that this provision could have jeopardized their funding from local governments, so the Center successfully advocated for the Senate to make an amendment (which was unanimously approved) that helps ensure that nonprofits with board members who serve on local governing bodies (i.e. county boards of commissioners, city councils, and town councils) can still receive grants, contracts, or appropriations from these local governments. Under the amendment, any elected officials serving on a nonprofit’s board would need to recuse themselves from the decision to provide funding to that organization.

A third bill (S.228), which passed the Senate unanimously, would allow North Carolina nonprofits and small businesses to offer exclusive provider benefit (EPO benefit) plans for their employees. EPO benefit plans are typically 15%-20% less expensive than other health insurance plans and allow participants to use a limited network of local health care providers while paying the full cost for any out-of-network health services other than emergency care. Potentially, this legislation could provide a meaningful and affordable health coverage option for some nonprofits.

In addition, a House bill (H.B. 899) would create a new state-run retirement program for workers at small businesses and nonprofits that do not offer employer-provided retirement benefits. The NC Work and Save Program would make it easier for many nonprofit employees to create individual retirement accounts (IRAs), to plan for retirement savings, and to make regular contributions to their IRAs. This proposal isn't subject to the crossover deadline since it includes an appropriation. The Center supports this bill since it could help many small nonprofits offer retirement benefits to their staff for the first time.

Another House bill (H.B. 707) that isn't subject to the crossover deadline would establish a Student Borrowers' Bill of Rights. This proposal would create several new protections for student borrowers and add new regulation for student lenders. This could help more North Carolinians - including many nonprofit workers - access the Public Service Loan Forgiveness (PSLF) Program. The PSLF Program helps make nonprofit careers sustainable for many workers with college debt.

State Budget and COVID-19 Relief Bills

One of the main roles of the state legislature is to approve a state budget that sets spending levels and priorities for state government. The state budget typically includes funding for a wide variety of appropriations, grants, and contracts for nonprofits that provide public services and for state agencies that work in partnership with nonprofit organizations. This year, legislators need to approve a budget for the period from July 1, 2021 through June 30, 2023, although they can revise the second year of this budget next spring. Legislators begin the budget process with about $4.1 billion in surplus revenue.

Governor Roy Cooper released his proposal for the state budget in March. So far, the NC Senate (which starts the legislative budget process this year) has not yet begun to hold committee meetings on a budget proposal. Typically, either the House or Senate passes its version of the state budget by the beginning of May to allow time for the other chamber to pass a budget and for legislative leaders to negotiate a final version. Governor Cooper’s proposal recommended a total of $27.3 billion in state spending for FY2021-22 and $28.6 billion for FY2022-23. This would be a large increase over the current $24.8 billion state budget. The legislative budget is likely to be much smaller than Governor Cooper’s proposal, with legislators using some of the revenue surplus for tax cuts and to bolster the state's savings reserves. If legislators and Governor Cooper are unable to reach an agreement on the budget by June 30, current state spending levels will remain in place.

In addition to the state budget, legislators will need to decide how to allocate the $5.7 billion in aid the state of North Carolina received in the American Rescue Plan Act (ARP). On May 24, Governor Cooper signed into law a bill (S.172) that formally creates a State Fiscal Recovery Fund to spend the state’s ARP money and would create a Local Fiscal Recovery Fund for $3.8 billion in ARP funding for local government in North Carolina. As noted above, the Center is advocating for legislators to include a nonprofit relief fund in the next state COVID-19 response package. Based on the input from dozens of nonprofits, the Center is recommending a nonprofit relief fund with eligibility criteria that would include:

• Revenue losses during some period of the pandemic;
• Shut-downs of operations due to COVID limitations;
• Loss of volunteers during the pandemic;
• Costs incurred by changing the way programs and services are provided as a result of social distancing; or
• Increase in services to meet community needs during the pandemic.

The Center continues to share its recommendations for a nonprofit recovery fund with legislators.

Legislators are expected to develop their plan for spending the state's ARP funds after they finish the state budget. In the meantime, Governor Cooper has released his recommendations for spending the state’s ARP funding. While Governor Cooper’s proposal does not include a nonprofit relief fund, it does include funding for certain types of nonprofits.

The Senate is considering a proposal (H.B. 334) that would use $1 billion of North Carolina's ARP funds to make automatic grants to nonprofits and businesses that received Paycheck Protection Program loans, Economic Injury Disaster Loan advances, Job Retention Program grants, Shuttered Venue Operators Grants, or Restaurant Revitalization Fund support. Under the proposal, called the Job Opportunity and Business Saving Grant Program (JOBS Program), nonprofits and businesses that received any of these sources of federal or state COVID-19 relief would receive additional state grants in valued at 7.5% of the amount of their federal or state relief. The maximum grant awards would be $18,750 per entity (for nonprofits that received $250,000 or more from the PPP, EIDL, SVOG, Job Retention Program, and/or Restaurant Revitalization Fund).

Tax Policy in the State Constitution

Both chambers could take up legislation that would embed limits on state taxes and spending in the state constitution. The House version (H.B. 709), known as the Taxpayer Protection Act, would place a constitutional amendment on the November 2022 ballot to limit the growth of state spending to a formula based on population growth and inflation. State legislators could only exceed this formula by a two-thirds vote of both the NC House of Representatives and the NC Senate (which would be unlikely to happen in most circumstances).

The Senate version (S.717), known as the Taxpayer Bill of Rights or TABOR, would make three changes to the North Carolina constitution:

1. Like the House bill, it would limit the growth of state spending to a formula based on population growth and inflation.
2. If the state collected more tax revenue than the spending allowed in the constitutional formula, legislators would have to put 15% of the excess revenue into the state’s savings reserve fund. Legislators could only use the state savings reserve fund – or put less than 15% of excess revenue into the fund each year – by a two-thirds vote of both the House and Senate.
3. State and local governments would only be able to “impose or increase any tax” if the majority of voters in the relevant jurisdiction approved of the tax increase (or new tax). This provision would make it much harder for the state of North Carolina or for counties or cities to generate new revenue. Ironically, it may actually lead to tax increases on nonprofits, since the wording of the provision may not protect nonprofits from tax law changes that effectively create new taxes on nonprofit organizations (e.g., new limits on sales tax refunds or exemption).

The Center opposes these types of constitutional amendments because they could cause lasting harm to North Carolina’s nonprofit sector. If enacted, TABOR-type amendments would limit the ability of state and local governments to pay for services provided by nonprofits, while at the same time relying on nonprofits to provide more public services that governments can no longer afford to offer. Colorado is the only state that has fully implemented a version of TABOR. According to the Colorado Nonprofit Association: “TABOR has undermined the ability of Colorado nonprofits to meet current demands for services and respond to future changes in economic conditions, population growth, and the costs of delivering public services.”

To become law, the constitutional amendment would need to pass both the House and Senate by 60% super-majority votes (meaning it would need bipartisan support). If legislators approve it, a majority of voters would need to vote in favor of it on the November 2022 ballot. Unlike most bills, the Governor cannot veto constitutional amendments (and does not need to sign them into law).

Other Tax Legislation That Could Affect the Work of Some Nonprofits

Several bills in the House and Senate would make changes to North Carolina’s tax laws. Some of these proposals could affect the programs and services of some nonprofits. These include:

• Bills in the House (H.B. 940) and Senate (S.322 and H.B. 334) that would (among other provisions) allow North Carolinians who use the universal charitable deduction – and those who itemize their deductions and contribute more than 60% of their adjusted gross income to charitable nonprofits – to get the full benefit of these tax deductions on their state taxes in 2021. Last year, North Carolina “decoupled” from these two federal tax incentives for charitable giving, meaning that North Carolinians who gave generously didn’t get breaks on their state tax liability. The Senate has already passed its version of the bill, and there is a good chance that one of these bills will become law later this year.
• The Senate tax plan (H.B. 334), which would: (a) cut individual income tax rates from 5.25% to 4.99%; (b) raise the state standard deduction from $21,500 to $25,500 for married couples (and $10,750 to $12,750 for single filers); (c) raise the maximum child tax deduction from $2,500 to $3,000; (d) phase out the corporate income tax (including state tax on unrelated business income for nonprofits by 2026; and (e) reduce the franchise tax on businesses. This proposal would mean tax cuts for businesses (through the cuts to the franchise tax and corporate income tax), low-income North Carolinians (through the higher standard deduction and increased child tax deduction), and wealthy North Carolinians (through the reduction in the individual income tax rate). Collectively, these tax law changes would reduce state revenue by about $1.4 billion in FY2022-23 and by about $2 billion per year once they are fully implemented four years from now. This revenue reduction could create challenges for future state investment in the work of nonprofits through grants, contracts, and appropriations.
• A bill (S.495) to modify the way that sales tax is applied to fees charged by nonprofit continuing care retirement communities (CCRCs). Recently, the NC Department of Revenue (DOR) has interpreted existing state law in a way that would impose significant new sales tax burdens on CCRCs. This bill would protect these nonprofits from having to pay back taxes due to the change in DOR’s interpretation of the law.
• Bills in the House (H.B. 499) and Senate (S.576) to reinstate the North Carolina earned income tax credit (EITC). The EITC provides additional income for working families that can provide them greater financial security. Many nonprofits have advocated for the reinstatement of the state EITC. Under the bill, the refundable state EITC would be 20% of the amount that eligible taxpayers receive for the credit on their federal income taxes.
• A House bill (H.B. 556) and two Senate bills (S.625 and S.710) that would significantly increase corporate income tax rates (from the current rate of 2.5% to 5% or 5.25%) and would increase individual income tax rates for high-income North Carolinians. These proposals would make North Carolina’s state tax system more progressive and could generate some additional tax revenue that could be used for state programs. They also would increase taxes on nonprofits that pay unrelated business income tax.
• A bill (S.713) to create a new refundable tax credit for early childhood professionals.

None of these bills are subject to the crossover deadline, so legislators could take up any of them later in the session.

Proposals to Establish Redistricting Criteria for 2021

The General Assembly is required to redraw North Carolina’s congressional and state legislative districts every 10 years. Legislators will likely begin this process in the fall once final Census data is available to help determine the size of the state's 14 congressional districts, 120 state House districts, and 50 state Senate districts. In the meantime, legislators have filed three bills that would set criteria for drawing districts:

• A proposal filed in the NC House of Representatives (H.B.495) and the NC Senate (S.581) would use criteria established by a variety of court decisions over the past decade to avoid partisan or racial gerrymandering.
• Another bill (S.511) filed in the NC Senate would use a “county cluster” system developed by a group of Duke University mathematicians to create redistricting maps that are not based on partisan political interests.

Currently, state legislators develop North Carolina’s congressional and state legislative districts. Legislators from both parties (when they have been in the majority) have used gerrymandering to create districts that are largely non-competitive and that favor politicians from their own political party. Gerrymandering typically makes elected officials more responsive to political donors (who fund their primary campaigns) and less responsive to constituents and nonpartisan nonprofits in their districts. The Center supports a change to an independent redistricting process, which would strengthen nonprofits’ voices in public policy advocacy.

Bills That Didn't Make the Crossover Deadline

Several legislative ideas of interest to nonprofits didn't pass the House and Senate and are ineligible for consideration during the remainder of the 2021-22 legislative session. These include proposals to:

• Raise the state's minimum wage from $7.25/hour to $15/hour;
• Require most employers to offer paid sick leave or paid family and medical leave;
• Require employers to provide their workers with paid 20-minute work breaks when they are working shifts of six hours or more;
• Prohibit employers (including nonprofits) from discriminating in wages paid for equivalent work on the basis of gender; and
• Prohibit employers from requiring workers to receive certain types vaccinations, including COVID-19 vaccinations (or to inquire whether workers are vaccinated).

What to Expect in the Second Half of the Legislative Session

After spending several weeks passing hundreds of bills leading up to the crossover deadline, legislators will shift their focus to preparing the state budget in late May and June. In addition to setting priorities for state spending the next biennium, the budget could include a variety of tax law changes and other policy proposals. While legislators are working on the budget, both the House and Senate will consider bills that passed the other chamber prior to the crossover deadline.

Legislators will probably develop a COVID-19 relief bill to appropriate the state's ARP funds soon after the state budget is finished. This process could begin in June and be completed by July. Once the budget and COVID-19 bills are done, the General Assembly could take a break until the fall when legislators will need to reconvene for a special session on redistricting.

To keep up to date on the latest state policy developments affecting North Carolina's nonprofit sector, check out the Center's weekly Nonprofit Policy Update each Friday (or sign up if you're not already receiving them).