Washington Snapshot - July 8, 2016

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Don’t miss your last chance to register for our Washington Update LIVE!: Philanthropy’s Voice in the Policy Process, taking place next Tuesday, July 12 from 2:00-3:00 pm ET. This webinar will discuss the importance of advocacy and highlight opportunities to engage with your policymakers. Register Now.

Field Signals Support for Preserving DAFs

As our readers will recall from two weeks ago, The Washington Post published a piece on donor advised funds (DAFs) that outlined an inaccurate and damaging list of assertions about the giving tool.

The Council responded by penning a letter highlighting the mischaracterizations in the article. More than 70 community foundations have joined in co-signing this letter to signal their support for protecting giving options that help citizens advance the common good in their communities.

If you would like to add your support to this letter, please email your name, title, and foundation name to govt@cof.org.

News from the Hill

Bill to Restrict Foreign Contributions Introduced in House

A bill was recently introduced in the House by Congressmen Louie Gohmert (R-TX) and Pete Olson (R-TX) that would ban certain 501(c)(3) organizations from knowingly accepting or soliciting donations from individuals “connected to a foreign government.”

The Contributions Legally Interdicted from Noncitizens to our Nonprofits Act (H.R. 5581), dubbed the CLINTON Act, would prohibit any charitable organization with which a “Federal official” (all current and former: United States Presidents and Vice Presidents, Members of Congress, Federal Judges, and Presidential appointees) is or was involved from accepting or soliciting contributions from anyone connected to a foreign government (either directly or within four degrees of familial relation).

The definitions as written in this bill are expansive, and would apply to a tremendous number of individuals—and subsequently, a significant number of nonprofits. The bill has been referred to Committee, but has not gained much traction as of yet.

We will continue to monitor and relay any new developments on this bill.

Executive & Regulatory News

New Survey Results on Impact of DOL Rules on Nonprofits

This week, the National Council of Nonprofits released a report about the effects of the new Department of Labor overtime rules on nonprofits with government grants and contracts.

The report is based on a survey of over 1,000 nonprofits from 50 states. The key findings show that most of these nonprofits support the intent of the regulations—acknowledging that the changes encourage “just wages”—but also worry about how they will comply with the regulations in the face of budget constraints.

As the sector continues to grapple with the implementation of these regulations, this report makes it clear that nonprofits will be seeking increased short-term transitional support to maintain operations and service levels during the interim phase of implementation.

For more information or to explore the report, you can visit the National Council of Nonprofits website.

Trending in Legal Affairs

‘Til DAF Do Us Part, 2.0

In a previous edition of Trending in Legal Affairs, the legal team addressed the issue of donor advised funds (DAFs) and divorce, and recommended foundations wait until a marriage dissolution agreement is entered before making any changes to the fund. This is to ensure that the foundation is compliant with any of the court orders regarding advisory privileges to the fund.

But what if the divorce settlement fails to address the DAF?

The legal team recently received a question from a community foundation member that was experiencing this very dilemma. A husband informed the foundation that he and his wife had divorced, and the two agreed to split their DAF held at the foundation, such that each would retain advisory privilege but on separate funds. However, the fund was not addressed in the couple’s formal divorce settlement, nor was the contingency of divorce mentioned in the fund agreement.

When a divorce settlement decree is silent as to the advisory privilege of a DAF, and the foundation does not have a policy addressing disassociation of joint advisors, the legal team recommends including an addendum to the fund agreement (see below for sample language), preferably signed by the parties involved.

In the event a divorce of the parties occurs or is pending, the XYZ Foundation may, upon receiving notice of such action or event:

1. Suspend processing of any grant distribution recommendation unless and until the parties agree in writing to approve the grant distribution recommendation, or

2. Suspend processing of any grant recommendations unless and until the parties have jointly agreed in writing to an alternative procedure, acceptable to the foundation. Subject to approval by the foundation, the parties may jointly authorize the foundation to bifurcate any fund, designating each party individually, or such other successor advisor as a party may designate, to serve as the individual advisor to his/her own individual successor fund created as a result of bifurcation.

In the event the parties cannot jointly agree as provided above and no agreement of the parties or other legal order has been entered or approved, the foundation may, at its sole discretion, bifurcate any fund into equal shares and designate such party individually, or such other successor advisor as a party may designate, to serve as the individual advisor to his/her own individual successor fund created as a result of bifurcation.

For more information on this or any other tricky legal matters, please contact the Council’s Legal Affairs Team at legal@cof.org.

Access to the Council’s legal team is a valuable member benefit. Council attorneys are available to discuss your legal questions and to provide legal information by telephone, email and through our various publications and newsletters. This information is intended for educational purposes and does not create an attorney-client relationship. The information is not a substitute for expert legal, tax or other professional advice tailored to your specific circumstances, and may not be relied upon for the purposes of avoiding any penalties that may be imposed under the Internal Revenue Code.

Happening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

New Fiscal Year, Same Old State Fiscal Challenges

The new fiscal year is only one week old in most states, but officials are already declaring budget crises caused by revenue shortfalls or political posturing. In many cases, the impact is felt most immediately on the work of foundations and nonprofits and the people they serve.

Political leaders in Illinois reached agreement on a short-term spending bill to get past the November elections that provides funding for nonprofit-provided social services, as well as public education and essential governmental functions. The partial budget is considered a temporary reprieve from the bitter partisan wrangling between the Governor and Legislature that prevented agreement on a budget for this past fiscal year which left nonprofits bound by contracts to provide services but allowed the state to withhold payments for a year or longer. The new spending bill will make it possible to pay down debts owed to human service providers, but, as Martin Levine of Nonprofit Quarterly summarized the ongoing challenge for Illinois nonprofits, “Those charged with providing essential services have some money to spend but remain without a clear picture of their future and still in need of ways to fund what the state will not for their clients and students.”

Legislators in Louisiana ended their special session last week having raised less than half of the $600 million needed to balance that state’s budget for the new fiscal year. They specifically rejected calls from the Governor to adopt several tax hikes, asserting that they will instead enact comprehensive tax reform in 2017.

Stating that Alaska has lost 80 percent of its income due to low oil prices, the Governor vetoed more than $1 billion in spending, using his line-item veto authority. Among others, the cuts will reduce state funding for college scholarships, and for primary and secondary education, putting pressure on local governments to raise revenues from other local sources. The Legislature returns Monday for another special session to consider these vetoes and other fiscal measures.

Last week, Connecticut’s Governor announced $130 million in cuts and targeted holdbacks for state fiscal year 2017. The cuts fell the heaviest on human services ($38.9 million, including criminal justice), education ($31 million, including higher education) and arts, culture and the humanities ($4.9 million). On the same day, New Jersey’s Governor signed an executive order preventing state spending of $100 million—$45 million in budgeted funding for social programs and $54 million in transitional aid to cities. Governor Christie’s news release explains that the funds are being withheld “in response to the Legislature’s inability to responsibly budget for the State’s existing health care costs or force the enactment of … health benefit reforms affecting public employees.”

Finally, the Governor of Pennsylvania has until midnight Monday to decide whether to sign a budget bill that he says is $150 million out of balance. Nonprofits in the Commonwealth are concerned about another budget standoff; earlier this year a survey found that at least 135 nonprofits had to borrow nearly $200 million to keep their doors open while awaiting payments for services under government grants and contracts. Anne Gingrich of the Pennsylvania Association of Nonprofits Organizations, recently concluded, “of course there's concern, especially when we know that the clients that are being impacted by the services we provide may or may not be able to receive services very long into this current fiscal year."