Legislation in Oregon last year would have threatened tax deductibility of donations to charities that didn’t meet administrative spending thresholds for three years got a lot of attention. Other moves targeting nonprofits have been brought by governors or in some cases administratively, outside the purview of state legislatures.
In Kansas, the Department of Social and Rehabilitation Services (KDSRS) has started to include language in contracts with services providers that they may not use funds “directly or indirectly” for lobbying purposes.
Tim Delaney, president and CEO of the National Council of Nonprofits (NCN), said the effort by the Sunflower State adds to federal standard boilerplate language about not using federal funds to try to influence federal legislation. Some nonprofits already have questioned the measure, unclear about the new language, and don’t plan to renew contracts with the SRS in the next fiscal year (which began July 1).
It’s another in a list of recent moves by states that seems to often target not just nonprofits but especially human services providers. Connecticut and Massachusetts have placed restrictions on reimbursement rates under contracts for some human services providers. New York Gov. Andrew Cuomo has proposed a cap on executive compensation at organizations that contract with the state, an effort not dissimilar from an attempt two years ago by his neighbor, New Jersey Gov. Chris Christie. Christie last year proposed a cap on how much the state is willing to pay toward CEO salaries and employee benefits for nonprofit social service agencies with which the state contracts.
A new requirement that recently surfaced in New Jersey requires fundraising counsel to make disclosures about gross revenue and percentage of revenue, according to Robert Tigner, general counsel for Association of Direct Response Fundraising Counsel (ADRFCO). “What they’ve done, intentionally or not, is confused what fundraising counsel does with what solicitors do,” he said, with proposed regulations and forms that reflect that confusion, now contradicting existing statutes.
Among things sought on the form are proceeds on a particular campaign in that calendar year. “That’s not first-party information for counsel by definition because they don’t handle the money,” said Tigner, adding that people won’t be swearing that the information on the forms is accurate and true when it’s not their information.
In addition, New Jersey has more forms than other states, and often a fee is attached with each one, According to Tigner, in this instance it is $10. It’s not unusual for a big agency to have 20 or 30 regional and national clients, he said.
Compliance has matured, Tigner argued. “People know and understand how it’s supposed to work. Patience for states not bothering to keep up is diminishing,” he said.
Human service providers are an easier mark for lawmakers in terms of cutting costs, said David Thompson, NCN’s vice president of public policy. Legislation should be across the board, focusing on all contractors, but “we’re not a political force, road builders are,” he said. “Roads you see, from a budget perspective. Mental health issues are put out of sight, out of mind,” he said.
“We should stay nonpartisan,” Thompson said, but there are “recurring problems of policy makers disregarding the work that we do.” There’s also a “constant problem” of lawmakers forgetting that nonprofits are independent on purpose, he said, and often already are more transparent on things like executive compensation because of their federal Form 990.
The good thing about Cuomo’s effort, he said, is that it’s not limited to nonprofits but applies to all contracting relationships with the state, whether it’s with a nonprofit or a for-profit entity. “Kudos to Cuomo for not making it as bad as possible,” said Thompson.
Cuomo proposed new regulations that would cap executive salaries at $199,000 for organizations that contract with the state. Pay packages could be higher but organizations would have to find other funding sources to make up the difference as well as get special permission.
Nonprofits that receive at least 30 percent of their overall funding from the state would be impacted. A minimum of 75 percent — 85 percent by 2015 — of a providers’ state funding must go toward program services rather than administrative costs. The proposal came not long after a former state senator was convicted earlier this year of using his health clinics for personal gain. A New York Times report last year put the spotlight on an organization that received millions of dollars in Medicaid reimbursement while its CEOs earned millions in annual salaries and charged a daughter’s college tuition payments for graduate schools.
Doug Sauer, CEO of the New York Council of Nonprofits, expects quite a bit of confusion in the marketplace about what is an executive, what is compensation, what are the waivers and reporting requirements. “There’s a whole arena opened up here that goes far beyond what the governor has proposed,” he said. “Hopefully it stays focused on the bad apples and excessiveness but my concern is" administrative costs are skyrocketing for every nonprofit that does business with the state because of the compliance and administrative burdens placed by the state, said Sauer.
“We have administrative costs going up in doing business with the state, then downward pressure on administrative costs by the state,” said Sauer.
He’d like to see a commitment from the state to reduce administrative expenses on nonprofits because the rising costs may cause nonprofits to not do business with the state while opening the door for other entities like L3Cs that don’t require the same level of accountability or limitations of charities.
The governor (Cuomo) certainly has opened up this issue, which has been good for dialogue, said Sauer, because most people are underpaid for the work they do. What hasn’t been mentioned is how much the bureaucracy and administrative burdens ultimately will cost, Sauer said, and “will it catch all of the bad apples?”