In This Week's Edition of Snapshot…
- Senator John McCain Leaves Behind a Legacy
- Senate Passes Spending Bill Package
- Treasury Proposes Rules on State-Level SALT Workarounds
- Primary Elections Held in Arizona and Florida
- States Respond to Work Requirements Differently
- Payments in Lieu of Taxes (PILOTs): Faulty Data Lead to Faulty Allegations
On Saturday, Aug. 25, Sen. John McCain (R-AZ) passed away at the age of 81. According to The Wall Street Journal, “Mr. McCain catapulted to national prominence with his 2000 bid for the GOP presidential nomination, when his willingness to challenge ideas held sacred by his party helped him catch fire among Republicans in a long-shot bid against George W. Bush. … Eight years later, Mr. McCain won the Republican presidential nomination, but lost to Barack Obama, then a first-term senator. He moved past his disappointment to carve out a reputation as a leading internationalist who warned that Russia posed a threat to the post-Cold War order—one of the Senate’s most ardent military hawks and one of the few willing to vocally challenge President Donald Trump.” Sen. McCain will lie in state—an honor reserved for America’s most eminent citizens—in the Capitol Rotunda, before being buried in Annapolis, MD, this weekend.
Arizona Gov. Doug Ducey (R), will name Sen. McCain’s replacement in the coming weeks. According to POLITICO, “Republicans with knowledge of the governor’s thinking say he’ll have to remain deferential to Trump and the White House while also taking care not to alienate a statewide electorate ahead of a tough reelection fight in November. [Gov.] Ducey—a former Coldstone Creamery chief executive—was hesitant to publicly endorse Trump in 2016 but showed up to at least two closed-door campaign events for him before the election, said one Republican close to the governor.” Whoever is appointed to the vacant seat would serve until 2020, when a special election would be held to determine who will serve for the remaining two years of Sen. McCain’s term.
It is not yet clear how Sen. McCain’s death—and the appointment of his replacement—will impact the makeup of the various committees in the Senate, but the Council will be sure to let members know as updates become available.
Last Thursday, the Senate passed a fiscal year (FY) 2019 funding package of $857 billion. This spending package—if signed by the President—would fund the departments of Defense, Labor, Education, and Health and Human Services (HHS).
This uncommon act of bipartisanship is a strategy to avoid a presidential veto and a possible government shutdown in late September. It’s unclear if President Trump will sign any of the fiscal year 2019 bills without the $5 billion of funding for the border wall. Lawmakers in the House and the Senate only have 11 weeks left to reconcile the different versions of the bills before the Sept. 30 deadline when government funding will run out. According to POLITICO, “[Senate Appropriations Committee Chairman Richard Shelby (R-AL)] said that Senate leaders intentionally paired the Pentagon’s budget with that of wide-ranging domestic departments to create a bundle that they believe Trump couldn’t refuse.”
The article continues, “[if signed into law], the Senate’s bill would deliver a $20.4 billion increase for the Pentagon, lifting its budget to a near-historic high. The measure would also fund a 2.6 percent pay raise for troops and would pay for 6,961 additional soldiers.” Democrats applauded the increase of funding for non-defense related programs like Head Start, mental health and school grants.
On Monday, the Treasury Department released its notice of proposed rulemaking in response to the workarounds for the newly enacted cap on the state and local tax (SALT) deduction. The $10,000 cap was established by last year’s tax code overhaul, and since then, high-tax states have been considering and enacting laws that would let taxpayers claim a credit against state taxes if they donate money to a state-backed charity.
The proposed rules would eliminate the benefit of utilizing the SALT cap workarounds by stating that such programs are essentially “quid pro quo,” and taxpayers are not truly donating without expecting a benefit. Therefore, for any benefit a taxpayer receives in the form of a state tax credit for making a charitable contribution, that taxpayer would have to reduce their charitable deduction by the same amount of the state credit. This is intended to (and does) defeat the purpose of the workarounds.
Unfortunately, the collateral damage of the proposed rules are some programs that allow tax payers to receive a state credit for certain charitable donations. States including Arizona, Georgia, and South Carolina allow taxpayers a 100% state tax credit for donations to charities supporting private schools, while Iowa, Kentucky, Maryland, Montana, and North Dakota give a tax credit for donations to qualified endowed funds. A total of 32 states and the District of Columbia have programs that would be negatively impacted if this ruling is implemented as written.
We know how important these state-giving incentives are for many of our members. The Council will be submitting comments to Treasury about the proposed rules and the negative effects they would have on charitable giving. If you are a Council member and have examples of how your foundation and community will be affected by reducing this tax incentive, please contact us at firstname.lastname@example.org so we can include your examples in our comments. We also encourage you to submit your own comments, and our staff would be happy to assist members wishing to do so.
In the weeks ahead, we will include updates from the midterm election trail. This is intended to provide nonpartisan, matter-of-fact election news about the primary races that will play a key role in the outcome of the November elections.
Primaries were held Tuesday in two key states: Arizona and Florida. In Arizona, Rep. Martha McSally won the GOP primary race to face-off against Democratic Rep. Kyrsten Sinema to become Arizona’s first female senator. Rep. McSally easily defeated two challengers for the Republican nomination with 52% of the votes, but not without having to embrace a more conservative stance on key issues like immigration (which is a change of pace from her more moderate record in the House). The outcome of this Senate race will be an important factor in determining whether Democrats or Republicans end up with a majority in the Senate.
In Florida, the attention was on the primaries for gubernatorial nominees. Republican member of the House, Rep. Ron DeSantis, was victorious in securing his party’s nomination. His campaign strategy focused on aligning with President Trump and his conservative rhetoric—which proved to be a successful tactic. On the Democratic side, Tallahassee Mayor Andrew Gillum clinched the victory to become his party’s nominee for governor. Leading up to the face-off, Mayor Gillum trailed in the polls to his establishment-backed opponent, Rep. Gwen Graham. Mayor Gillum, who was endorsed by Sen. Bernie Sanders (I-VT), ran a progressive campaign focusing on issues such as repealing the state’s controversial “Stand Your Ground” law, Medicare for all, and raising the minimum wage. If he wins the election in November, Mayor Gilliam would become the first black governor of Florida.
Until Tuesday, many political spectators expected a race for governor that had Rep. Graham (a moderate Democrat) facing Rep. DeSantis (a President Trump-backed, conservative Republican). Now, the dynamics of the race look very different with a far-right candidate facing a far-left candidate in a state that has been historically ‘purple.’
Also in Florida, Gov. Rick Scott won the Republican nomination to challenge incumbent Democratic Senator Bill Nelson for his seat this November. As with the Senate race in Arizona, this too will be a key factor in determining which party controls the majority in Congress’ upper-chamber for the 116th Congress.
Exclusive from our colleagues at the National Council of Nonprofits.
Montana’s voluntary work program for Medicaid recipients appears to be succeeding while bucking a new trend by states that are mandating a work requirement for benefits. The Montana program has provided employment services to more than 22,000 individuals in the state, 78 percent of whom have found jobs after completing the program. Montana’s governor announced, “While other states are pushing work requirements that have it backwards, we are putting more people to work with higher wages.” Five other states are interested in implementing similar programs that make the employment services available, but do not mandate that recipients of benefits work or volunteer with a nonprofit for a certain number of hours each month.
On the mandated side of the issue, four states have received (and eight more are awaiting approval) to impose a work requirement in one or more of their public programs, an approach that has been promoted by the Trump administration and the U.S. Department of Health and Human Services. Three organizations in Arkansas are suing the Trump administration to stop work requirements attached to Medicaid. Enrollees reportedly are struggling to meet the requirement, with 30 percent not qualifying. The National Health Law Program, Legal Aid of Arkansas, and Southern Poverty Law Center filed the suit, arguing that the waiver does not meet Medicaid’s objective of providing healthcare to the poor. The lawsuit is similar to a so-far successful challenge in Kentucky, the first state to receive approval for the work requirement.
In seeking money from nonprofits to fill budget gaps, local politicians frequently assert, without data, that half the property in the community is exempt from property taxes and charitable organizations are to “blame.” New maps in New Jersey prove the fallacy of the allegation. In the Garden State, charitable nonprofits and houses of worship own a very small amount of tax-exempt property in townships. Amounts are determined by the property value of the charitable nonprofits and houses of worship compared to the property value of all tax-exempt property. Six of the 15 townships listed have charitable nonprofits and houses of worship making up less than five percent of the tax-exempt property in the township, and in five localities charitable nonprofits and houses of worship own less than 11%.
The issue of property ownership plays out in the minds of policymakers in interesting ways. The city council in Hendersonville, North Carolina is currently considering targeting charitable nonprofits and churches in the community by implementing a "voluntary" PILOT program to seek tax payments from their tax-exempt property. A public records request indicates tax-exempt properties in the city make up $404.5 million in value, yet the largest share of tax-exempt properties ($170 million) is occupied by federal, state, and local governments—not nonprofits.