Spring is coming next week, which means that North Carolina can expect plenty of pollen, rain storms, and...no state budget. This week’s policy update begins with details of Governor Stein’s proposal for $1.3 billion in spending to address critical needs in the state that are going unmet since legislators haven’t been able to agree on an overall state budget. We include information about new bills filed in Congress that could create liability risks for fiscal sponsors. And we provide information on the Center’s upcoming Nonprofit Policy Conversations.
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Governor Stein Requests Critical Needs Budget |
On Monday, Governor Josh Stein sent a request for a critical needs budget to leaders in the NC Senate and NC House of Representatives. North Carolina is the only state in the country that has not passed a state budget for FY2025-27. While North Carolina law ensures that recurring state funding continues even if legislators cannot agree on a budget (meaning there is no threat of a state government shutdown), the absence of a budget prevents lawmakers from appropriating money for new needs in various parts of the state, making new grants to nonprofits, and increasing pay for state employees and public school teachers. Governor Stein’s $1.3 billion proposal would address some of these needs, including:
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- Providing $319 million to fully fund Medicaid through June 30, 2026. Without this funding, the NC Department of Health and Human Services (DHHS) may soon need to cut rates to Medicaid providers (including some nonprofits) and/or reduce services to Medicaid recipients.
- Providing pay increases for state employees and public school teachers.
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Investing $20 million to increase the child care subsidy rate.
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Providing funding to cover the administrative costs associated with two changes that the state must make to its Medicaid program this year to comply with provisions in the One Big Beautiful Bill Act (OBBBA) that Congress passed last summer. Under OBBBA, North Carolina is required to have work requirements for Medicaid participants and to verify Medicaid participants’ eligibility every six months instead of every year. Both of these new requirements must be implemented by January 1, 2027.
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Reinstating the NC State Bar’s ability to make grants through the Interest on Lawyers’ Trust Accounts (IOLTA) grant program for FY2025-26. A state law from last summer (S.429) prevents the State Bar from making IOLTA grants this year. The IOLTA grant program typically provides grant funding to a variety of legal services programs, so this state law has essentially defunded many legal services nonprofits for 2026.
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It is unclear whether legislators will take up all or part of Governor Stein’s proposed critical needs budget – or a full state budget – when they return to Raleigh for their 2026 short session on April 21. |
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NC House Property Tax Committee Could Make Recommendations Next Week
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Property tax reform is likely to be a major priority for the NC General Assembly during its 2026 short session. The NC House of Representatives Select Committee on Property Tax Reduction and Reforms, which was formed in December and has met three times so far, is scheduled to meet again next week to consider possible legislation for the short session.
Changes to state property tax laws could affect charitable nonprofits in a variety of ways. Legislative proposals could include limiting or eliminating property tax exemption for some 501(c)(3) nonprofits. And proposals to limit local governments’ ability to increase property tax collections could help keep lease prices down for nonprofits that rent their property but also could force many counties and municipalities to cut back on expenses, potentially meaning fewer local government grants for nonprofits. The Center has written a blog post to help your organization better understand what is at stake for nonprofits in property tax reform.
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New Bills in Congress Could Create Liability Risks for Fiscal Sponsors |
Last week, legislation was introduced in the U.S. Senate (S.3942) and the U.S. House of Representatives (H.R. 7799) that could create new liability risks for charitable nonprofits that serve as fiscal sponsors for other programs or organizations. Under a fiscal sponsorship arrangement, a 501(c)(3) nonprofit enters into a memorandum of agreement with another nonprofit or unincorporated entity (the sponsored program) to provide administrative services, fiduciary responsibility, and receive tax-deductible contributions for the sponsored programs. Fiscal sponsorship arrangements are common for newly-formed nonprofits that have not yet received their determination of 501(c)(3) status and for programs that are intended to be short-lived.
The new bill, known as the Stop Proxy Organizations Nurturing Subversive Operations and Riots Act (SPONSOR Act), would make fiscal sponsors subject to criminal and civil liability for “covered activities” of their sponsored programs. Covered activities include: |
- Aiding and abetting in acts of international terrorism, including providing substantial assistance to an individual or organization engaged in international terrorism;
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“By force or a specified and credible threat of force, or by physical obstruction, intentionally injuring intimidating or interfering with or attempting to injure, intimidate or interfere with any person lawfully exercising or seeking to exercise a constitutional right”; and
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“By using force or a specified credible threat of force or by physically blocking the movement of any article or commodity in commerce to intentionally prevent the lawful movement of interstate and intrastate commerce.”
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The second two types of covered activities that could lead to potential criminal or civil liability for fiscal sponsors are broad and vague. The Center has concerns that, if the SPONSOR Act were to become law, it could deter some nonprofits from becoming fiscal sponsors and could lead to increased insurance, legal, and monitoring fees for nonprofits that currently serve as fiscal sponsors. Senator Ted Budd (R-NC) is one of the two Senate sponsors of the SPONSOR Act.
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Reminder: GSA Accepting Public Comments on Proposed Anti-DEI Certification Requirements for Nonprofits with Federal Grants |
On January 28, the U.S. General Services Administration (GSA) posted a notice on the Federal Register indicating that it intends to amend the certification requirements in the System for Award Management (SAM) registration system for nonprofits with federal grants to “align with updated executive branch guidance” on discrimination. The posting specifically references the June 2025 U.S. Department of Justice (DOJ) memo with guidance on the types of policies and practices that are deemed “unlawful discrimination” for recipients of federal funds, including nonprofits with federal grants or contracts. Among other things, the memo asserts that diversity, equity, and inclusion (DEI) policies and practices are unlawful discrimination and asserts that “unlawful proxy discrimination” is unlawful discrimination. The memo gives several examples of “proxy discrimination” in hiring and promotion decisions and determinations about program recipients for nonprofits receiving federal funding. These examples include the use of criteria like “cultural competence,” “lived experience,” “overcoming obstacles” narratives, and targeting programs and services to specific geographic areas based on their racial or ethnic composition. The memo implies that federal agencies could freeze or discontinue grant funding for nonprofits that are engaged in practices or policies that DOJ deems discriminatory, either directly or through proxy criteria.
GSA also has posted on the Federal Register a draft of its proposed certification requirement (click “Download File” on the link to access the draft certification). Because the proposed certification requirement is broad and vague, the Center and other nonprofits are concerned that many nonprofits with federal grants and contracts may not be comfortable signing the certification since it may not be clear whether their policies, procedures, and operations are consistent with the terms of the certification. This concern is heightened by DOJ’s recent increase in investigations and prosecutions of federal contractors for alleged violations of the False Claims Act. Nonprofits that are unwilling or unable to make required certifications on SAM.gov can lose their federal funding.
GSA is accepting public comments on the proposal for amendment SAM certification requirements through March 30. Nonprofits with concerns about the proposed certification requirements may want to consider submitting public comments. Nonprofits also can join on a national sign-on letter to GSO expressing concerns about the proposed certification requirements.
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Center Offering Nonprofit Policy Conversations This Spring |
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Monday, March 23 from 10 a.m. -12 noon in Asheville in collaboration with WNC Nonprofit Pathways (register now); and
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Monday, April 27 from 10 a.m.-12 noon at Foundation For The Carolinas in Charlotte in collaboration with Foundation For The Carolinas (register now).
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At each policy conversation, the Center will provide a public policy briefing that includes the latest information about recent federal executive actions that could affect nonprofits and a preview of what nonprofits can expect during the 2026 short session of the NC General Assembly. We will also have a discussion for participants to share their insights about important state and federal policy issues for 2026.
The Center is planning additional policy conversations for Fayetteville (in collaboration with Cumberland Community Foundation), the Triad (in collaboration with Guilford Nonprofit Consortium and HandsOn Northwest North Carolina), and other regions of the state. Details and registration information will be available soon. |
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Alert! Scam Emails About Center’s 2026 Conference |
The Center has been alerted of scam emails claiming that hotel reservations for the Center’s 2026 nonprofit conference are almost full and promoting a link to reserve hotel rooms now. These messages may look legitimate but are not from the Center. Please do not click any links or respond to the messages. If you receive a similar or suspicious message and are not sure whether it is legitimate, contact the Center’s staff to verify. Thank you for your vigilance.
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