With the NC General Assembly’s 2026 short session beginning next Tuesday, this week’s policy update focuses on potential state legislation that could impact nonprofits, including property tax reforms, a possible state budget, and Medicaid funding and administrative changes. We remind you of the Center’s two-part legal compliance workshop (which begins this morning) and upcoming Nonprofit Policy Conversations. And we provide information about a settlement agreement between the federal government and a contractor that was allegedly engaged in DEI practices and a recent ICE change to Form I-9 enforcement that could affect nonprofits hiring new employees.
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Register Now! Nonprofit Legal Compliance Workshop Series Begins This Morning |
These weekly policy updates provide information on policy issues that could become laws in the future. Of course, nonprofit staff and board members need to be aware of a wide range of existing laws and regulations that affect their organizations’ operations. To help you better understand these laws, the Center is offering a two-part workshop series on legal compliance for nonprofits. The online workshops will be held on today (April 17) and next Friday (April 24) from 10:00-11:30 a.m.
The first part this morning will cover nonprofit corporate governance, charitable solicitation, fundraising laws, and employment laws. The second part on April 24 will cover federal and state tax compliance issues for 501(c)(3) nonprofits as well as laws and regulations related to federal and state grants and contracts. The Center plans to offer three hours of CLE credit for attorneys who attend the live online workshops (pending approval). Register now.
Along with the legal compliance workshop series, the Center also plans to publish its updated and expanded legal compliance checklist this month. |
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NC House Property Tax Committee Approves Two Proposals that Could Impact Nonprofits |
With property tax reform 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 met on Wednesday to approve two legislative proposals for changes to state tax laws, all of which could have implications for 501(c)(3) nonprofits: |
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Levy limits. This proposed constitutional amendment on the November 2026 ballot would require the NC General Assembly to establish limits on how much counties and municipalities may increase property tax levies. If the constitutional amendment were to pass, legislators would then work on the details of these levy limits next year. 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.
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Affordable housing property tax exemption changes. This bill would make changes to property tax exemption for affordable housing purposes. Currently, joint ventures between affordable housing nonprofits and for-profit businesses that own affordable housing units are exempt from property tax exemption, regardless of how the joint ventures are funded, how much of the property is owned by the nonprofit, and whether the joint venture intends to develop new affordable housing. The use of the affordable housing property tax exemption has increased significantly over the past three years, leading to declining property tax revenue for many counties and municipalities around the state. Under the proposed legislation, there would essentially be two types of affordable housing property that would be eligible for property tax exemption: (1) property that is 100% owned and managed by a nonprofit providing affordable housing services, regardless of how it was financed; or (2) property that is financed through federal Low-Income Housing Tax Credits (LIHTC) or other government funding like bonds, even if it is owned by a joint venture where a nonprofit only has partial ownership.
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Committee chairs will likely file these two proposals as bills once the 2026 short session begins next week. The committee also did not vote on two other legislative proposals that were presented at last month’s meeting and could have affected nonprofits: |
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Hospital property tax exemption limits. This bill would have limited property tax exemption for nonprofit hospitals at 50% of the appraised value of their property, beginning on July 1, 2026. Currently, nonprofit hospitals, like most other nonprofits, are eligible for property tax exemption for the full value of the property that they own and use for charitable purposes. Limiting property tax exemptions for nonprofit hospitals would significantly increase operating costs for these organizations, which could force them to cut back on community investments, including support for other nonprofits in their communities. The proposal also would have set a troubling precedent by suggesting that taxing nonprofits can be a solution to local government revenue shortfalls.
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Nonprofit sales tax refund changes. This proposal would have made two changes to the nonprofit sales tax refund system. First, it would have lowered the annual cap on individual nonprofits’ sales tax refunds from $45 million (including $31.7 million in state taxes and $13.3 million in local taxes) to $14.4 million (including $10 million in state taxes and $4.2 million in local taxes). Second, it would have treated affiliated nonprofit hospitals as a single entity for the purposes of the cap on sales tax refunds further limiting sales tax refunds for some nonprofit hospitals and health systems. In addition to creating financial challenges for nonprofit hospitals, this proposal would have set two troubling precedents that could ultimately affect other nonprofits: (1) lowering the cap on nonprofit sales tax refunds as a way to generate state and local government revenue; and (2) providing less favorable tax treatment for nonprofits that are affiliated with other organizations.
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The committee chairs announced during Wednesday’s meeting that the committee will continue to meet through at least December 2026. It remains possible that the committee could reconsider these proposals and other potential legislation to limit nonprofit property tax exemption later this year. 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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Several Legislative Priorities During 2026 Short Session Could Affect Nonprofits |
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The NC General Assembly begins its 2026 short session next Tuesday, April 21. During the short session, legislators can vote on a state budget, bills that passed either the House or Senate in 2025, legislation recommended by a study committee, and election law changes. Several legislative priorities for the short session are likely to have significant impacts on nonprofits, including: |
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Passing a state budget. North Carolina is the only state in the country that has not passed a state budget for FY2025-27 after the House and Senate ended their 2025 session without agreeing on a compromise budget. 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.
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Medicaid funding. Last year, the NC General Assembly failed to fully fund Medicaid for FY2025-26, leaving a funding gap of about $319 million. Because of this, the NC Department of Health and Human Services (DHHS) implemented Medicaid rate cuts effective October 1, 2025. DHHS retroactively rescinded these rate cuts in December 2025 after a variety of Medicaid providers sued DHHS. Both the NC Senate and the NC House of Representatives have unanimously approved bills to fully fund Medicaid, but the chambers have been unable to agree on whether to include other provisions in the Medicaid funding legislation. Without agreement on full Medicaid funding early in the short session, DHHS could be forced to make further cuts to Medicaid next month.
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Medicaid changes to conform with OBBBA. The One Big Beautiful Bill Act (OBBBA) that Congress passed last summer makes several changes to Medicaid that will affect North Carolina’s Medicaid program. Two of those changes – requiring states to have work requirements for Medicaid participants and requiring states to verify Medicaid participants' eligibility every six months instead of every year – will take effect on January 1, 2027. Legislators will likely work with DHHS to amend the state’s Medicaid laws to account for these new requirements, and legislators will need to appropriate funding for the additional administrative costs of adding work requirements and more frequent redeterminations to the Medicaid system.
- Property tax reforms. As noted in the previous item, changes to property tax laws could be a significant priority during the 2026 short session.
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On Wednesday, the Speaker of the NC House of Representatives posted a legislative calendar for the short session. The House plans to have voting sessions on April 21-22, April 28-29, May 5-6, May 12-13, May 18-22, June 2-3, June 9-10, June 16-18, June 23-25, and June 29-July 2. |
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NC House Committee Investigates Medicaid Fraud in North Carolina |
The NC House Oversight and Reform Committee held a hearing yesterday to investigate Medicaid fraud in North Carolina. During the hearing, both the NC Department of Health and Human Services (DHHS) Secretary and the NC Attorney General provided details about the systems their agencies have in place to prevent, detect, and prosecute alleged fraud, waste, and abuse of Medicaid funds. Notably, most of the examples of alleged Medicaid fraud that legislators provided during the hearing involved for-profit health care providers rather than nonprofit providers. Both the DHHS Secretary and the Attorney General provided details of additional support that legislators could give their agencies to strengthen their ability to combat Medicaid fraud, waste, and abuse.
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DOJ Announces $17 Million Settlement Agreement with IBM for Engaging in DEI Practices |
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Last Friday, the U.S. Department of Justice (DOJ) announced that International Business Machines Corporation (IBM) had agreed to pay more than $17 million in a settlement agreement after a DOJ investigation alleged that IBM had violated the False Claims Act by having diversity, equity, and inclusion (DEI) practices in place in violation of the terms of its federal contract. Among other things, DOJ alleged that IBM violated federal antidiscrimination laws because it prioritized diversity by race and sex in its employment practices, including its hiring and promotion decisions. The settlement is the first stemming from DOJ’s recent investigation into DEI practices and activities of federal contractors and grantees.
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Last June, DOJ issued a 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 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.
In light of the IBM settlement agreement, nonprofits with federal grants and contracts may want to review their personnel policies and practices, as well as their criteria for delivery of services, to identify any policies and practices that could be construed as DEI and could lead to allegations that they are violating the False Claims Act by acting in ways that are inconsistent with the terms of their federal contracts or grant agreements. |
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ICE Reclassifies Many Common Form I-9 Errors as Substantive |
Federal law requires most employers, including nonprofits, to submit Form I-9 to the U.S. Citizenship and Immigration Services to verify the identity and eligibility for employment of all newly-hired employees. Employers can be subject to fines if they make substantive errors in their Form I-9 filings or if they make technical or procedural errors and do not correct them within 10 business days.
Last month, U.S. Immigration and Customs Enforcement (ICE) made changes to its policies for Form I-9 compliance. Several types of common errors on Form I-9 filings that had previously been classified as technical errors are now considered substantive errors. These include failure to include the date of birth or date of hire, errors made by the Form I-9 preparer or translator, failure to include the title of the employer or authorized representative, failure to include the date on Form I-9. The new ICE fact sheet on I-9 inspection has more details about Form I-9 compliance. In light of the new ICE policies, it is particularly important for nonprofits to be diligent about the completeness and accuracy of their Form I-9 filings when hiring new employees.
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Join a Nonprofit Policy Conversations This Spring |
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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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Monday, May 11 from 10 a.m.-12 noon at the CCF Community Room in Fayetteville in collaboration with Cumberland Community Foundation (Register Now); and
- Monday, June 15 from 10 a.m.-12 noon at Centennial Station Arts Center in High Point in collaboration with Guilford Nonprofit Consortium, HandsOn NWNC, and One Sector One Voice Triad, and High Point Arts Council (Register Now).
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At each policy conversation, the Center will provide a briefing on recent federal executive actions that could affect nonprofits and a preview of what nonprofits can expect during the NC General Assembly's 2026 short session. We will also have a discussion for participants to share their insights about important state and federal policy issues for this year. |
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