The NC General Assembly opened its 2026 short session on Tuesday, and this week’s policy update focuses on state legislative priorities for this spring. We share information about Governor Stein’s budget proposal, about the first property tax bill of the session that would affect some nonprofits, and about a bill that passed both the NC Senate and NC House of Representatives this week to provide full funding for Medicaid. We also provide details of the newly-passed U.S. Senate budget resolution and of a federal investigation into a prominent advocacy nonprofit that led to criminal charges against the organization.
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| NC General Assembly Begins 2026 Short Session
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On Tuesday, the NC General Assembly began its 2026 short session. 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. Through next week, legislators can file new bills recommended by study committees or that affect state spending or taxes. This week, lawmakers filed 87 new bills, including 30 in the NC House of Representatives and 57 in the NC Senate. Several of these newly-filed bills could impact the work of charitable nonprofits, including:
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A Senate bill (S.800) to implement a “zero-based budgeting” process for state government. “Zero-based budget” plans would require state agencies to plan for the most cost effective way of meeting their goals, starting from scratch rather than using the previous year’s budget as a starting point. Under a “zero-based budget” approach, state agencies could recommend ending some longstanding contractual partnerships with nonprofits but also could recommend contracting with nonprofit service providers for programs and services that traditionally have been provided by the state agencies themselves. The bill would require state agencies to submit “zero-based budget” plans every eight years. Under the proposal, agencies would rotate in when they had to submit these plans, with several divisions within the NC Department of Health and Human Services (DHHS) submitting their plans this year and other agencies submitting their first plans in 2026 and 2028 and other state agencies submitting their plans in 2030 and 2032.
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A Senate bill (S.781) to create a new tax credit for businesses that pay their employees additional wages to cover their health care premiums instead of providing group health plans. Some nonprofits offer these types of health benefits for their employees, through individual coverage health reimbursement arrangements (ICHRAs), qualified small employer health reimbursement arrangements (QSEHRAs), or informal salary supplements to cover employees’ health expenses. Unfortunately, the new Senate bill would not help nonprofits since it would use a non-refundable state income tax credit as the mechanism for the benefit for businesses.
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A Senate bill (S.804) to create an independent redistricting process for developing new congressional and state legislative districts every 10 years. The Center has long supported nonpartisan redistricting because it would give nonprofits a greater voice in public policy advocacy. It is extremely unlikely that lawmakers will approve legislation creating a nonpartisan redistricting process this year.
- A House bill (H.B. 1045) that would set occupational minimum wages of $18/hour to $24/hour for several types of direct care and health care support workers, including many nonprofit employees.
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Governor Stein Releases Proposal for State Budget for FY2026-27 |
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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. Over the next two months, state legislators will try to reach an agreement on a state budget. On Tuesday, Governor Josh Stein released his proposal for the state budget for FY2026-27. Among other things, Governor Stein’s budget proposal recommends:
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- Maintaining the current 3.99% individual income tax rate and the 2% corporate income tax rate.
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Reducing state taxes on individuals, particularly lower-income North Carolinians by increasing the state standard deduction, creating a new working families tax credit, and creating a new refundable state tax credit for child and dependent care expenses.
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Increasing unemployment benefits from a maximum of $350 per week to a maximum of $495 per week and increasing the duration of unemployment benefits from 12 weeks to 20-26 weeks (depending on state unemployment rates).
- Investing $91 million in increased access to child care, including $80 million to increase child care subsidy rates and $11 million in additional funding for NC Pre-K.
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Creating a program where all students in public schools would receive free breakfast at school.
- Providing $2 million in funding for grants to houses of worship and other nonprofits to increase their security systems in light of threats of violence and domestic terrorism.
- Clawing back a controversial $500 million appropriation to NC Innovation, a relatively new 501(c)(3) nonprofit.
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Adding 14 new grants management positions at the NC Office of State Budget and Management (OSBM). Currently, OSBM has five grants management staff. Potentially, this could provide more support for, and oversight of, nonprofits with state grants.
- Eliminating $6.25 million in funding for nonprofit crisis pregnancy centers.
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Providing $7 million in additional funding for scholarships at nonprofit private colleges and universities and $10 million for healthcare training programs at nonprofit private colleges and universities.
- Making significant cuts to the Opportunity Scholarship program which provides vouchers for families with students in (mostly nonprofit) private K-12 schools.
- Providing full funding for Medicaid growth.
- Creating a new state position to support nonprofits working on military and veterans’ issues.
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While legislators are extremely unlikely to approve most of Governor Stein’s recommendations, some parts of his budget proposal could wind up in the state budget later this spring. |
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Legislators Approve Medicaid Funding and Program Changes |
On Wednesday, both the NC Senate and NC House of Representatives gave tentative approval to a bill (H.B. 696) that would provide about $319 million in additional Medicaid funding for FY2025-26. Last year, the NC General Assembly did not approve full Medicaid rebase funding, which is essentially adjusting Medicaid funding to reflect increased enrollment and costs. Because of this funding shortfall, 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. Without the $319 million in funding, DHHS would be forced to make further cuts to Medicaid next month.
The bill also would make several changes to Medicaid that are required and/or necessitated by the One Big Beautiful Bill Act (OBBBA) that Congress passed last summer, including: |
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Directing DHHS to establish work requirements for Medicaid participants; and
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Providing funding (essentially through increased hospital assessments) for the administrative costs of Medicaid work requirements and semi-annual verification of Medicaid participants’ eligibility. (Note: If you are a health care financing wonk and want to know more about the state’s financing of new OBBBA-related Medicaid expenses, you can read Appendix A on pages 6-8 of the bill’s conference committee report.)
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Additionally, the bill would make several other changes to Medicaid in North Carolina, including making eligibility reviews monthly instead of quarterly, directing the State Auditor to conduct a performance audit of the Medicaid program, requiring DHHS to provide legislators with annual reports on efforts to limit fraud, waste, and abuse, and working to identify future Medicaid costs savings. Aside from Medicaid, the bill provides funding for several other state programs, most of which do not directly affect nonprofits. Both the House and Senate will hold final votes on the bill next Tuesday.
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NC House Bill Would Make Changes to Nonprofit Affordable Housing Property Tax Exemption |
A bill (H.B. 1042) filed in the NC House of Representatives yesterday 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. The bill was recommended by the House Select Committee on Property Tax Reduction and Reform.
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U.S. Treasury Department Plans Changes to Form 990 |
The U.S. Department of the Treasury announced yesterday that the Internal Revenue Service will propose changes to the Form 990 information return that tax-exempt nonprofits must file every year. The Treasury Department announcement explains that the proposed changes to Form 990 are intended to “improve transparency, strengthen tax administration, and provide clearer reporting on certain activities of tax-exempt organizations described in section 501(c)(3) of the Internal Revenue Code, including government contracts, government grants, and fiscal sponsorship arrangements.” The additional information about public funding and fiscal sponsorship is intended to help identify and reduce “fraud, abuse, and extremist activities” in tax-exempt nonprofits. The Center will likely seek feedback from North Carolina nonprofits and submit public comments once the proposed regulations are released.
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U.S. Senate Approves Budget Resolution to Fund ICE and Border Patrol |
Early yesterday morning, the U.S. Senate approved a budget resolution (S.Con.Res.33) that would enable Congress to use the budget reconciliation process to approve funding for Immigration and Customs Enforcement (ICE) and Border Patrol through the end of 2029. The budget reconciliation process enables Congress to approve certain spending and tax bills with a simple majority vote in the Senate, whereas most legislation needs 60 votes to pass the Senate.
The Senate narrowly rejected an amendment to the budget resolution that would have directed Congress to include most of the Safeguard American Voter Eligibility Act or SAVE America Act in the budget reconciliation bill this year. The SAVE America Act would amend federal election laws to require in-person, documentary proof of U.S. citizenship for voter registration for federal elections and would make voting by mail more difficult by requiring most voters to provide their photo ID in person before voting by mail. Nonprofit VOTE and other advocates have expressed concerns that the documentary proof of citizenship requirement in the SAVE America Act would effectively end nonpartisan, nonprofit voter registration drives. Senator Thom Tillis (R-NC) was one of four Senate Republicans who voted against the amendment to add the SAVE America Act to the budget resolution.
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Federal Investigation Leads to Indictment of 501(c)(3) Nonprofit Engaged in Advocacy Work |
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After an investigation by the U.S. Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI), a federal grand jury in Alabama indicted the Southern Policy Law Center (SPLC), a 501(c)(3) nonprofit, on Tuesday on 11 counts of federal crimes including bank and wire fraud. The indictment alleges that through a program that embedded SPLC informants in extremist organizations, “unbeknownst to donors, some of their donated money was being used to fund leaders and organizers of racist groups, including the Ku Klux Klan, the Aryan Nation, and the National Alliance.”
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The DOJ and FBI investigation and the indictment appear to follow up on President Trump’s National Security Presidential Memorandum (NSPM) from September 2025 focused on countering domestic terrorism and organized political violence. The NSPM directs federal law enforcement agencies to “investigate, prosecute, and disrupt entities and individuals engaged in acts of political violence and intimidation designed to suppress lawful political activity or obstruct the rule of law,” including investigations of nonprofits and foundations that engage in or fund activities that could foster political violence.
The investigation and indictment do not affect other 501(c)(3) nonprofits, even those that may have partnered with SPLC, but they indicate that the ways that federal law enforcement officials may try to follow through on President Trump’s NSPM to take legal actions against nonprofits that the Trump Administration believes are engaged in political violence or domestic terrorism. U.S. Senate Minority Leader Chuck Schumer (D-NY) described the investigation into the nonprofit as “turning the Department of Justice into the Department of Vengeance.”
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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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