Americans apparently care quite a bit about federal grant regulations. This week, the Center joined nearly half a million individuals and organizations in submitting public comments to the U.S. Office of Management and Budget on its proposal to rewrite the rules for federal grantees. In addition to sharing the Center’s public comments, this week’s policy update provides an analysis of the nearly $600 million in nonprofit appropriations in the new state budget, along with highlights of other parts of the budget that could affect nonprofits’ work. We also seek your feedback on the impact of Medicaid Expansion on your nonprofit and the people you serve and provide details on state constitutional amendments and on potential legislative priorities when the NC General Assembly returns to finish(?) its 2026 short session later this summer.
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| Center Submits Public Comments on Proposed Changes to Federal Grant Rules |
On Monday, the Center submitted public comments on the U.S. Office of Management and Budget’s (OMB) proposed changes to the OMB Uniform Guidance, the rules that govern federal grants to nonprofits. OMB is proposing to change the name of the document from the Uniform Guidance to the Uniform Grants Regulation (UGR).
The Center’s public comments were informed by the feedback we received from North Carolina nonprofits about the potential impacts of the proposed changes to the federal grant rules. Thank you if you shared your input!
The Center’s public comments provided feedback to OMB on a few positive improvements in the proposal, along with several provisions in the proposal that would be harmful to nonprofits with federal grants and to the individuals and communities that receive services from these nonprofits. Many of the provisions in the proposal implement directions that President Trump issued to OMB in an Executive Order (EO 14332) last August. In our public comments, the Center asked OMB to work with the White House on a new Executive Order that would remove several of the problematic provisions in its proposed rule when it issues a final rule.
The Center asked OMB to maintain several positive improvements in the proposal in its final rule, including: |
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Improvements to the Notice of Funding Opportunities (NOFOs) that would make federal grants more accessible to smaller and rural nonprofits;
- A preference for multi-year grant awards, which would provide greater certainty and continuity and less red tape for nonprofits applying for federal grants;
- An express prohibition on discrimination against or in favor of faith-based grant applicants; and
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Maintaining the current guaranteed de minimis indirect cost rate of 15% of modified total direct costs on federal grants.
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The Center also identified several parts of the proposed new federal grant rules that would be problematic if they were implemented as part of a final rule. These include: |
- Establishment of a new pre-issuance review of grant applications by political appointees;
- Requirements that federal grant programs and grant applicants must be aligned with the policies and priorities of the President;
- Creating a preference for grant applicants with lower indirect cost rates;
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Significant expansion of the ability of federal agencies to terminate and/or suspend federal grants, including those that are deemed contrary to “the national interest” without an opportunity for nonprofits to contest or appeal their grant terminations or suspensions;
- Inclusion of overbroad and subjective criteria in federal agencies’ risk assessments of grant applicants;
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Elimination of fixed-amount grant awards, which could create more red tape and payment delays for nonprofits;
- Expansion of the current prohibition on the use of federal grant awards for lobbying activities to also prohibit federal grants from being used for voter registration, state regulatory advocacy, and public messaging activities; and
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Requiring nonprofits to receive prior approval from federal agencies to use grant funds to attend conferences and other training programs.
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Overall, OMB received 496,769 public comments from organizations and individuals on the proposed changes to the federal grant rules. OMB must now review those comments before publishing its final rule, which could incorporate some of the feedback from these public comments. OMB is expected to release a final rule later this summer or early this fall with an intent to have it take effect on October 1.
There is a good chance that the final rule will be challenged in federal court. In its public comments on the proposal, the National Council of Nonprofits noted that the proposed rule exceeds OMB’s statutory authority and would impose unlawful conditions and restrictions on federal grantees. |
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New State Budget Includes Nearly $600 Million in New Funding for Nonprofits |
Last week, Governor Josh Stein signed the state budget (S.257) into law. The state budget provides funding for a wide variety of state programs for FY2025-27, which began on July 1, 2025. As is often the case, the state budget includes many appropriations and directed grants to specific nonprofits. The Center has compiled a chart of nonprofit appropriations in the budget. By the Center’s count, the budget includes about $591.81 million in new, mostly one-time, funding for about 485 nonprofits, including:
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- $24.26 million in funding for education nonprofits;
- $163.7 million in funding for health and human services nonprofits (excluding those in some of the categories listed below);
- $16.81 million for arts, cultural, museum, and science nonprofits;
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$20.72 million for food security nonprofits;
- $250,000 for affordable housing nonprofits;
- $14.8 million for SmartStarts;
- $248.3 million for nonprofit hospitals;
- $4.8 million for YMCAs;
- $7.6 million for Boys and Girls Clubs;
- $4.47 million for pregnancy care nonprofits;
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$14.66 million for parks and trail programs, many of which are done by nonprofits; and
- $131.41 million for 275 various other nonprofits (a few of which may actually fit into one of the above categories).
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The Center provides this information for several reasons: |
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To ensure that nonprofits know if they received direct funding in the state budget; in the past, we have heard from organizations that did not learn that they had received an appropriation until many months after the state budget was enacted;
- To help identify the individual nonprofits and types of nonprofits that appear to be priorities for the state legislators who worked on developing the budget; and
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To provide transparency about legislative appropriations to nonprofits since these are spread throughout the 1,350 pages of budget documents.
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Other Parts of State Budget Could Impact Nonprofits |
In addition to direct funding for many nonprofits, many parts of the recently-enacted state budget will affect charitable nonprofits, including: |
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Tax rate changes. This year, North Carolina’s current individual income tax rate is 3.99% (down from 4.25% in 2025). The state budget lowers the individual income tax rate to 3.49% next year, to 3.24% in 2030, and to 2.99% in 2033. Eventually, the rate could go as low as 2.49%, depending on total state revenue. The budget also maintains the scheduled phase-out of the corporate income tax, which is currently set at 2% and is scheduled to go down to 1% in 2028 and be eliminated in 2030. The tax rate changes in the budget will reduce state revenue in future years, which could impact future state funding for grants and contracts with nonprofits and for a variety of state programs and services that are important for people served by nonprofits.
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Medicaid funding. The budget includes full funding for Medicaid for the current fiscal year. Last year, legislators did not fund the full amount that the NC Department of Health and Human Services (DHHS) projected for Medicaid expenses and instead waited until April 2026 to pass legislation providing full Medicaid funding for FY 2025-26. This led to DHHS cutting Medicaid provider rates last fall, although DHHS ultimately rescinded these rate cuts after several groups of providers brought lawsuits challenging the cuts. The budget also includes new investments in resources for DHHS, the NC Attorney General, and the NC State Auditor to identify and prevent fraud and waste in Medicaid payments.
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Reinstating the Healthy Opportunities Pilot program. The budget provides about $25 million in funding to reinstate the Healthy Opportunities Pilot (HOP) program that provides grants to nonprofits to enable Medicaid beneficiaries in parts of eastern and western North Carolina to have access to food, housing, and transportation services. The HOP program was discontinued last year since legislators had not enacted a state budget for FY2025-26 to continue funding it.
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Defunding legal services nonprofits. The budget removes a major source of funding for legal services nonprofits by making fundamental (and problematic) changes to the Interest on Lawyers’ Trust Accounts (IOLTA) program. A state law from last year (S.429) had forced the NC State Bar to stop making grants through the NC IOLTA program through June 30, 2026. 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 the first half of 2026. The budget redirects much of the NC IOLTA funding to the Commission in Indigent Defense Services (a program that provides support for public defenders to provide criminal defense services to low-income North Carolinians) instead of to nonprofit legal services organizations. It also creates onerous new eligibility requirements for the NC IOLTA funds that would still technically be available for legal services nonprofits, including prohibitions on awarding grants to nonprofits that provide immigration services, engage in representation related to gender transition, or engage in a wide range of lobbying and advocacy activities. These restrictions render all legal services nonprofits ineligible for NC IOLTA grants, even though NC IOLTA funds do not come from state revenue sources.
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Limitations on sales tax refunds for nonprofit hospitals. A provision in the budget will limit sales tax refunds for nonprofit hospitals that operate as part of larger health systems by forcing them to combine all of their affiliated entities for the purpose of the $45 million annual cap on nonprofit sales tax refunds. Collectively, this change is expected to cost nonprofit hospitals about $22 million a year. Unfortunately, it sets a precedent of increasing taxes on nonprofits to help offset tax cuts to individuals and for-profit businesses.
- Increasing support for child care. The budget includes $97 million in new, recurring funding to increase access to child care by increasing child care subsidy rates and establishing a floor rate, which is intended to ensure that subsidized child care is available in all communities in the state.
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Support for food assistance. The budget provides funding for Supplemental Nutrition Assistance Program (SNAP) administrative cost increases (mostly by passing along these administrative costs to counties) to help ensure that SNAP benefits remain available to eligible North Carolinians. It also provides funding for the state match for the SUN Bucks program, which provides $120 per eligible child in one-time funding for the purchase of groceries when schools are out during the summer (meaning that many children don’t have access to subsidized meals at school).
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Share Your Stories about How Medicaid Expansion Benefits Your Nonprofit |
Just a few years ago North Carolina expanded Medicaid, bringing healthcare coverage to more than 700,000 people at no cost to the state. Now, as Medicaid rules and funding are changing, nonprofits must demonstrate how Medicaid Expansion is helping working adults across our communities (people between the ages of 18-64 without significant health conditions).
The Center is proud to be part of the Keeping NC Medicaid Strong coalition, which recently launched a storytelling campaign highlighting the real-world impact of Medicaid Expansion, including beneficiaries, caregivers, employers, and community leaders across North Carolina. The Center encourages your nonprofit to complete this short storytelling form to highlight the difference Medicaid Expansion has made in your life, what it has meant to your organization and the people you serve. Thank you in advance for sharing your stories. Your input can help the coalition make the case for preserving Medicaid Expansion in North Carolina.
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Nonprofits Can Advocate For or Against Constitutional Amendments |
The NC General Assembly has placed three state constitutional amendments on the November 2026 ballot: |
- An amendment that would lower the constitutional cap on state income tax rates from 7% to 3.5%. The Center is opposed to this constitutional amendment because it would be harmful to nonprofits by limiting state revenue options.
- An amendment that 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.
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An amendment that would require all voters to provide photo ID when voting. North Carolina currently has a voter ID statute, so the amendment would have little practical impact on elections.
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Each amendment would be added to the state constitution if a majority of voters approves it in this fall’s election.
In addition, legislators are still considering several other state constitutional amendments, including: |
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A Senate-passed bill (S.1082) that would add a “right to work” to the state constitution, prohibiting requirements that workers join labor unions or labor organizations.
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A Senate bill (S.1081) that would protect the right to engage in farming and forestry in the state constitution.
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A House-passed bill (H.B. 443) that would amend the state constitution to add a provision that if the Governor has to fill a vacancy in a Council of State position, the Governor must appoint someone from the same political party as the person who vacated the position.
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A House bill (H.B. 144) that would amend the state constitution to make the members of the NC Board of Education elected rather than appointed by the Governor.
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As the Center has explained in a blog post, charitable nonprofits can take positions on state constitutional amendments and other ballot measures. Efforts by 501(c)(3) nonprofits to advocate for citizens to vote for or against constitutional amendments is treated as direct lobbying for federal tax purposes, which is a legal activity for charitable organizations. With at least three (and possibly more) constitutional amendments on the ballot this fall, nonprofits may want to consider whether it makes sense to take a position on these ballot measures. This summer, the Center plans to provide more information (most likely webinars and written guidance) on ways that nonprofits can engage on constitutional amendments.
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NC General Assembly Likely to Return to Raleigh Later This Month |
After passing the state budget and many other bills two weeks ago, the NC House of Representatives and NC Senate passed a temporary adjournment resolution (H.J.R. 1244) that will enable the General Assembly to return to Raleigh on Monday, July 27 to continue the 2026 short session. During that portion of the legislative session, lawmakers could take up several bills that could affect nonprofits, including:
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Final vote(s) on legislation (S.675) addressing challenges nonprofits have in accessing charitable donations that are made through bequests from IRAs (the House unanimously approved this bill two weeks ago);
- Revisions to the new state budget and technical changes to other legislation that was recently signed into law;
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A possible override of Governor Stein’s veto of a bill (H.B. 437) that would establish a drug-free zone within 100 feet of any facility (including a nonprofit) that receives government funding to provide housing or temporary shelter for people experiencing homelessness and that would prohibit local governments from allowing “unauthorized camping or sleeping” and instead would allow local governments to set up temporary locations for camping or sleeping by people experiencing homelessness;
- A possible Senate override of Governor Stein’s veto of a bill (H.B. 171) that would eliminate diversity, equity, and inclusion (DEI) programs and practices in state government (the House voted to override this bill last month);
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Changes to property tax laws, including possible Senate consideration of a House-passed bill (H.B. 1042) that would require either government financing or 100% nonprofit ownership for the nonprofit affordable housing property tax exemption;
- Election law changes; and
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Additional state constitutional amendments for inclusion on this fall’s ballot (see the previous item for more details)
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U.S. Education Department Removes “Substantial Illegal Activities” Certification from PSLF Form
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On Monday, the U.S. Department of Education published a notice that it is revising the eligibility form for the Public Service Loan Forgiveness (PSLF) program to remove a new requirement that nonprofits seeking to be PSLF-eligible employers must certify that they do not participate in activities that have a “substantial illegal purpose.” The change in the form comes after two federal courts, one in Massachusetts and one in the District of Columbia, recently issued rulings vacating the Department’s final rule on nonprofits’ eligibility to be employers in the Public Service Loan Forgiveness (PSLF) program. Both courts found that the Department of Education exceeded its statutory authority in issuing the rule.
Under PSLF, student loan borrowers who work in public service jobs – including positions with 501(c)(3) nonprofits – for 10 years while paying off their student loans are eligible to have the remainder of their federal student loans forgiven. PSLF has enabled many young professionals to afford careers in the nonprofit sector. The two recent court rulings prevent the Department of Education from preventing some 501(c)(3) nonprofits from being eligible employers for PSLF because they are alleged to be (or are unwilling or unable to certify that they are not) engaged in activities with “substantial illegal purposes.”
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Second Quarter Lobbying Reports Due by July 22 |
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