Congress passes bill to help nonprofits with cash flow amid coronavirus

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The Senate unanimously passed bipartisan legislation Wednesday to help nonprofits, state and local governments, and federally recognized tribes remain financially viable during the COVID-19 pandemic by ensuring they receive federal help for unemployment payments upfront, instead of being reimbursed later. The House later passed the bill in a pro forma session Thursday and it's headed to President Trump's desk for his signature.

The Protecting Nonprofits from Catastrophic Cash Flow Strain Act was introduced by a bipartisan group of lawmakers: Sen. Chuck Grassley, R-Iowa, Sherrod Brown, D-Ohio, Tim Scott, R-S.C., and Ron Wyden, D-Ore. It would clarify a piece of guidance issued by the Labor Department related to the CARES Act that could have dampened the cash flow of charities already reeling from the pandemic.

Many nonprofits operate as ‘reimbursing employers,’ meaning they pay their share of unemployment taxes by reimbursing states for 100 percent of the unemployment benefits collected by their former employees. Recognizing that reimbursing employers wouldn’t be able to cover all of their unemployment costs, the CARES Act lets nonprofits reimburse only 50 percent to the states while the federal government covered the remaining 50 percent.

The Labor Department issued guidance in April, however, requiring states to collect 100 percent of the unemployment costs from nonprofits upfront and reimburse them later, putting a further strain on organizations hit hard by COVID-19. The bill passed by the Senate would clarify that nonprofits are only required to provide 50 percent in payments upfront. The net cost to the employer and the federal government would remain the same, but would free up much needed money to help nonprofits stay afloat.

“The CARES Act provided substantial relief to nonprofits forced to furlough or lay off staff,” Grassley said in a statement Wednesday. “Without this fix, some nonprofits would have to make large payment to the state now — when they’re least able to afford it — and then wait for a reimbursement later. This bill would make sure they don’t have to wait for further relief.”

For many nonprofits, the requirement to pay 100 percent of the unemployment insurance bill before getting relief exacerbates the financial impact of historically high claims triggered by COVID-19, increasing the risk of further layoffs, closures, or significant reductions in services. This legislation would allow states to apply the CARES Act’s 50 percent emergency relief to reimbursing employers without requiring these nonprofits or other entities to pay their full bill first.

“Nonprofits are on the frontlines of the COVID-19 pandemic and our constituents are increasingly looking to local nonprofits to help feed their families or make ends meet,” Brown said in a statement. “We shouldn’t be putting added financial strains on nonprofits at a time when they need this money to better serve our communities.”

BDO USA released a report last month on its annual survey of the nonprofit sector, which found the COVID-19 pandemic hitting the sector hard. It found that 69 percent of the nonprofits surveyed had been forced to postpone or cancel events, 57 percent had limited or canceled programs, while 87 percent had encouraged or required their staff to work remotely. Forty-six percent of the organizations provide telecommuting options for employees, and 48 percent allow remote work arrangements.

Nearly half (46 percent) of the nonprofits polled by BDO said that limitations in their technology restricted their ability to respond to the pandemic. However, the majority of organizations (64 percent) plan to invest in new technologies this year, with the goal of using those investments to improve operational efficiency (61 percent) and assist in the delivery of programs and services (29 percent). But many nonprofits have few resources to spend right now, with 30 percent of the nonprofits surveyed having four months or less of operating reserves at hand.

“The COVID-19 pandemic exposed many of the financial weaknesses that were already affecting the nonprofit industry,” said Adam Cole, partner and co-leader of BDO’s nonprofit and education practice. “Nonprofits, including health care nonprofits such as hospitals, were on the front lines and essential in helping to combat the virus and providing health services. Pre-COVID we’ve had discussions and debates about the overhead and underfunding of all of the direct care services nonprofits were facing in general. Now, you couple that in the immediate time frame with the fact that they have escalating costs for overtime and hazard pay, and PPE, which is necessary to continue services basically it’s making a situation that was difficult at best at pre-COVID levels, definitely more challenging.”

The survey found 43 percent of nonprofit organizations said a downturn would be challenging. BDO also did a webinar on technology with some nonprofit organizations in late May, and found 75 percent of the organizations reported concern over their financial health.

“When you look at the cycle for funding at nonprofits, whenever there’s an economic downturn the impact isn’t felt immediately,” said Cole. “In 2008 and 2009, the Great Recession, the impact on the funding was really affected in 2010, 2011, 2012 and maybe 2013. For some organizations, their revenue went down 20 or 30 percent.”

On the positive side, there has been an uptick in giving to many charitable organizations in response to the pandemic. The CARES Act included a provision allowing taxpayers to claim up to $300 in above-the-line deductions for charitable giving this year, even if they’re not itemizing their deductions. Last month, another bipartisan group of senators introduced a different bill to increase that limit to up to one-third of the standard deduction for the 2019 and 2020 tax years, or a little over $4,000 for individuals and $8,000 for married couples.

Both pieces of legislation could be helpful in encouraging more giving to charities and relieve some of the pressure on the finances of nonprofits. People who have been using donor-advised funds as charitable giving vehicles have also been encouraged in recent months to give a greater percentage of their DAF this year to help worthwhile causes, particularly those dealing with the COVID-19 pandemic.

While changes in the Tax Cuts and Jobs Act of 2017 tax law made it more difficult to claim the charitable deduction because it was mainly available to those who earned enough to make it worthwhile to itemize deductions on their returns rather than claim the increased standard deduction under the new tax law, younger people may be helping in some ways to fill the gap in philanthropy, especially now with the pandemic underway.

In addition, wealthier professionals have also been lending their expertise to help out nonprofits with management, governance, fundraising and their own donations.

“There’s been a shift over the last few years,” said Cole. “More individuals have been looking to give back or as some people say, to ‘repair the world.' People with specialty expertise — whether it be hedge funds, investments, management, accounting, law, marketing and PR — joining boards of organizations so that they can get back and participate and help management. We’ve certainly seen a greater influx of greater board talent over the years. We’ve been trying at BDO to do a lot of training for them on responsibilities and governance so they can truly grasp it. When you get somebody who is a major shareholder at a large public company, they understand the level of transparency that’s needed. They bring a tremendous resource in addition to their own resources as far as contributions as well.”

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Non-profits Coronavirus BDO USA Charitable deductions Philanthropy Finance, investment and tax-related legislation Chuck Grassley Ron Wyden