Year-end Legislation Repeals Transportation Benefits Tax and Streamlines Private Foundation Excise Tax
As December came to a close, an important piece of legislation was passed by Congress and signed by the President that has significant implications on our sector.
On December 20, 2019, H.R. 1865, the “Further Consolidated Appropriations Act, 2020” became law. This legislation includes the repeal of Internal Revenue Code Section (IRC) 512(a)(7), the unrelated business income tax (UBIT) on qualified transportation benefits, and simplification of the private foundations excise tax.
IRC 512(a)(7) was part of the Tax Cuts and Jobs Act of 2017 and imposed a 21% UBIT on nonprofits providing transportation and parking benefits to employees, including subway and bus passes, parking and ride-sharing.
In early 2019, Independent Sector partnered with researchers at the Urban Institute and George Washington University on a study to quantify the impact of IRC 512(a)(7). The study determined the UBIT would divert an average of $12,000 per year away from each nonprofit’s mission. That cost is in addition to the administrative burden it put on nonprofits.
The repeal of this legislation is retroactive to the original date of enactment (December 2017). Exponent Philanthropy CEO Henry Berman advised in a message to e-mail subscribers that foundations impacted by this tax may want to file amended 990T returns to claim a refund for taxes paid or incurred after December 31, 2017.
The new legislation also includes simplification of the private foundation excise tax to 1.39%. Previously, private foundations were required to pay a 2% excise tax on net investment income. The tax could be reduced to 1% if certain distribution requirements were met.
Repeal of UBIT and streamlining the private foundation excise tax are the first two action items on CMF’s government relations goals adopted during the annual meeting of the CMF Government Relations Committee. As such CMF has been actively engaged with several coalitions and signed on to multiple letters of support, including a letter calling for repeat of UBIT signed by members of the UBIT Coalition, a group of over 115 national and regional organizations. Most recently, CMF staff traveled to Washington D.C. in the early part of December to meet with members of Michigan’s congressional delegation to express the importance of these much needed changes.
The bill was sponsored by U.S. Senators Chris Coons (D-Del.) and James Lankford (R-Okla.). In a press release, Coons said, “I believe that we have a moral obligation to support our neighbors most in need, and nonprofits play an essential role in doing just that.” He added, “The passage of this bill will help to ensure that America’s charitable nonprofits and houses of worship are able to continue providing critical services to communities without undue burden.”
In an article in The Nonprofit Times, David Thompson, vice president of public policy for the National Council of Nonprofits, shared, “We’re delighted that our elected leaders agreed to agree for a change. It’s regrettable, though, that it took so long to repeal a tax that never made sense to anyone and that forced thousands of front-line nonprofits to divert two years of attention and millions of dollars away from their missions. That was time and money that would have been better spent helping people in local communities.”
Explore CMF’s government relations goals adopted during the annual meeting of the CMF Government Relations Committee.
Healthy Michigan Work Requirements Go into Effect
Our state's Medicaid expansion, known as the Healthy Michigan Plan, has substantially improved access to primary care and preventive services for enrollees according to two recent studies of the plan by the University of Michigan Institute for Healthcare Policy and Innovation.
On January 1, new Medicaid work requirements kicked in for most able-bodied adults receiving healthcare benefits through Healthy Michigan. Beneficiaries ages 19-62 are required to complete and report 80 hours per month of work or activities unless they are exempt.
In November, a lawsuit challenging the work requirements was filed in federal court by a coalition of state and national healthcare advocates representing four plaintiffs who would be affected by the changes.
According to news reports, the lawsuit says the Trump administration “lacked the authority to approve the rules that undermine the Affordable Care Act.” It asks for the judge to declare the federal approval of the requirements illegal and to block them from being implemented.
On December 2, it was reported that Governor Whitmer said she hoped Michigan would pause the implementation of work requirements until the lawsuit was resolved. Doing so would require the support of Republican lawmakers. In a letter to the Michigan Senate, Governor Whitmer had said an independent analysis suggested that as many as 183,000 people could lose coverage from Michigan’s requirements.
In a statement to legislative leaders, the governor indicated the state has spent $28 million to implement the workforce engagement requirements and is on track to spend an additional $40 million this fiscal year — an unnecessary expense if a federal judge blocks the rules.
She called for legislators to "protect Michigan taxpayers while the courts determine legality."
Republican legislative leaders rejected the request.
Speaker of the House Lee Chatfield and Senate Majority Leader Mike Shirkey released a joint response stating, “Able-bodied adults who want cash assistance and subsidized healthcare coverage should obviously be expected to either work part time or at least prepare for a career in exchange for welfare benefits. That is simply common sense, and it is something the Michigan taxpayers who foot the bill for these programs expect. Out of respect for those taxpayers, we are not willing to pause our state’s new welfare work requirements.”
Michigan is currently the second state to implement work requirements.
Indiana implemented its plan in 2019, but it was reported in October that officials opted to suspend work requirement rules due to a pending legal challenge.
Work requirements have been set aside by courts in Arkansas, Kentucky and New Hampshire. A total of 19 states have work requirement waivers approved, pending or involved in legal challenges, according to the Kaiser Family Foundation.
Work requirement reporting in Michigan begins in February and will be done through MI Bridges or by telephone. Several exemptions are available, including being pregnant or medically frail, caring for a family member and being a full-time student. A complete list is available on the State’s Healthy Michigan Plan website.
According to the site, qualifying work or activities that make up the 80 hours per month can include on or more of the following:
Having a job or income
Being a student
Looking for a job
Volunteering (this activity can only be used for three months each calendar year)
Participating in a tribal employment program
Participating in rehab (substance abuse)
Completing an internship
As CMF reported in September, the governor signed Senate Bill 362 to increase the amount of time beneficiaries have to report work or activities and avoid losing coverage.
Check out the Healthy Michigan Plan information made available on the State’s Plan website.
Launch Michigan Announces First Set of Statewide Educational Recommendations
Launch Michigan, a collaborative of education, philanthropic, business and other leaders across the state, recently announced its first series of recommendations to improve educational outcomes for Michigan students.
At a press conference at Novi Woods Elementary, Launch Michigan’s leadership shared their phase one recommendations to the public and urged the state legislature to adopt measures focused on equitable school funding and improving literacy across the state.
The committee released a report that suggests creating an equity fund designed to provide additional funding for students living in poverty or who go to school in geographically isolated regions, which can restrict their access to educational opportunities. The committee also recommends that the fund take a special focus on literacy to ensure Michigan children get what they need to read at grade level.
Further recommendations include a locally-driven plan to show the use and effectiveness of equity fund resources and working at the school, city and state levels to ensure that resources are used in ways that are effective based on each student’s individual needs.
“If any of you are parents, you know that each of your individual children need individual attention and need very specific things,” Tonya Allen, president and CEO, The Skillman Foundation, said. “And equity is really about giving children what they need, not just giving them the same thing.”
Allen serves as co-chair of Launch Michigan alongside Paula Herbart, president, Michigan Education Association and Doug Rothwell, president and CEO, Business Leaders for Michigan. Steering committee members also include CMF trustees Julie Ridenour, president, The Steelcase Foundation and Joe Scantlebury, vice president for program strategy, W.K. Kellogg Foundation, who serves on the committee as CMF’s representative.
“These priorities are going to give us a solid framework for change,” Herbart said in a press release. “From here, we can develop a strong, phased-in approach that will deliver results for all our state’s learners over time.”
The committee will continue to work across sectors to develop further recommendations for the state legislature.
“We’ve not had this kind of table come together where you have labor, business, education advocates, philanthropy, and a whole wide array of other players figuring out what’s the right path forward for Michigan,” Kyle Caldwell, president and CEO, CMF, said in a video shown during the press conference. “Launch [Michigan] has taken a very thoughtful approach to their policy development and making sure that the coalition is ready to move forward in bold ways that are long-term and sustaining.”
“These phase one recommendations are something Launch Michigan will start advocating for immediately,” said Adam Zemke, president, Launch Michigan. “We are also starting our phase two and phase three recommendation work immediately…we will be working on that over the next five and 10 years to transcend political differences in Lansing.”
Member Spotlight: Unprecedented Cooperation Creates New Platte River Park
Adapted from a press release shared with CMF
Thanks to a cooperative effort involving several CMF members and other partners, 52-acres of land with 1,550 feet of frontage on the Platte River in northern Michigan was acquired for public use, part of a multi-year initiative by Homestead Township in Benzie County. It was made possible by a partnership coordinated by the Honor Area Restoration Project (HARP), a nonprofit formed in 2010 to convene interests around revitalizing the greater Honor Area. The acquisition team included the Grand Traverse Regional Land Conservancy, Homestead Township, Village of Honor, Michigan Department of Natural Resources (DNR), Benzie Conservation District and Platte Lake Improvement Association. Funding partners for the acquisition included CMF member Rotary Charities of Traverse City, the DNR Land Trust Fund and donations to HARP.
“None of this would have happened without the support of the Michigan Department of Natural Resources through their grant and fisheries programs and the Grand Traverse Regional Land Conservancy,” said Ingemar Johansson, President of HARP. “They are wonderful partners as are the dozens of people who have joined us to develop plans for the property.”
HARP has a formal agreement in place with Homestead Township and the Village of Honor, a nonprofit-local government pact that cements the plans to collaborate to manage the Park and cooperate and fully involve residents, visitors and others to firm up subsequent phases of Park development.
The phase two development plan had had generous support from the DNR and philanthropy, including Rotary Charities of Traverse City, the Herbert and Grace A. Dow Foundation and the Oleson Foundation.
Park development will be managed by Tim Knudsen of the firm Beckett & Raeder. Fund developers Karlyn Haas and Tim Ervin say that other requests are pending to wrap up phase two and that work will begin immediately for phase three development funding which includes a more expansive universally accessible trail system and added access for anglers and others. “We cannot begin to express our gratitude to everyone who is backing this project, one that was identified over ten years ago in a community revitalization study funded by Rotary Charities of Traverse City,” said Johansson.
“It’s a wonderful project with tremendous local impact, including a big economic ripple effect,” said Becky Ewing, executive director, Rotary Charities of Traverse City. “It will also have a big influence as a new destination for Michigan and as a part of the ‘Gateway’ to resources that include Glen Lake, the dunes and Sleeping Bear National Lakeshore. Big things are afoot in Benzie County and we’re pleased to be a collaborator!”
“The impact of this new park for our fishery and anglers is outstanding,” said Jim Dexter, DNR Fisheries Division chief. “We have an existing commitment to steelhead on the Platte, including the winter fishery that they provide, as well as other species like brown trout and migratory coho salmon. To date, there has been a lack of access to the Platte for anglers to enjoy the resource. When completed, this will provide future and forever access to our world class resources!”
More information about the Park and tax deductible donations toward Phase 3 of the Park development plan can be directed to HARP at www.restorehonor.org.