Policy Briefing

Catalyst Weekly Policy Briefing Issue XIII: Budget Breakdown

Hello again.

Here’s a look at what happened this week. (Catch up on our previous installments of this briefing here.)

 

THE FACTS

 

THE FEDERAL BUDGET
A budget bill has passed in the House and is now under consideration in the Senate. The news for nonprofits and foundations remains mixed, and the Senate will likely make further changes. What remains unchanged is the inclusion of significant tax cuts for individuals – the majority of which benefit the ultra-wealthy – and for businesses. These cuts would require substantial new revenue or reductions to social programs and services to offset the cost.   

  • After much debate, the House budget bill was passed early Thursday morning. The final version is more than 1,000 pages long and passed by a vote of 215-214 after an all-night session. Analysis of its final provisions and effects is still early and will be ongoing. 
  • The good news: Important philanthropy and nonprofit-specific provisions were successfully removed in response to significant advocacy nationwide. Removals include:   
    • One provision in the tax bill that would have allowed the executive branch to revoke nonprofit status from organizations without due process. This provision would have set a dangerous precedent by allowing the administration to target nonprofit organizations based on ideology. 
    • Another provision would have treated income from the licensing of an organization’s name or logo as unrelated business income tax, or UBIT. 
  • What remains in the final bill includes: 
    • Reinstatement of the Universal Charitable Deduction, a provision that philanthropy groups across the country have been advocating for.
    • The proposal to impose substantially higher excise tax rates on the net investment income of private foundations. This will increase taxes for any foundation with assets of $50 million or more and could significantly reduce funds available for grantmaking and charitable programs. 
    • The bill retains the 1% floor for corporate charitable deductions, meaning corporations could only deduct charitable contributions exceeding 1% of their taxable income. This could decrease corporate philanthropy. 
  • The bill includes almost $4 trillion in tax cuts for individuals and businesses. The tax cuts would be paid for primarily through reductions in social safety net programs, including: 
    • Reducing federal support of Medicaid by $700 billion over 10 years. . Approximately 15 million people would lose health coverage by 2034 under this bill. In San Diego and Imperial Counties, the new work requirements would affect more than 350,000 residents. About 1.1 million San Diegans are currently covered by Medi-Cal (California’s name for Medicaid). In Imperial County, approximately half of the residents receive health care through Medi-Cal. Changes to Medicaid would include:  
      • Increasing cost sharing to states. 
      • Increasing work requirements, requiring adults without children or disabilities who receive Medicaid through the Affordable Care Act expansion to prove that they have at least 80 hours of “community engagement” per month while receiving benefits. 
      • Increasing reapplication from annually to twice a year. 
      • Penalizing states that provide health coverage to those who do not meet the “qualified alien” immigration eligibility requirement. 
      • Instituting new copay and cost-sharing requirements on some Medicaid recipients. 
    • Cutting $300 billion to the Supplemental Nutrition Assistance Program (SNAP) over the next 10 years. Currently, SNAP helps over 40 million Americans keep food on their tables. In San Diego, 1 in 4 people face food insecurity, and almost 30 million meals a month are provided for them—59% of the meals are provided by SNAP (called CalFresh in California). In Imperial County, 1 in 5 residents face food insecurity. Changes include: 
      • Increasing the administrative cost share to states to 75% (from 50%) and requiring most states to cover 5% to 20% of the cost of SNAP benefits. This increased burden on the states may force them to cut benefits and eligibility. 
      • Increasing paperwork and eligibility requirements and decreasing flexibility with work requirements in times of economic uncertainty. 
      • Limiting the USDA’s future ability to adjust SNAP benefits in response to changes in diet and food supply. 
      • What’s next? The bill is now headed to the Senate, where there are expected to be large changes. Senators on both sides of the aisle have expressed concerns about the Medicaid cuts, the end of green energy tax credits, and some of the new SNAP provisions. While the Senate has not released a timeline, they hope to pass a bill by July 4. 

 

CALIFORNIA STATE BUDGET

  • ​The May revise was released on May 14 and includes nearly $12 billion in actions to close the deficit.  
  • The revisions include major cuts to Medicaid, withholding new funding for housing affordability, and ending temporary and one-time homelessness funding. 
  • One third of all of California’s funding comes through federal dollars, so cuts to federal programs and funding significantly impact California spending.  
    • Half of the San Diego County budget comes through a mixture of federal and state dollars. 
  • State-funded programs launched as pilots in previous years are being terminated as initial funding expires. 
    • In our region, this includes the Creative Corps program, which provided $6M for artists, and Stop the Hate, which currently provides $13M to anti-hate nonprofits. 
  • What’s next? Over the next few weeks, the Legislature will convene to discuss the May revisions, negotiate with the governor and draft its version of the budget bill. The deadline to pass a budget is June 15.  

 

HIGHER EDUCATION & PUBLIC SCHOOLS

  • A federal judge has blocked the Trump administration from firing thousands of Department of Education employees, saying the staff reductions appear to be an attempt to dismantle the entire department illegally. Closing a federal agency requires congressional approval and cannot be done through an executive order. 
  • Homeland Security Director Kristi Noem on Thursday terminated Harvard’s Student and Exchange Visitor Program, stripping Harvard’s right to host new international students and requiring existing students to transfer.  
    • Harvard responded in a brief statement, saying it is committed to maintaining its ability to host international students and will provide more information and updates as they become available. 

 

IMMIGRATION

  • The Supreme Court has allowed the administration to remove Temporary Protected Status from Venezuelan immigrants, making it easier for the administration to deport the 350,000 individuals currently living in the United States.  
  • Immigration and Customs Enforcement (ICE) officers have deployed a new tactic, arresting individuals as they leave mandatory immigration hearings in local courts.  
    • In San Diego, one Venezuelan man who had just received a favorable ruling in his asylum case was detained and by ICE agents and told he would be subject to expedited removal with no further legal process.

 

TAKEAWAYS

  • Speak up in your own defense. While private foundations generally cannot engage in lobbying, there is a “self-defense” exemption that allows them to engage in advocacy activities if a bill or provision could affect their existence, powers and duties, tax-exempt status, or the deductibility of contributions to it. The foundation investment tax provision would directly affect foundations’ ability to carry out their charitable purposes, so private foundations may communicate with legislators about this specific issue without it counting as lobbying.  
    • Note: The exemption is only for direct lobbying (communicating directly with legislators or their staff) and does not include indirect lobbying (asking members of the general public to contact their legislators). 
  • Consider what more you can do, and whether now is the time to go further than you would otherwise consider. The Marguerite Casey Foundation’s decision to distribute $130 million this year – more than five times their typical annual giving – is bold, unprecedented, and entirely fitting for the moment. You can read more about their decision here. 
  • Don’t go it alone. Contact Catalyst to learn about collaborative funding opportunities to support the social sector. 

 

RESOURCES

 

Talk to you next week,

Megan Thomas
President & CEO
Catalyst of San Diego & Imperial Counties