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News

Duplicative and unnecessary government oversight of nonprofits: two legislative proposals

April 14, 2022

Soon the legislature will create a conference committee. We will update this page when that conference committee is named, and will very likely ask you to take action by connecting with those legislators. 

May 6, 2022 Update:

The conference committee members have been set. See our action alert for directions on how to take action!

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May 3, 2022 Update: 

The Minnesota Senate heard and amended SF3975/HF4293. Due to parliamentary procedures in the legislature, the Senate’s bill language is now found as the 1st Unofficial Engrossment to HF4293. (That’s not a typo, it is a House File.)  

Soon the legislature will create a conference committee. We will update this page when that conference committee is named, and will very likely ask you to take action by connecting with those legislators.  

This language on nonprofit oversight was haphazardly put together at the last minute, with absolutely zero input from stakeholders. The amendments remove some problematic provisions but add in some new problematic pieces. MCN strongly opposes this legislation. 

Below is an overview of the nonprofit oversight language as amended in the 1st Unofficial Engrossment to HF4293, also known as the Senate’s State Government omnibus bill.  

The provisions now focus solely on nongovernmental tax-exempt organizations that receive 50% or more of their revenue from state funds. (Note that it would not impact an organization applying for a grant that would result in the nonprofit’s revenue becoming more than 50% state funds, only those that in the prior year met the 50% threshold.) The legislation excludes hospitals, nursing and assisted living facilities, medical assistance and MinnesotaCares payments, and grants of general obligation bond proceeds for capital projects.

Nonprofits that receive state funding that makes up less than 50% of their revenue would not be impacted by this language.  

We will use “affected nonprofits” below as shorthand for nonprofits that receive 50% or more of their revenue from state funds. 

  • This version reinstates a previous provision of a salary cap for nonprofit executives. Affected nonprofits would be prohibited from compensating any employee more than the governor’s salary, which is currently $127,000.

    Why this is a problem: Nonprofits play a vital role in our economy and, like any other sector, need to have experienced, talented leaders and staff. To attract and retain those leaders, they need to have the ability to compensate appropriately in the labor market. 

  • An affected nonprofit would need to be in existence for at least 2 years before it could be eligible to receive any state grant. 

    Why this is a problem: Government chooses to partner with new nonprofits for the very reason that they are new -- because they have formed to respond to new or changing community needs. This would restrict the state’s ability to best support communities through nonprofits.  

  • Affected nonprofits would be prohibited from having serve on their board any employee of a state agency. Prior language also prohibited elected officials, that section was removed. 

    Why this is a problem: State agency employees are some of the most engaged and civically minded people in our state, and there is mutual benefit of them serving on nonprofit boards.  

  • Affected nonprofits would be required to submit financial audit reports for the most recent two fiscal years. 

    Why this is a problem: Nonprofits with more than $750,000 in annual revenue are already required to conduct a financial audit and provide the report to the MN Attorney General’s office. This provision would only impact smaller nonprofits, creating a very expensive and high staff-time imposition. The state would lose some very important partners that provide critical support to communities, because the cost of a financial audit would keep them from applying for state funds.  

  • This language would require the affected nonprofits to submit to the state background checks for all board members, and prohibits on the board of directors anyone convicted of any offense involving theft, fraud, embezzlement, or other misuse of funds or property. 

    Why this is a problem: Nonprofits must be able to determine the best board members for their organization. We benefit from people with varied lived experiences serving on boards. Requiring a background check could dissuade individuals from board service. This is an unfunded administrative cost to nonprofits. 

  • This legislation would require specific information be included in a state grant application, including: goals, priorities, and measurable outcomes; eligibility requirements for individuals served; and geographic service areas. 

    Why this is a problem: State agencies choose to require the information they need, which usually requires all of this information already, when it is relevant. 

  • This language would require specific information to be included in reporting on the use of funds: a detailed accounting of the use of any grant proceeds; a description of program outcomes to date, including performance measured against indicators specified in the grant agreement; and the portion of the grant, if any, spent on the recipient’s operating expenses. 

    Why this is a problem: Again, the state agency granting the funds sets the reporting requirements and there is no reason they can’t include these pieces – and usually do! 

  • This language has a provision specific to nonprofits that receive grants “by law,” meaning the grantee is named in law and not selected via a competitive process through a state agency. If the state agency determines the nonprofit to be ineligible, the commissioner must report that to two legislative committee chairs.  

  • Finally, if the state agency providing the grant receives a “comment or concern” about fraud or waste for a grant made “by law” to a specified organization, the agency must report that comment or concern to two legislative committee chairs. 

    Why this is a problem: “Comment or concern” is an extremely low bar and would provide ample opportunity for harassment. 

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May 2, 2022 Update: 


The Minnesota Senate today heard and amended the bill discussed in the post below, SF3975/HF4293. We here at MCN will post more information after the changes have been incorporated into the bill language. In the meantime, here are the big takeaways:

  • The provisions now focus only on nongovernmental tax-exempt organizations that receive 50% or more of their revenue from state funds.

  • The language now explicitly excludes hospitals, nursing facilities, and assisted living facilitates

  • The language also would not apply to medical assistance or MinnesotaCare payments, or capital investment projects that use state general obligation bond dollars

  • This version still prohibits elected officials of state agencies from serving on nonprofit boards (remember, this would impact nonprofits that receive 50% of more of their revenue from state funds), but removes the prohibition on state, local, and county employees serving as board members.

  • The original version would require the MN Department of Administration to conduct background checks on board members. The revised language would put that burden on the nonprofit.

  • This version reinstates a previous provision of a salary cap for nonprofit executives. For nonprofits that receive 50% or more of their funding from the state, employee compensation would be capped at the governor's salary, currently $127,000.

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There are two bills moving quickly through the legislative process that would impose duplicative government oversight on nonprofits, creating unnecessary paperwork and preventing nimble action.

When conference committees are formed on these bills, likely in late April, we will be asking for your help to connect with legislators and ensure they understand that our sector opposes these provisions. In the meantime, please contact your state legislators to let them know that these provisions would be unnecessary and harmful!

If you can, share the pieces that would be the most problematic for your organization or organizations you work with, and describe the harm that would result. If you’re short on time, a simple email stating “my organization is in your district and we strongly oppose the unnecessary and harmful nonprofit oversight provisions in the Senate’s State Government and Senate’s Jobs bills” is very effective! (Of course, make sure you have permission to speak on behalf of your organization on this topic).

 
The first bill is the Senate’s State Government and Elections omnibus bill, SF 3975, which has multiple negative provisions, including that if this language were signed into law, it would:

  • Mandate that a nonprofit be in existence for at least two years before it can be eligible to receive any state grant. (Government chooses to partner with new nonprofits for the very reason that they are new — because they have formed to respond to new or changing community needs. This would restrict the state’s ability to best support communities through nonprofits.)
  • Prohibit the following groups of people from serving on a nonprofit board of directors: an employee of a state agency, and officials elected to state, county, or local government office. (These are some of the most engaged and civically minded people in our state, and there is mutual benefit of them serving on nonprofit boards.)
  • Require specific information be included in a state grant application, including: goals, priorities, and measurable outcomes; eligibility requirements for individuals served; and geographic service areas. (State agencies choose to require the information they need, which usually requires all of this information already, when it is relevant.)
  • Impose specific information be provided in reporting on the use of funds: a detailed accounting of the use of any grant proceeds; a description of program outcomes to date, including performance measured against indicators specified in the grant agreement; and the portion of the grant, if any, spent on the recipient’s operating expenses. (Again, the state agency granting the funds sets the reporting requirements and there is no reason they can’t include these pieces – and usually do! Additionally, as Vu Le says, “the focus on overhead is no longer just annoying, it’s perpetuating inequity and injustice.”)
  • For organizations that receive more than 50 percent of their funding from state funds, this bill would:
    • require the nonprofit to submit financial audit reports for the most recent two fiscal years. (Nonprofits with more than $750,000 in annual revenue are already required to conduct a financial audit and provide the report to the MN Attorney General’s office. This provision would only impact smaller nonprofits, creating a very expensive imposition. The state would lose some very important partners that provide critical support to communities, because the cost of a financial audit would keep them from applying for state funds.)
    • Prohibit from serving as officers or members of the board of directors anyone convicted of any offense involving theft, fraud, embezzlement, or other misuse of funds or property. (Nonprofits must be able to determine the best board members for their organization. We benefit from people with varied lived experiences serving on boards.)
    • Require the MN Department of Administration to conduct background checks on all board members before a state agency can enter into a grant agreement with the nonprofit. (The bill does not provide any funding for the Department of Administration to conduct presumably thousands of background checks.)
  • Finally, if the state agency providing the grant receives a “comment or concern” about fraud or waste for a grant made by law to a specified organization, the agency must report that comment or concern to two legislative committee chairs. (“Comment or concern” is an extremely low bar.)

The language in this bill is a blanket approach that would affect ALL non-governmental tax-exempt organizations in the state that receive ANY state funding. The bill was introduced in the Senate on March 29, and in just eight days had been heard in two committees, included in an omnibus bill, and was ready to be heard on the Senate floor.

The second bill is the Senate’s Jobs and Economic Growth omnibus bill, SF 4091. This bill appears to create more transparency in nonprofits’ finances, but would just require nonprofits to file already-reported information in an additional format. Specifically, if signed into law, this bill would require nonprofits receiving state funds through the Minnesota Department of Employment and Economic Development (DEED) to provide each year the following information:

  1. Number and compensation for any highly compensated employees of the nonprofit organization
  2. Administrative expenses of the nonprofit organization for the previous three years as evidenced by the nonprofits Internal revenue Service Form 990
  3. Total functional expenses, including the nonprofit’s program expenses, administrative expenses, and fundraising expenses, for the previous three years.
  4. Revenue for the previous three years.

All of this information is easily accessible on IRS Form series 990, which nonprofits submit each year and which are publicly available at no cost online.

This bill would create an entirely unnecessary reporting headache for nonprofits and would provide no additional information to the DEED commissioner, legislators, or the public.

Both of these bills have been heard in all the necessary committees and are ready to be discussed and voted on on the Senate floor. Once they pass the Senate floor, a conference committee will be named, for each of the omnibus bills, with both Senate and House members on the conference committee. That conference committee will create one bill (a “conference report”) that will then need to be passed by both bodies again. Legislators have until May 23, 2022 to pass bills.

If you have questions, please contact Marie Ellis, MCN public policy director, at mellis@minnesotanonprofits.org.