Today, May 13, the U.S. House of Representatives Ways and Means, Energy and Commerce, and Agriculture Committees started marking up their respective portions of the federal budget reconciliation package. In advance of these markups, each committee released its draft proposals, which will form the core of the broader legislative package, outlining significant changes to tax policy, healthcare funding, agricultural programs, and energy regulations.
Notably, the draft does not include provisions that would eliminate the tax-exempt status of municipal bonds, nor would the proposal impose wide-scale taxes on otherwise tax-exempt organizations, such as non-profit groups and associations. CSDA has engaged on both of these significant issues facing special districts through the National Special Districts Association (NSDA), which has actively participated in the Public Finance Network coalition to advocate for tax-exempt municipal bonds and the Community Impact Coalition to maintain the tax-exempt status of nonprofits that are critical partners in the delivery of essential services.
NSDA and the leading coalitions working these key issues will continue analyzing the reconciliation package as it comes out of today’s mark-up hearings, and CSDA welcomes member feedback on provisions impacting special districts. The current drafts will change as the legislative process moves forward, and our association will remain vigilant.
For its part, the Community Impact Coalition has already issued a letter to the House Ways and Means Committee expressing concern over provisions in the bill that would broaden the Unrelated Business Taxable Income (UBI) to include certain fringe benefits related to parking and transportation as well as require that any sale or licensing of any name or logo of an organization shall be treated as UBI. The coalition has also released polling data indicating 82 percent of voters find tax-exempt status important for nonprofits to effectively serve their communities.
Ways and Means Committee
The House Ways and Means Committee portion of the reconciliation package focuses heavily on tax policy. The committee’s draft includes an extension of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), along with several significant changes to the Child Tax Credit and the state and local tax (SALT) deduction.
With regard to nonprofits, some of the more damaging provisions rumored in earlier discussions are not included in the current bill language. However, if the provisions included in the bill are enacted and additional taxes are levied on the nonprofit sector, nonprofits would be forced to divert resources away from their mission and toward expanding the federal government. These provisions include:
• Unrelated Business Taxable Income Increased by Amount of Certain Fringe Benefit Expenses for Which Deduction Is Disallowed
- The bill permanently increases nonprofit’s unrelated business taxable income for transportation or parking fringe benefits, with an exception for religious organizations.
• Name and Logo Royalties Treated as Unrelated Business Taxable Income
- The bill permanently includes name and logo royalties (income derived from the sale or licensing by an organization of any name or logo of the organization (including any trademark or copyright relating to such name or logo) in the calculation of unrelated business taxable income.
• Excess Compensation within Tax-Exempt Organizations
- The bill permanently expands the current treatment of excess compensation to be subject to all employees making more than $1 million. Current law limits the excise tax to the top five highest paid employees.
Energy and Commerce Committee
The proposal from the Energy and Commerce Committee includes more than $700 billion in cuts to Medicaid and the Affordable Care Act (ACA) over the next decade. Additional energy provisions would put the measure’s total spending cuts at greater than $880 billion over ten years. While the draft avoids some of the most contentious ideas previously floated – such as per-capita caps or a reduction in federal reimbursement for the Medicaid expansion population – it still represents a significant overhaul of the nation’s healthcare safety net.
According to the nonpartisan Congressional Budget Office, the proposal could leave more than 13 million people without health coverage and shift substantial administrative and financial burdens to states.
Among other things, the draft would freeze states’ current provider tax rates, prohibit states from establishing new provider taxes, and modify the criteria HHS must consider when determining whether certain health care-related taxes are generally redistributive to waive the general uniform tax requirement.
The draft also would not extend enhanced premium tax credits under the ACA, which are set to expire in December 2025. In addition, the proposal would delay Disproportionate Share Hospital (DSH) cuts of $8 billion annually to safety net hospitals until FY 2029 (Congress typically delays these cuts, which are in current law but have never taken effect, in annual appropriations bills).
Agriculture Committee
The House Agriculture Committee is expected to release its draft text later this evening, ahead of its scheduled markup at 7:30 PM ET on Tuesday evening. The proposal is anticipated to include significant cuts to the Supplemental Nutrition Assistance Program (SNAP).
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