Hospital and private university officials said Thursday that the Senate’s proposed tax changes could leave them with budget holes and reduced private donations.
The Senate budget – currently getting a critical, multiday hearing from the House – would drop a cap on nonprofits’ sales tax refunds from the current $45 million to $1 million over five years. And the budget would cap itemized personal income tax deductions at $20,000, including charitable contributions.
The provisions are among several policy items in the Senate budget that many House members oppose. Most of those disagreements will be hashed out in closed-door budget talks between the two chambers, but House Finance Co-Chairman Jason Saine said it’s important to gather public input first.
A temporary state budget is expected to be approved next week so legislators have more time to agree on a long-term spending plan.
“This should be an elongated process so we don’t do the wrong thing, and we get it right by the taxpayers,” Saine said Thursday. “We want to eliminate as best we can the unintended consequences.”
Cody Hand of the N.C. Hospital Association said one of those unintended consequences could be the closure of struggling rural hospitals. He says they often rely on the sales tax refund to balance their budgets.
“The difference that this refund makes is often the difference between black and red,” he said. “The effect on our rural communities and the ability for them to receive healthcare will really be impacted if not completely destroyed.”
But Sen. Andy Wells, a Hickory Republican, said lowering the nonprofit refund is a matter of fairness as for-profit hospitals compete with nonprofits.
“The nature of hospitals has changed: They’ve become very big businesses,” Wells said. “I happen to be in a district that has two hospitals – one for-profit, one nonprofit. One’s paying property taxes and sales taxes. One’s paying neither.”
Private, nonprofit colleges and universities, however, worry that their tax liability could also increase – particularly when they construct new facilities.
“When you do construction, so much of that is in equipment and purchasing of items for the building,” said Hope Williams, president of N.C. Independent Colleges and Universities. She said she doesn’t have an estimate of how many schools would be affected.
Rep. Paul Stam, an Apex Republican, said he’d like nonprofits that have a large building project to be exempt from the change if their typical annual spending doesn’t hit the refund cap.
Williams said that capping charitable tax deductions could also hurt colleges that rely on private donations. Donors, she argued, “might consider a smaller gift if there is no deductibility” above $20,000 in deductions.
According to estimates from the legislature’s nonpartisan research staff, about 50,000 taxpayers currently take more than $20,000 in charitable deductions – representing 1.2 percent of total tax returns.
Sen. Bob Rucho, a Mecklenburg County Republican, questioned whether donations are motivated primarily by the tax incentive. “Are people giving a $1,000 contribution to a church or to any charity for $50?” he said. “Or are they doing it because they think it’s a real good charity that they should support? I mean, think about it.”
Several House members, however, said they won’t support a change in charitable deductions.
“Charitable giving is not just a good thing for state government, it’s a good thing for everybody,” said Rep. Gary Pendleton, a Raleigh Republican and a financial consultant. “I have talked clients into giving away $2 million to charities by showing them what it was worth to them tax-wise.”
Several House committees plan to discuss the Senate budget more in meetings next Tuesday. So far, neither chamber has appointed its negotiators for the closed-door budget talks.
“We really won’t have direction as far as the conference committee until we have these discussions,” Saine said.
Benjamin Brown of the N.C. Insider contributed to this report.
Short-term deal eludes legislators
State legislators on Thursday fell short of a deal to enact a temporary budget that would keep state government running beyond next Tuesday, the final day of the current fiscal year.
The short-term agreement, called a “continuing resolution,” would effectively extend the deadline for passing the final budget. Both the House and Senate stayed in session Thursday afternoon in hopes of passing the resolution, but the impasse means it won’t get a vote until Monday or Tuesday.
“No agreement has been made,” House Speaker Tim Moore said as he dismissed legislators for the weekend. He offered no further explanation.
Senate Majority Leader Harry Brown, a lead budget writer, said the “sticking points” don’t relate to how long the temporary budget should be in place. A similar continuing resolution in 2013 ran for one month. Brown dismissed speculation that a final budget agreement could be months away, saying he doesn’t think a deal will take that long.
Sen. Terry Van Duyn, an Asheville Democrat, offered an explanation for Thursday’s continuing resolution impasse on Twitter. “We could not push through a continuing resolution because Senate Republicans insist on cutting TAs and House does not,” she tweeted.
Van Duyn was referring to a Senate budget provision that would cut thousands of teacher assistant positions and use the money saved to hire more elementary school teachers and lower class sizes. The House budget would keep teacher assistant funding at current levels; it’s likely that legislators want to resolve that issue before school districts begin hiring for the new school year.