WHITE HOUSE OPPOSES FUNDS FOR SOCIAL SERVICE BLOCK GRANT By a vote of 95-5, the Senate passed the Charity Aid Relief and Empowerment Act of 2003 on April 9, acting to increase charitable giving for the first time in two decades. The amended version of the bill did not include the "equal treatment" provisions on grant rules for faith-based organizations. In addition to the giving incentives, it authorizes funding for the Compassion Capital Fund and provides a $1.3 billion two-year increase in funding for programs under the Social Services Block Grant (SSBG). On the afternoon the bill passed the Associated Press reported that President Bush objected to the SSBG funding increase, saying it exceeds his budget request. However, the President supported this provision before the equal treatment provisions were dropped from the bill. House Republicans have agreed not to push for the "equal treatment" provisions when they consider the bill. (These issues are being considered in separate legislation.) Here is a summary of the bill:

1. Tax incentives for charitable giving, including:
   • The nonitemizer charitable deduction for amounts over $250 for individuals ($500 for couples), but not exceeding $500 ($1,000 for couples). It is only effective in tax years 2003 through 2005. The Secretary of the Treasury is required to conduct a study to determine if it results in increased giving and to compare taxpayer compliance between itemizer and nonitemizers. The report must be submitted to Congress by the end of 2004;
   • Tax-free contributions made from rollover of Individual Retirement Accounts by taxpayers age 70 ½ and over, or by taxpayers age 59 ½ for contributions to split-interest entities (i.e., a charitable remainder trust);
   • New deductions for donations of food and book inventories, scientific property used for research, artistic or scholarly compositions and incentives for contributions of land for conservation purposes.
   The nonitemizer is by far the costliest item in the bill, with the Joint Committee on Taxation predicting losses to the Treasury of $204 million in 2003, $1.368 billion in 2004 and $1.218 billion in 2005. But studies by the Congressional Budget Office and Congressional Research Service found it would be unlikely to increase giving by more than 4%. The bill would eliminate several tax shelters that would offset these costs, but only if Congress allows the nonitemizer to sunset at the end of 2004.
2. Simplification of the rules for charity lobbying:
   • While the overall limits on lobbying would remain the same for those nonprofits that elected to file under an expenditure test, the current limitation on grassroots lobbying (25% of total allowed lobbying amount) would be lifted, and charities could engage in either direct or grassroots lobbying up to their limit, without the necessity of tracking which is which. This simplification of the rules was proposed by the Joint Committee on Taxation in 2000 and is supported by a coalition of nonprofits including OMB Watch, Charity Lobbying in the Public Interest and the Alliance for Justice.
3. Improved oversight of charitable organizations, including:
   • Expands IRS public disclosure requirements to include written determinations and background materials relating to exempt status of groups exempt under 501(c) or (d), and Section 527 (PACs). The IRS would also be required to notify the public that copies of Form 990 submissions are publicly available and share information with state charity regulators prosecuting fraud;
   • Nonprofits would be required to include their website address (if they have one) and any name used for operations on their annual information returns. Professional return preparers could be fined $250 for knowing omissions or misrepresentations of information;
   • A new requirement for groups with budgets under $25,000, who are exempt from filing Form 990, the annual information return, to file an annual statement giving their legal name, operating name (if different), mailing address, website address, taxpayer identification number, name and address of the principal officer and “evidence of the continuing basis for the organization’s exemption from the filing requirements under subsection (a)(1).” If the group dissolves, they must also notify the IRS. These statements will not be available to the public;
   • Failure to file either Form 990 or an annual statement for three consecutive years would result in automatic revocation of exempt status. An organization could not appeal revocation through a declaratory judgment action in court, but would have to re-apply for exempt status (presumably paying a user fee). If, in the application, the group can show reasonable cause for failure to file the Form 990 or annual statement, tax-exempt status can be retroactively reinstated. The IRS can publish a list of groups whose exempt status has been revoked under this section.
4. Expedited determination of tax exempt status and waiver of user fees:
   • Available to 501(c)(3) organizations applying for government grants to provide social services if the group is organized and operated primarily for the purpose of providing social services, is seeking a grant that requires exempt status and attaches a copy of its grant application to its exempt status application. The IRS is authorized to require “other criteria it deems appropriate for expedited consideration.”
5. Individual Development Accounts A new program which was added to the bill as a separate title called Savings for Working Families Act of 2003 to encourage saving by low-income households by giving financial institutions tax incentives to match qualified deposits.
6. Compassion Capital Fund The bill authorizes $150 million in FY 2003 for technical assistance and capacity building grants for “community based organizations,” as follows:
   • Health and Human Services: $85 million
   • Corporation for National and Community Service: $15 million
   • Department of Justice: $35 million
   • Department of Housing and Urban Development: $15 million
   For FY 2004 the bill authorizes “such sums as may be necessary.” The money can be used for grants or cooperative agreements with nongovernmental organizations to provide assistance to community based organizations with:
   • Technical assistance, including grant writing, legal assistance with incorporation or tax exempt status or referrals to other groups with expertise in these areas;
   • Capacity building information
   • Information on best practices for assisting people and communities in need;
   • Information on using regional intermediary organizations to increase capacity;
   • Assistance with replicating social services programs that have demonstrated effectiveness;
   • Research on best practices for social services organizations.
   A community based organization is defined as a nonprofit with no more than six full time equivalent employees providing social services and a current annual budget of less than $450,000. The agencies are required to coordinate their efforts so that funds are distributed equitably and duplication is avoided. In addition, no agency can award more than one grant to the same group for the same purpose.
7. Social Services Block Grant Since 1995, the Social Services Block Grant (SSBG) has been cut by more than $1 billion, to a current level of $1.7 billion. The CARE Act restores $1.3 billion to bring total funding to its previous level of $2.8 billion. SSBG programs include child protective services, foster care, and services for the elderly and disabled persons. Should the funding increase for SSBG drop from the legislative package, OMB Watch would withdraw its support from the bill.

In the debate on the bill several Senators that opposed the "equal treatment" provisions that were dropped from the bill commented on issues relating to separation of church and state and the need for the Senate to thoroughly consider and debate these issues when they arise in other legislation. The votes against the bill were cast by:

• Sen. Larry Craig (R-ID)
• Sen. Michael Crapo (R-ID)
• Sen. Michael Enzi (R-WY)
• Sen. Don Nickles (R-OK)
• Sen. Craig Thomas (R-WY)