In This Issue Federal Budget Appropriations Update Senate Finance Committee Passes Economic Stimulus Package Nonprofit Sector Bush Urges Senate To Take Up Faith-Based Initiative Congress Looks At Nonprofit Response To September 11 New IRS Notice Exempts Value of Leave Donated to Charity Nonprofits & Technology IRS Still Reviewing Need For Rules On Internet Advocacy Nonprofit Cooperative Mailings What Constituents Want, Congress Needs Online Reader Responses More on RTK; Economic Stimulus Principles SIDE BAR: Nonprof Sector: LawHelp September 11 Resource Site Appropriations Update The FY 2002 appropriations process continues to roll along, though it has clearly been overshadowed by the debate over economic stimulus legislation and the more recent discussion of appropriating additional supplemental spending for "homeland security" beyond the $40 billion ($20 billion in 2001 and $20 billion in 2003) already appropriated. Most of the attention this week will likely be focused on the economic stimulus legislation, which the President has asked Congress to pass by November 30 (see related story, this issue). It is anticipated that an additional $20 billion amendment to cover other needs for homeland security will be offered during debate on the Senate bill. The President has vowed to veto any spending beyond the $686 billion for appropriations and the $40 billion in supplemental appropriations already approved (and the costs of an economic stimulus bill that he approves). This means that securing the votes for any additional spending will be very difficult. The fourth continuing resolution (CR), passed October 25, is only good through November 16, so it seems likely that yet another CR will need to be approved to cover funding until the appropriations process is finally completed. We'd like to suggest that a reason for so many disputed provisions in the economic stimulus proposals, including accusations that the bill is being used as a vehicle for needs not directly related to economic stimulus -- for instance, for more transportation spending, assistance to struggling states, and the provision of a sturdier safety net for the unemployed and those hit hardest by the economic downturn and the November 11 attacks -- are a direct result of a long-term failure to address our national priorities. In other words, now that the economy is no longer booming and unemployment is high, we are seeing the results of years of budget caps and the consistent squeeze on appropriations funding in the name of "fiscal responsibility." We think that true "fiscal responsibility" has more to do with debating our domestic priorities and appropriating the funds necessary to achieve those priorities than with avoiding budget deficits, accomplishing debt reduction or passing tax cuts. In fact, more attention to domestic priorities, as we are seeing in the Senate-passed economic stimulus plan, is a way to make the economy stronger, as well as to address the needs of families and communities, whether in good times or bad. The appropriations process is the right vehicle for making these decisions, but there simply isn't enough money in the pot, and this has been the situation for years. So it is not surprising that there is now an effort to find ways of meeting the needs that existed before September 11, as well as the new needs and priorities that have directly resulted from the September 11 attacks. With that said, following is a brief status report on appropriations:

• Four appropriations bills have been signed into law: Interior (H.R. 2217), now P.L. 107-63, Military Construction (H.R. 2904), now Public Law 107-64, Energy and Water (H.R. 2311) and Treasury-Postal (H.R. 2590).
• Conference reports for two bills have been approved by both Houses and await the President's signature (or veto): VA-HUD (H.R. 2620) and Legislative Branch (H.R. 2904).
• The Agriculture (H.R. 2330) and Commerce-Justice-State (H.R. 2500) conference reports have been filed and will likely be debated on the House floor this week.
• Each house has separately passed three bills, all of which still must go to conference: District of Columbia (H.R. 2944), Foreign Operations (H.R. 2506), Labor-HHS-Education (H.R. 3061).
• The Transportation (H.R. 2299) bill, while "ready" for conference has been held up over the dispute about safety regulations for Mexican trucks, although a compromise position is being worked out to insure that the bill will not be vetoed by the President.
• The Defense (unnumbered) bill will likely be marked up by the House this week.

Back to Top Stimulus Watch: Day 55 and Counting On November 9, after many negotiations, the Senate Finance Committee passed (in an 11-10 straight party-line vote) its version of the House's economic stimulus package, H.R. 3090, "The Economic Security and Recovery Act." Though the committee's $67 billion stimulus package, built upon Committee Chair Max Baucus's (D-MT) proposal, is still much less-costly and has the potential for greater economic stimulus then the House version, it also contains some provisions that are not directly related to stimulating the economy. The primary tax provisions of the bill include: Individuals

• $300 ($600 for couples) tax rebate checks to the 35 million (primarily low-income) Americans who did not qualify for any or full rebates under the June tax cut's provisions. ($14 billion; $14 billion over 10 years)

Businesses

• Accelerated depreciation schedules and expanded deductions for the purchase of equipment for the coming year. ($15 billion; $2 billion over 10 years)
• "New York Stimulus and Distressed Area Package." Provides extension of deadline for tax payments and other assistance to the victims and their families of the September 11 attack; extends the current program for tax credits to businesses that hire low-income workers to those businesses in qualified areas of New York City most impacted by the terrorist attack; authorizes tax-exempt bonds to encourage rebuilding efforts. ($2 billion; $6 billion over 10 years)
• Extension of temporary tax cuts due to expire this year ($1 billion; $3 billion over 10 years)

The primary non-tax provisions of the bill include: Unemployment Insurance ($14 billion; $1 billion over 10 years)

• 13-week extension of unemployment insurance benefits to all individuals whose benefits have run out
• $25 or 15% increase in weekly benefit payment
• States must use most recent earnings to set benefits level and include part-time job seekers as those eligible for benefits

Health Insurance

• 75% subsidy for COBRA health insurance premium payments, for the unemployed who qualify for COBRA ($6 billion; $9 billion over 10 years)
• States may use Medicaid to provide benefits to unemployed workers who don't qualify for COBRA and to cover the remaining 25% of COBRA premiums to low-income individuals who qualify ($1 billion; $3 billion over 10 years)

State Stimulus Package

• Increase in the amount of Federal funding that goes to state Medicaid programs to help alleviate the current state budget crises and allow states to continue to provide services and programs even as the economy continues to slow ($5 billion; $5 billion over 10 years)

Though the recipe for the right combination of spending on programs and spending on tax cuts changes according to one's political and economic bent, some elements of the Senate Finance Committee's economic stimulus package -- and, even more so, the House-passed version -- really stand out as being unrelated to any of the economic stimulus principles laid out by the House and Senate Budget Committees. Sens. John Breaux (D-LA) and Jim Jeffords (I-VT) and others in the Senate have been advocating for immediate compromises between the President's proposals and the Senate Finance Committee bill including a 50% COBRA subsidy (instead of the committee's 75%) and a 20% depreciation for business equipment (instead of the committee's 10% and the House bill's 30%). Senate Majority Leader Tom Daschle (D-SD) has said that the Senate will debate the economic stimulus bill this week and that he wants House and Senate conference committee members to ready a conference report reconciling the House and Senate bills so Congress can vote on it upon its return from the Thanksgiving holiday. The most contentious points, both in the Senate debate this week and, later, in the House-Senate conference, are likely to be (1) the amount of spending for the temporary extension of unemployment insurance benefits and health care insurance for the unemployed and (2) the recipients and duration of various tax credits and tax breaks. For several weeks now, Senate Republicans have been critical of the Democrats' unemployment and health insurance proposals, preferring the President's focus on tax cuts -- even as economists continue to warn against costly, unstimulative proposals and the American public continues to support the use of government investments (instead of tax cuts) to stimulate the economy. (For Nobel economist Joseph Stiglitz's argument for the government investments for the sake of the economy, see "A Boost that Goes Nowhere," in the November 11 Washington Post.) A recent analysis from Democracy Corps summarizing the latest national polls reports that the majority of Americans still prefer increasing government spending for benefits to unemployed workers rather than for tax cuts. Specifically, last week's CNN/USA Today/Gallup poll found that 56% of those polled want the economic stimulus money to be "spent on increased government spending on such things as benefits for recently unemployed workers and construction projects," while just 36% would spend the stimulus funds on new tax cuts. Similarly, the Democracy Corps poll found that although 73% of those polled would favor a Republican-supported plan to accelerate the June-passed decrease in the tax bracket for those individuals making over $25,000, 69% of all those polled would favor delaying the top income bracket tax cut "to make sure we can afford the spending for rebuilding and security and to make sure we don't keep borrowing from the Social Security trust fund." For more information on the House-passed bill, H.R. 3090, see "Opening Move In "Economic Stimulus" Package: Politics As Posturing" in the October 29 Watcher. For information on the various other stimulus proposals that provide assistance to those who need it most and will spend it fastest, see OMB Watch's latest action alert. This alert also provides access to contact information for your members of Congress and the President so that you can make your support of such proposals known to them. Back to Top Bush Urges Senate To Take Up Faith-Based Initiative President Bush sent a letter to Senate Majority Leader Tom Daschle (D-SD) and Minority Leader Trent Lott (R-MS) urging them to pass an "Armies of Compassion" bill before the end-of-the-year recess. The letter proposes a scaled-down version of H.R. 7, the controversial version of the faith-based initiative passed by the House earlier this year. (See OMB Watch position on H.R. 7). Bush is urging the Senate to consider three major components:

• Incentives for charitable giving, including the non-itemizer deduction, tax-free contributions from IRA rollovers, deductions for donations of food inventory and Individual Development Accounts to encourage saving by low-income households;
• "Equal treatment" for faith-based and community organizations seeking federal grants, including expedited review of applications for 501(c)(3) status and technical assistance through a "Compassionate Capital Fund;"
• Funds for programs for children with parents in prison.

Sens. Rick Santorum (R-PA) and Joe Lieberman (D-CT) are said to be close to agreement on a revised faith-based bill. Earlier this year they jointly sponsored S. 592, the "Savings Opportunity and Charitable Giving Act of 2001," which would have provided incentives for giving but contained special provisions for religious organizations to receive federal funds. That bill is pending in the Senate Finance Committee, but has not moved. On November 8 an inter-faith group wrote to the President asking him to "reconsider any legislative action" on federal funding for programs run by religious congregations at this time, stating "any action on this issue during this time of increased sensitivities toward the minority faith community will sadly divert the country's attention away from the positive effects of interfaith cooperation and leadership..." The statement was signed by 27 religious organizations representing a wide spectrum of religious affiliations. For more information on the faith-based initiative see OMB Watch's Charitable Choice Page. Back to Top Congress Looks At Nonprofit Response To September 11 The House Ways and Means Committee's Subcommittee on Oversight held a hearing November 8 to address issues relating to charitable fundraising and services for victims of the September 11 attacks in New York, Washington and Pennsylvania. Complaints about lack of coordination, complicated application processes, delay in distribution of funds, duplication of services and use of donations for non-September 11 related activities led Rep. J.D. Hayworth (R-AZ) to write the Ways and Means Committee Chair requesting oversight. Within days Subcommittee Chair Amo Houghton (R-NY) announced the hearings. Sen. Charles Grassley (R-IA) has written to Attorney General John Ashcroft and Internal Revenue Service (IRS) Commissioner Charles Rossotti expressing similar concerns and asking for information on their oversight efforts by November 16. Invited witnesses at the House hearing included representatives of charity watchdog groups, major relief organizations, the IRS and the New York Attorney General. Their testimony described the enormous scope of relief activity to date and the efforts underway to provide greater coordination and accountability. Several of the witnesses stressed the need to reserve funds for long-term needs, citing the experiences of other relief efforts, such as the United Way and Oklahoma Community Foundation after the 1995 bombing of the federal building in Oklahoma City. Much of the public criticism of relief programs was in response to Red Cross statements that it would hold about half of the $564 million it has raised in reserve to respond to future terrorist attacks. However this policy now is under review following the resignation of Red Cross CEO Dr. Bernadine Healy. Michael Farley, Vice President of Chapter Fundraising, told the subcommittee that the Red Cross has spent about $154 million to date, assisting 25,000 families with food, lodging and counseling; providing 10 million meals to survivors and emergency personnel; and making $47.9 million in three-month grants for expenses to 2,300 families that lost breadwinners. The new CEO, Harold Decker, has asked for a review of how the Red Cross can increase coordination with other agencies. Elliott Spitzer, the Attorney General of New York, testified about his efforts to establish coordination mechanisms, including development of a database -- operated by the nonprofit community -- that can be used by all relief organizations and protect the privacy of families seeking aid. Spitzer said he is pushing to streamline the application process by developing a uniform application form. He also stated that he has seen little evidence of scam operations. Joshua Gottbaum, CEO of the September 11 Fund in New York, testified that this joint effort of the New York Community Trust and United Way of New York City has raised $337 million, and distributed $47 million to date, working through 80 nonprofits to help 16,000 people. He supported use of the database created by the New York Attorney General, and emphasized the need to use funds to address long-term needs and help those who "fall through the cracks," such as elderly parents that were partially supported by adult children, but are not technically dependents. Lt. Col. Tom Jones of the Salvation Army also stressed the need to help "collateral victims," displaced and unemployed families who have lost jobs and income as a result of the economic impacts of the attacks. The bulk of the $60 million raised by the Salvation Army will be spent for this purpose, although they have already spent $8.5 million on immediate needs of victims. Jones testified that in eight weeks the Salvation Army had spent $55 million assisting nearly 2 million people with everything from food and shelter for travelers stranded by airport closures to rescue and clean up at the attack sites. IRS Director of Exempt Organizations division Steve Miller said charities can provide "disaster relief in a variety of ways," but the people served must belong to a "charitable class," which includes persons that are distressed, needy or victims of a Presidential- declared disaster. The charity must also control its own program, and gifts that are not made with "disinterested generosity" are not deductible contributions. As a result, he noted that charitable funds cannot be divided among victims on a pro-rata basis. Targeted contributions should be given directly to the victims or through a non-charitable organization. Miller also explained the IRS' role in overseeing charities, emphasizing that they focus on whether or not charities are serving charitable purposes, and not whether assistance is provided in the most efficient possible manner. While Congress looks at charities' responses to the attacks, it is still working on its own program. The airline bailout bill currently under consideration includes a September 11 Victim Compensation Fund, but conditions for receiving assistance are being debated. For example, applicants would forfeit the right to sue airlines and awards could be reduced by "collateral sources," such as life insurance policies. Rep. Roy Blunt (R-MO) wants to reduce awards by any amounts given by charity, which would have the effect of negating the efforts of the charitable sector. The issues raised at the hearing clearly illustrate that this proposal is inappropriate. Charitable programs are not meant to replace government assistance, but, as Daniel Borochoff of the American Institute of Philanthropy told the panel, "[t]he role of the charities is to fill in the cracks and meet those needs that are not being met by the government and insurance coverage." Nonprofits that want to submit written comments have until close of business on November 26 to do so. Because of problems with Congressional mail caused by anthrax, written statements for the printed record should be sent electronically to hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to 202/225-2610. Back to Top New IRS Notice Exempts Value of Leave Donated to Charity IRS notice 2001-69 exempts the value of donated leave time from taxation, as long as the donation occurs before January 1, 2003. This allows for tax-exempt donation of the cash value of leave days by employers, if an employee elects to donate leave time. Employees cannot, however, claim the value of the donated leave time as a charitable deduction. The IRS is seeking comments on this notice until February 1, 2002. Email comments to notice.comments@m1.irscounsel.treas.gov. Back to Top IRS Still Reviewing Need For Rules On Internet Advocacy Judith Kindell, an Internal Revenue Service (IRS) attorney specializing in exempt organizations, has indicated in two recent speeches that the IRS still has more questions than answers on legal issues relating to nonprofit use of the Internet for lobbying, voter education and fundraising. At a speech to the Western Conference on Tax Exempt Organizations on November 1, she told the audience that the threshold question of whether a web site is a single publication or multiple publications has not yet been resolved. In that speech and in an address to the American Health Lawyers Association on October 29, she primarily addressed issues relating to corporate sponsorship of nonprofit web pages and sale of goods over the Internet. The IRS is still accepting comments on Announcement 2000-84, its inquiry into Internet use by nonprofits. A copy of the IRS announcement is available on OMB Watch's website. For more information, read OMB Watch's comments. Back to Top Nonprofit Cooperative Mailings On October 17, 2001, Sen. Rick Santorum (R-PA) introduced S. 1562, which would clarify federal postal regulations on cooperative mailings. The United States Postal Service (USPS) defines cooperative mailings as those sent by an entity that qualifies for nonprofit standard mailing rates or shares the "cost, risk, or benefit of the mailing" with other entities. In other words, these are mailings sent by entities qualifying for the nonprofit mailing rate, but which are actually produced by other entities. If any of the outside entities involved in the mailing are not authorized themselves to send mail at the nonprofit rate, the mailing cannot qualify for that rate -- between 20% - 40% less than that for regular and commercial mailers. Further, those organizations authorized to mail at the nonprofit rate cannot share their authorization with non-authorized entities. S. 1562, referred to the Senate Committee on Governmental Affairs Subcommittee on International Security, Proliferation and Federal Services, is the Senate companion to H.R. 1169, introduced on March 22, 2001, by House Government Reform Committee Chairman Dan Burton (R-IN) and still awaiting further committee consideration. Both bills would eliminate the distinction between nonprofit mailings prepared in-house and those prepared by commercial third-parties, so that any nonprofit cooperative mailing would qualify for the nonprofit postal rate. The proposal comes at a time when the postal service faces not only a crucial test of public confidence, but also severe scrutiny over its dire financial picture. The postal service is the only entity that can deliver regular mail, though competition exists in urgent mail and parcel delivery. In general, the federal government does not directly finance postal service, but the service can borrow money from the U.S. Treasury to cover revenue losses and infrastructure improvements. Testifying before the Senate Appropriations Subcommittee on Treasury and General Government on November 8, 2001, U.S. Postmaster General John E. Potter stated that the postal system would require a bailout of as much as $5 billion. The funding would cover $3 billion to $4 billion for security mechanisms (including anthrax decontamination equipment) and the expected loss in revenue. Without this assistance, Postmaster General Potter expressed concern that the $900 billion mailing industry itself, in the wake of increased public concerns around anthrax in the mail system, might see decreased demand -- requiring Congress to ultimately step in and assert direct fiscal responsibility over the system at a time when the costs of doing so would be much higher. Critics of a bailout, however, note that the postal service faced financial difficulty even before the anthrax scares were first reported. During fall 2000, USPS had anticipated a $150 million revenue for FY 2001, due in large part to postal rate increases implemented in January 2001. By March 2001, USPS was forecasting a FY 2001 deficit of $2 billion to $3 billion. By April 2001, the General Accounting Office Comptroller General David Walker, testifying before the House Government Reform Committee, placed USPS on his "high-risk" list due to the projected deficit, nearing towards the end of its federal credit limit, and a halting of capital spending due to lack of available cash -- despite the implementation of a second rate hike in 2001. Criticism is also directed towards a third rate increase request issued by USPS on September 24, 2001, which, if implemented by fall 2002, could represent a hike of almost 10% -- between $0.04 to $0.07 for first-class mailings. The Senate Treasury and General Government Appropriations subcommittee suggested that it would only be able to push for $1 billion, at most, in assistance for anthrax irradiation equipment, as $175 million was authorized for USPS under the $40 billion emergency supplemental funding passed by Congress. The Bush Administration has signaled its intention to veto any additional spending on postal security outside of this $175 million in emergency funding. Background on USPS Management The Postal Reorganization Act of 1970 changed the former-Cabinet level Post Office Department into the United States Postal Service, the independent authority overseeing the postal system. This moved the postal operational authority and executive structure -- including the Postmaster General and Deputy Postmaster General appointed by the nine Senate-confirmed members of the Board of Governors -- outside of the direct control of Congress and the Executive Branch. The PRA also established the five-member Postal Rate Commission as the independent Executive Branch agencies with rulemaking jurisdiction over changes in postal fees, rates, and mail classification proposed by USPS, as well as consumer appeals around fee issues and postal facility downsizing. According to the basic guidelines under the PRA rates must not only be fair and equitable, but should also ensure that each mail rate covers its costs, a portion of revenue goes into capacity and infrastructure needs, and ultimately that the Postal Service breaks even. Rate change recommendations are made by PRC after a ten-month period of formal open hearings to allow the range of those affected to provide input and alternatives. Upon receipt of the recommendations, the Postal Board of Governors can decide to accept the recommendation, reject it for further PRC consideration, accept it with future reconsideration by PRC, or modify the recommendation (pending unanimous consent) only if the rate is thought to generate insufficient revenue. Back to Top What Constituents Want, Congress Needs Online There appears to be considerable variance between what constituents want and what Congress needs, according to the Congress Online Project's November 2001 report and the Advocacy Group's February 2001 study on congressional websites. Taken together, the findings and recommendations incorporate a useful balance of perspectives around public attitudes and expectations towards individual member websites, and ways these potentially valuable resources can be improved to better facilitate citizen interaction and constituent service. NPTalk reviews these findings. Back to Top Reader Responses RE: Right-To-Know Reconsidered, October 15, 2001 OMB Watcher From the OMB Watcher -- "The balance between providing information to safeguard the public and withholding information to thwart terrorism is a delicate one that needs greater attention." If the government opts for secrecy, does that not suggest that government assumes greater responsibility to remedy the non-disclosed hazard? The question must also be: if not right-to-know, then what? Regulation? Strict liability? Leadership? Technological innovation for safety? Paul Orum Working Group on Community Right To Know ******* You know, I think that you make a common, very American mistake. That is the peculiarly solipsistic perspective that the Internet is an American phenomenon. You talk about the "public's" right to know, with the assumption that it is the American public which is of concern. I believe you forget that the internet, and the "world wide" web in particular, is global in scope, that you are reaching a much wider audience that that whom your information is meant to serve. How convenient for terrorist cells holed up in their apartments in Hamburg, London, Italy, or Saudi Arabia, to be able to plan their nefarious and deadly schemes with a simple point-and-click, with your assistance. Perhaps you should re-consider just whose interests you are serving, whatever your intentions! Regards, Sander Rosenberg ******* I just saw mention of this web resource [RTK NET]on TV, and am delighted to see that an understanding application of free and responsible reporting still exists in the USA. Recently I was getting used to hamstrung media, and was starting to feel as if Orwell wasn't only for "Communist regimes". The greatest possible threat to this nation's security is a gag. Information is required by a government of the people, run for the people. Kudos! Relieved, M. McPherson RE: Economic Stimulus Package, October 15, 2001 OMB Watcher It is the wealthy and the corporations that build factories, expand production, and conduct research thus improving the quality of their products available to us and driving down the cost of those products. In the process of this expansion and research they end up employing more people and will often look to pay top dollar to attract skilled people. Giving money to "low and middle-income people" is "giving the man a fish" -- it's short term. Giving tax breaks across the board, especially to corporations and entrepreneurs is "teaching the man to fish" it expands the economy and produces the most benefit for the most people. Seth Eliot Pittsburgh, PA Notes and Sidebars LawHelp September 11 Resource Site LawHelp has set up a website with legal information and resources for people affected by the September 11 attacks. It has a guide to emergency financial assistance programs, including food stamps and unemployment benefits, summaries of tenants' rights and guardianship for children that have lost parents and more. There is also a special section for lawyers.