Sine Die – Preliminary Legislative Report

April 23, 2014

Henry Bogdan, Director of Public Policy, Maryland Nonprofits

This is a quick summary of several major issues we worked on during the session that ended on April 7. One of our policy priorities not included in this report is the HOME Act, HB 366; we will provide more information on that bill (failed) in our follow-up, more complete listing on legislation affecting major nonprofit interests.

State Budget and Tax Issues

The adopted state general fund budget for fiscal year 2015 is balanced on a cash basis with a projected end of year surplus of $84 million, in addition to a ‘rainy day’ reserve fund of $795 million (5% of general fund revenues). However, the fy2015 ongoing expenditures are projected to exceed ongoing revenues by $235 million – meaning there is a structural deficit of that amount. Although cuts to ongoing spending actually reduced the fy2015 structural deficit by $127 million (from $362million), an even larger problem is projected for fy2016 – a cash shortfall of $426 million and a structural imbalance of $371 million.

Most of the impact of a phase-down in the estate tax (see HB 739/SB 602) will be felt after fy2016. We supported the successful increase in the state’s refundable earned income tax credit (EITC) in HB 198/SB 727. This will also have a phased but smaller impact beginning in FY 2016. (The EITC change does take effect for 2015 tax returns)

SB 628 proposed a serious study of state expenditures and needs over the last decade to assess program effectiveness and unmet needs. While the bill failed, we understand that the Dept. of Legislative Services will undertake a similar analysis at the request of the Senate Budget and Taxation Committee, (thanks to the bill’s lead sponsor Sen. Madaleno and the committee chairman Sen. Kasemeyer.

Takeaway – No extra funds will be available in next year’s budget deliberations to deal with unmet needs or delayed commitments, and unless general fund revenues grow faster than projected, further ‘spending adjustments’ will be necessary. Budget advocacy for programs and needs you care about begins now!

Minimum Wage

HB 295, the Administration’s proposed increase in the state minimum wage, was passed in amended form. Amendments slowed down the phase-in that now will start on Jan. 1, 2015 at $8.00 and reach $10.10 on July 1, 2018. The minimum wage for tipped workers was frozen at $3.63, a sub-minimum at 85% of the minimum wage was set for seasonal workers at Ocean City, and a restaurant exemption level was raised from $250,000 in gross receipts to $400,000.

We supported the minimum wage but also called for adjustments to program subsidies and provider reimbursement rates that would be impacted by the increase. After a major lobbying effort, and key support from Sen. Middleton (chair of the Senate Finance Committee), an adjustment (requiring annual salary rate increases of 3.5% for four years) for staff providing services to persons with developmental disabilities was mandated in the bill. However other similar needs were not addressed. (See the Commentary by Herb Cromwell, Executive Director of the Community Behavioral Health Association of Maryland, regarding the plight of community mental health services).

Takeaway – Advocates need to start now to educate policymakers (and candidates)
about these issues.

Charity Regulation

HB 1352 – Last summer the Tampa Bay Times produced an investigative series documenting failures in the system of state charity regulation across the nation. The reports listed the “fifty worst” charities in the country and showed in each case the egregious portions of public contributions that had been retained by fund-raising firms, in many cases with ‘sweetheart’ deals facilitated by someone connected to the charity.

Concerned by the reports, and the fact that two of the “worst 50” had been headquartered in MD, Delegate Morhaim convened a briefing for an interim committee to hear from the Secretary of State, Attorney General and Maryland Nonprofits on how well Maryland was prepared to prevent these types of problems.

The briefing disclosed a lack of staff, resources and modern technology in the Secretary of State’s office, and the fact that the MD Attorney General lacked a basic authority, present in most other states by statute or common law, to act in the name of the public to prevent the misuse, waste or misapplication of charitable funds or assets. Delegate Morhaim then charged the three parties to work with his staff to draft legislation that would address those issues, leading to the introduction of HB 1352 that he would shepherd through the process of enactment. House Bill 1352:

 Increases current annual registration fees for charities raising more than $500,000 from the public each year, from $200 to $300. Most of those affected raise over $1 million per year.

 Increases the application fees for fund-raising counsels, and for professional solicitors, by $50. (a single fee and application covers all listed officers, agents and employees of the applicant).

 Dedicates all proceeds of the fee increases to a new special fund for charitable enforcement, and states the intent of the General Assembly that these fees be used to provide additional resources for enforcement including information technology and personnel.

 Provides MD’s Attorney General with the same authority to protect charitable assets in the public interest as exists in most other states (new Title 6.5 in the Business – Regulation Article of the Code).

 Requires the Secretary of State and Attorney General to convene a broadly representative workgroup of stakeholders to study and provide recommendations on what information should be required from registered charities and fundraisers, and on how that information that should be made available to the public to protect them from unscrupulous solicitations and fraud.

 Includes a ‘whistle-blower’ protection provision.

 Preserves existing liability protections for nonprofits’ volunteers, officers and staff acting in good faith.

 Includes a three year ‘statute of limitations’ on actions to enforce the Attorney General’s new authority.


Since 2004 there has been a “small business reserve” and a requirement that most state agencies award 10% of contracts to qualifying for-profit small businesses. In 2005 Maryland Nonprofits reached an understanding with officials in the Ehrlich Administration that this program was not intended to interfere with the relationships nonprofit providers had with state agencies, and the program would be monitored to assure this.

This January we had the first indication that any contract normally performed by a nonprofit was being placed in the reserve, and a nonprofit denied the opportunity to bid. Simultaneously, HB 14 was introduced at the request of the Governor’s Office of Minority

Affairs and the Dept. of General Services. For contracts between $15,000 and $100,000, the bill made referral to the small business reserve automatic unless the procurement officer, with approval of the agency head, decided otherwise. We felt this was a serious threat to nonprofit-agency relationships and strongly opposed the bill.

After discussions with the state agencies requesting the bill, we agreed to amendments that 1) excluded most if not all contracts in nonprofit service areas from its new ‘automatic’ referral, 2) adopted a strong policy statement that the legislature intended the small business reserve not to interfere with normal agency contracting with nonprofits, and 3) directed the Council on Procurement of Health, Social and Education Services to study the relationship of the reserve program to nonprofit contracting and report recommendations to assure that nonprofits were not denied their normal contracting opportunities.

HB 14 passed the House unanimously and had a hearing in the Senate Education, Health and Environmental Affairs Committee. We understood that the committee had no objections to the amendments we added in the House, but apparently there were there other concerns with the bill that resulted in its failing in committee without a vote.

Takeaway – We remain seriously concerned with implementation of this reserve program. If you are aware of any case where a nonprofit provider is, or has been denied the opportunity to bid on or receive a contract within the scope of its normal service mission because of the small business reserve program, please contact Henry Bogdan at Maryland Nonprofits.

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