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Nonprofits: Heads Up! – A Bill Damaging to Minnesota Nonprofits Has Legs

Written by Heidi Christianson, Shareholder at NJL and Co-Chair of Minnesota State Bar Association’s Nonprofit Committee

A bill making its way through the Minnesota Legislature would be terribly damaging to Minnesota nonprofits. And, unfortunately, it looks like it has legs.

Senate File 4359 and House File 4682 were introduced this week. They cap the salary of anyone working for a nonprofit that receives any kind of state grant to the amount of the Governor’s salary. The companion bills were authored by Sen. Michelle Benson (R), Sen. Paul Utke (R), Sen. Rich Draheim (R), and Rep. Tony Albright (R). The bills have been referred to Committees overseeing State Government and Finance.

We have seen similar compensation cap bills in the past. This year feels different, according to the Minnesota Council of Nonprofit’s Public Policy Director, Marie Ellis. Perhaps legislators feel extra fierce this year as a result of the Feeding our Future scandal.

Here is how this bill would be terrible for Minnesota nonprofits:

  • It is big and broad. It applies to any nonprofit (any nongovernmental entity that is tax-exempt) that receives a grant of state money from any source in any amount. It is not clear from the bill what a “grant of state money from any source” means. It is written such that it could include grants received through an intermediary, or regranting process. It applies to trade associations as equally as charitable organizations.
  • It caps the salary of any nonprofit employee at the Governor’s salary, which is $192,144 in 2022. This seems like a lot of money, but it is terrible public policy. The nonprofit sector needs to be able to pay competitively, or there will be a mass exodus of talent from the sector. We certainly want our educational institutions, hospitals, research institutions, social service agencies, and other nonprofits to be able to compete with their peers for top-level talent.
  • It prohibits any state employee from serving on a nonprofit board if the nonprofit receives a state grant. Depriving nonprofits of any board member who is an employee of the state is bad for nonprofits because it reduces the pool of talented and interested board members who are civic-minded. It serves no public purpose.
  • It requires background checks on all directors and officers of a nonprofit if the nonprofit has revenue of greater than $750,000 or received more than 25% of its revenue from state grants. This would be a very sad outcome for the sector. Nonprofits (and all businesses) benefit from including people with diverse lived experiences to serve on their boards and in leadership positions. This provision could prevent people from contributing their great lived experiences to nonprofits.
  • It includes another audit requirement. There is no need for an audit requirement for nonprofits receiving a grant exceeding $500K. The state’s current audit requirement of $750K for soliciting charities is well understood and captures virtually all of these entities already. This is just another bureaucratic headache for nonprofits to track.

Nonprofits should stay on top of this bill. The Minnesota Council of Nonprofits is a great place for up-to-date information about the bill and what nonprofits can do to oppose it.

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