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Lawmakers consider cap on nonprofit salaries 

House Bill 893 arrived with little fanfare last week.

The legislation, filed Thursday by three N.C. House freshmen—Rep. Rick Catlin, R-New Hanover; Rep. Dana Bumgardner, R-Gaston; and Rep. Chris Millis, R-Onslow, Pender—has been largely overshadowed by GOP education reforms.

But some people are aware of HB 893's implications. "We've got our eye on it," says David Heinen, policy and advocacy director for the N.C. Center for Nonprofits, a Raleigh-based organization that advocates for the state's charities.

Heinen is watching because the legislation could play a pivotal role in how state-funded nonprofits operate. Among its provisions, the bill would call for a commission to study $100,000 salary caps for employees at state-supported nonprofits, as well as research into whether lawmakers should ban the use of tax dollars for salaries.

The legislation also orders a study into whether public cash should be dedicated only for services. Furthermore, it charges the 10-member commission, appointed by state House and Senate leaders, with mulling "overlaps and duplication of services" among publicly backed nonprofits.

At press time Tuesday, the bill had been assigned to a House rules committee.

"For some reason, the nonprofits seem to be well paid. I want to find out why," says Catlin, who owns a Wilmington-based environmental engineering company.

Catlin says he initiated the bill after he learned nonprofits are legally allowed to use state dollars to pay up to $120,000 in annual salary to their leaders.

"I'm a business owner and I'm struggling," he says. "I'm having to let people go. It just doesn't sit well with me."

Rep. Paul Luebke, a Durham Democrat, says the subject is worth studying.

"It's important, however, that there not be bias in the study," Luebke adds. "The study shouldn't be done with the intent to discredit nonprofits. It should be a fair study."

Heinen says nonprofits are feeling the pressure, fielding numerous inquiries regarding staff salaries from legislative researchers in recent months.

Catlin, meanwhile, points out the legislation does not order any regulations, only creating a commission that will file reports with the General Assembly beginning in 2014. "They're going to have to convince me that it's necessary to pay them that much money," Catlin says. "They may be able to."

But nonprofit advocates such as Heinen, whose organization does not receive state funding, says skepticism from new lawmakers is nothing new. "They see a lot of money goes out to nonprofits from the state's funds," Heinen says. "They don't have a good sense about how it's used. There may be an assumption—and it's a wrong assumption—that it's not being spent well."

With the increased attention on nonprofit pay, Republican lawmakers have indicated a need for greater distinction between spending on services and executive pay.

Heinen calls it a "false distinction" to make such a division. "Much of salary is going to providing services," he says. "If you've got a food bank that is providing food to people in need, it's not like the services are just coming from volunteers. It's coming from staff too."

Margaret Henderson, a UNC School of Government faculty member and nonprofit expert, says it's key that lawmakers, if they are to reform the state's nonprofit dispersals, keep their efforts strictly analytical.

"In general with nonprofit funding, when the funding process is political, the accountability becomes political," Henderson says.

Catlin's legislation comes three weeks after the governor proposed a budget that bundles sharp cuts, about $85 million worth, for powerful economic nonprofits: the Golden LEAF Foundation, N.C. Rural Economic Development Center and the N.C. Biotechnology Center. The latter two were among the state-funded nonprofits with the highest-paid leaders, according to data provided by Catlin.

Rural Economic Development Center President Billy Ray Hall, whose organization specializes in economic strategies that benefit low- to middle-income residents in the state's rural reaches, is paid roughly $214,000 annually, more than half of which comes from state funds.

The Biotechnology Center, a Research Triangle Park-based organization tasked with leading the state's biotech development, includes at least nine executives with pay above $100,000. Eight of those executives' pay is more than 90 percent supported by state funds, data show. An additional senior vice president earns roughly $171,000, with 70 percent drawn from public coffers.

Other nonprofits cited by Catlin include the Biofuels Center of N.C., a group created in 2007 to grow the state's biofuel industry. The center counts two executives with pay above $100,000. Its president is paid $175,000 annually, nearly 70 percent of which is state-funded.

As a comparison to nonprofits not backed by tax dollars, Center for Nonprofits President Jane Kendall earned more than $187,000 in compensation and benefits, according to the organization's 2011 tax filing with the IRS.

Rural Economic Development Center spokeswoman Garnet Bass says leadership pay at high-dollar nonprofits should compare to executives at large corporations. "When you look at the salary, you should ask: Is that in keeping with the amount of responsibilities?" Bass says. "Is that in keeping with the amount of money they oversee?"

For example, executives at Quintiles, a Durham-based pharmaceutical company, earn $3 million to $8.8 million in annual salary and stock options, according to the Triangle Business Journal. Quintiles logged $4.8 billion in total revenues last year, with a net income of $177 million.

Bass says a potential ban on state-funded salaries would have dire consequences for her organization, forcing the group to eliminate grant programs intended to shore up rural economic initiatives and create jobs.

"Certainly they are free to study these issues," says Bass. "But what I can tell you is that right now we offer the state a very cost-efficient method for the services we provide."

If the study ultimately yields funding cuts for state nonprofits, the pain would be familiar to North Carolina charities. According to a 2011 survey by advocates at the N.C. Center for Nonprofits, more than 60 percent of nonprofits reported cuts in state grants in 2009, 2010 and 2011.

Furthermore, an October 2010 report from the left-leaning N.C. Justice Center found overall state funding for nonprofits plunged more than 25 percent in the 2009–2010 fiscal year, roughly 10 times greater than overall cuts in the state budget that year.

"Most nonprofits I know are operating at a fraction of what they were four or five years ago," says Henderson. "They're really doing a heroic job."

This article appeared in print with the headline "Charity case."

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