Lost revenue from mandated closures, cancelled fundraising events, depressed donations and burgeoning requests for services and financial benefits have threatened the survival of Pennsylvania’s nonprofits and fearsomely targeted higher education and health care institutions, social service providers and arts organizations. Anticipating the pandemic’s devastation of our charitable institutions, Stevens & Lee and its affiliates consulted quickly with the Pennsylvania legislature to develop Act No. 71 of 2020, signed into law by Governor Wolf on July 23, 2020. The new law allows nonprofits to increase the rate at which they spend their endowments for three years, and allows them and their donors to relieve restrictions on gifts indefinitely. It changes prior law in three respects.
In response to the economic devastation from COVID, the Act would increase the rate at which nonprofits may spend their endowed funds to as much as 10% per year for the current year, 2021 and 2022. This doubles the availability of unrestricted funds to institutions that historically spent them at 5% per year. The same result would be available to charitable trusts of which Pennsylvania nonprofits are the beneficiaries.
The second change was necessary to give scope to the first. Prior Pennsylvania law required an institution’s governing body, or the trustee of a charitable trust, to consider “the long-term preservation of the real value of the assets” in determining the annual rate at which charitable assets might be spent. If that were the only consideration, empirical data would not support a decision to spend at 10% annually. The Act adds the “organization’s need for capital to fulfill its mission” as a justification to reassess its spending rate for this and the next two years only. Doing so concedes that without money, no charitable mission is possible.
The third change would adopt a feature of the Uniform Law Commission’s 2006 Uniform Prudent Management of Institutional Funds Act, or “UPMIFA,” that allows donors and the institutions to which they have made gifts to renegotiate restrictions on those gifts without approval by the Attorney General or a Court. Examples of restricted gifts are those to provide scholarships and erect buildings. All states except Pennsylvania have adopted some version of UPMIFA. If the institution to which a restricted gift was made closes because it can no longer pay its bills, the donor’s intention will surely be frustrated. The Act would enable both donor and institution to re-approach restrictions upon a gift so long as the gift remains charitable and a court, if asked, would have authority to achieve the modification to which both donor and institution agree.
Court reformation of a restricted gift under the Attorney General’s supervision would remain available in all cases.
The Stevens & Lee Companies are proud of the role its professionals played in the development and passage of this innovative legislation. Our vertically integrated industry groups, including those covering both the higher education and health care sectors, are comprised of a diverse group of legal, financial and accounting professionals, among others, who are committed to providing sophisticated legal services, comprehensive strategies and creative financing solutions to our clients by proactively collaborating together.
The professionals in the Wealth Planning, Trusts and Estates practice of Stevens & Lee, one of whom serves as the Vice Chair of the Pennsylvania Joint State Government Commission’s Advisory Committee on Decedents’ Estates Laws, provided significant insight into the scope and provisions included in the drafted bill. Further, the Government Affairs group of Stevens & Lee leveraged its legislative relationships to ensure the inclusion of these provisions in the final version and lobbied for the timely passage of the legislation.
The Stevens & Lee Companies are presently working with the legislature to mitigate unemployment compensation liquidity related issues faced by Pennsylvania’s colleges and universities, as well as other legislation specific to the higher education sector, including two other pending bills in Pennsylvania, Senate Bills 1042 and 1043. These bills, if enacted, would create the “Student Loan Retirement Agreement Program” and “Higher Education Income Share Financing Pilot Program,” both of which are income share agreement programs that would be administered by the Pennsylvania Higher Education Assistance Agency (PHEAA) and would benefit the students and graduate residents of the higher education institutions in Pennsylvania.
The Stevens & Lee Companies have also recently partnered with Academic Innovators, a solutions based thought partner, to develop a series of complimentary webinars on strategic alternatives in higher education which will be released in the forthcoming weeks. The Stevens & Lee Companies and Academic Innovators will partner together on client engagements that may benefit from their complementary skills and expertise.
For more information about any of the Stevens & Lee Companies’ initiatives or to learn about how we can assist your institution, please contact C. Thomas Work or Jennifer L. Nevins of the Wealth Planning, Trusts and Estates team at Stevens & Lee, Mark J. Rosenstein of the Government Affairs team at Stevens & Lee, or Rebecca C. Delia, who leads the Higher Education vertical at The Stevens & Lee Companies.